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



 
   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED ELEVENTH CONGRESS
                             SECOND SESSION
                                ________
       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                   JOSE E. SERRANO, New York, Chairman
 DEBBIE WASSERMAN SCHULTZ, Florida  JO ANN EMERSON, Missouri
 ROSA L. DeLAURO, Connecticut       JOHN ABNEY CULBERSON, Texas
 CHAKA FATTAH, Pennsylvania         MARK STEVEN KIRK, Illinois
 BARBARA LEE, California            ANDER CRENSHAW, Florida    
 ADAM SCHIFF, California            
 STEVE ISRAEL, New York             
 TIM RYAN, Ohio                     
                                    
 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
           Lee Price, Bob Bonner, Angela Ohm, and Ariana Sarar
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 Internal Revenue Service.........................................    1
 Treasury Department..............................................   65
 Financial Crisis and TARP........................................  147

                                   S

                                ________

         Printed for the use of the Committee on Appropriations
                                 Part 5

   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011
                                                                      ?

   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED ELEVENTH CONGRESS
                             SECOND SESSION

                                ________

       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                   JOSE E. SERRANO, New York, Chairman
 DEBBIE WASSERMAN SCHULTZ, Florida  JO ANN EMERSON, Missouri
 ROSA L. DeLAURO, Connecticut       JOHN ABNEY CULBERSON, Texas
 CHAKA FATTAH, Pennsylvania         MARK STEVEN KIRK, Illinois
 BARBARA LEE, California            ANDER CRENSHAW, Florida    
 ADAM SCHIFF, California            
 STEVE ISRAEL, New York             
 TIM RYAN, Ohio                     
                                    
 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
           Lee Price, Bob Bonner, Angela Ohm, and Ariana Sarar
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 Internal Revenue Service.........................................    1
 Treasury Department..............................................   65
 Financial Crisis and TARP........................................  147

                                   S

                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 62-166                     WASHINGTON : 2010

                                  COMMITTEE ON APPROPRIATIONS

                   DAVID R. OBEY, Wisconsin, Chairman
 
 NORMAN D. DICKS, Washington        JERRY LEWIS, California
 ALAN B. MOLLOHAN, West Virginia    C. W. BILL YOUNG, Florida
 MARCY KAPTUR, Ohio                 HAROLD ROGERS, Kentucky
 PETER J. VISCLOSKY, Indiana        FRANK R. WOLF, Virginia
 NITA M. LOWEY, New York            JACK KINGSTON, Georgia
 JOSE E. SERRANO, New York          RODNEY P. FRELINGHUYSEN, New  
 ROSA L. DeLAURO, Connecticut       Jersey
 JAMES P. MORAN, Virginia           TODD TIAHRT, Kansas
 JOHN W. OLVER, Massachusetts       ZACH WAMP, Tennessee
 ED PASTOR, Arizona                 TOM LATHAM, Iowa
 DAVID E. PRICE, North Carolina     ROBERT B. ADERHOLT, Alabama
 CHET EDWARDS, Texas                JO ANN EMERSON, Missouri
 PATRICK J. KENNEDY, Rhode Island   KAY GRANGER, Texas
 MAURICE D. HINCHEY, New York       MICHAEL K. SIMPSON, Idaho
 LUCILLE ROYBAL-ALLARD, California  JOHN ABNEY CULBERSON, Texas
 SAM FARR, California               MARK STEVEN KIRK, Illinois
 JESSE L. JACKSON, Jr., Illinois    ANDER CRENSHAW, Florida
 CAROLYN C. KILPATRICK, Michigan    DENNIS R. REHBERG, Montana
 ALLEN BOYD, Florida                JOHN R. CARTER, Texas
 CHAKA FATTAH, Pennsylvania         RODNEY ALEXANDER, Louisiana
 STEVEN R. ROTHMAN, New Jersey      KEN CALVERT, California
 SANFORD D. BISHOP, Jr., Georgia    JO BONNER, Alabama
 MARION BERRY, Arkansas             STEVEN C. LaTOURETTE, Ohio
 BARBARA LEE, California            TOM COLE, Oklahoma            
 ADAM SCHIFF, California            
 MICHAEL HONDA, California          
 BETTY McCOLLUM, Minnesota          
 STEVE ISRAEL, New York             
 TIM RYAN, Ohio                     
 C.A. ``DUTCH'' RUPPERSBERGER,      
Maryland                            
 BEN CHANDLER, Kentucky             
 DEBBIE WASSERMAN SCHULTZ, Florida  
 CIRO RODRIGUEZ, Texas              
 LINCOLN DAVIS, Tennessee           
 JOHN T. SALAZAR, Colorado          
 PATRICK J. MURPHY, Pennsylvania    
                                    

                 Beverly Pheto, Clerk and Staff Director

                                  (ii)


   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011


                                    Wednesday, February 24, 2010.  

               FY2011 BUDGET FOR INTERNAL REVENUE SERVICE

                                WITNESS

DOUGLAS H. SHULMAN, COMMISSIONER, INTERNAL REVENUE 
    SERVICE
    Mr. Serrano. The Subcommittee will come to order. We 
welcome the Commissioner of Internal Revenue, Douglas Shulman.

                  Opening Statement, Chairman Serrano

    Before we begin, we want to express our most sincere 
condolences to you, the staff, and the families of the folks 
that were caught up in that horrible tragedy. There is very 
little that can be said at times like these, but please stand 
assured that if there is any assistance you need from us to 
deal with that particular issue, we stand ready to assist you.
    And please convey, on behalf of this Committee, to the 
employees of the IRS, that we support their work, that we feel 
their tragedy, and that we personally--I personally believe 
that no violent action against government employees can be 
justified, regardless of how anyone feels about any issue in 
this country.
    So before we begin today's hearing, and this is the first 
hearing of the year for us, we just want to convey that. And I 
turn to Mrs. Emerson.
    Mrs. Emerson. Let me also express my sincere sympathies, 
and please let all of the almost 100,000 IRS employees know 
that we are very impressed by their resilience in the face of 
such tragedy. And our thoughts and prayers are with the family 
of Vernon Hunter and all of the employees.
    Thank you.
    Mr. Serrano. Thank you. We welcome Commissioner of Internal 
Revenue, Douglas Shulman, back for his third appearance before 
the Subcommittee. The IRS employs more than 100,000 people, 
processes more than 140 million tax returns each year, and 
collects more than 95 percent of the revenues that fund the 
Federal Government.
    Recently, the IRS has also been involved in implementing an 
array of tax benefits containing last year's Recovery Act, in 
addition to preparing for the requirements of the annual tax 
filing season.
    What is still fresh in our minds is last week's tragedy at 
the IRS facility in Austin, Texas. Our hearts go out to those 
who were killed, those who were injured, and their families. 
This Subcommittee will do its part to ensure that the IRS will 
recover from the difficulties caused by the terrible event last 
week.
    In its fiscal year 2011 budget submission, the IRS is 
requesting $12.6 billion, an increase of $487 million, or four 
percent above fiscal 2010.
    I want to continue to emphasize the importance of the IRS's 
taxpayer service mission. Taxpayers who need information and 
assistance to deal with the complexities of the Tax Code should 
be able to come to the IRS for help. Good taxpayer service can 
lead to increased compliance and lower IRS costs in the area of 
enforcement. The IRS continues to provide assistance through 
its walk-in sites, partner organizations, and the IRS website 
and toll-free telephone hotline.
    I am pleased that in this budget request the IRS is 
attempting to address its problems in the area of telephone 
assistance, and to implement improvements to the IRS website. 
At the same time, I am disappointed that the budget proposes to 
reduce funding for grants to low-income taxpayer clinics and 
volunteer income tax assistance sites. Both of these programs 
have provided essential assistance to low and moderate income 
taxpayers throughout the country.
    The budget request also reduces funding for tax counseling 
for the elderly grants. However, I am pleased that the budget 
request continues the IRS enforcement initiative aimed at 
offshore tax evasion and corporate and high income taxpayers. 
The level of tax non-compliance in these areas continues to be 
a problem, and this initiative will help to address the 
problem.
    In addition, I greatly appreciate Commissioner Shulman's 
announcement last month of an IRS proposal to increase its 
oversight of paid tax preparers by requiring registration, 
testing, and continuing education requirements for preparers 
not already subject to oversight. Paid preparers are a 
prominent part of the tax system, and the vast majority of paid 
preparers are both helpful and ethical, but, as I have pointed 
out before, there have been many cases of scam artists who bilk 
taxpayers out of their money.
    We have also heard of incompetent preparers who do not make 
sure that people are able to get all of the benefits for which 
they are eligible. This has been a problem in neighborhoods, 
including my own in the Bronx, where the need for the tax 
benefits is greatest.
    The paid preparer initiative is very much needed and will 
go a long way toward helping taxpayers utilize these services. 
And I really thank you and congratulate you for that. I thought 
it was a bold step and one that was due.
    I look forward to a very interesting discussion today on 
these and other issues facing the IRS. Commissioner Shulman, we 
thank you for your testimony today. I would like to turn to my 
amiga--how is that? That will create--see, he is scampering all 
over.
    Mrs. Emerson. Instead of amigo, amiga.
    Mr. Serrano. Yes. There is a difference. Yes, it is amiga. 
Our ranking member, Mrs. Emerson.

               Opening Statement, Ranking Member Emerson

    Mrs. Emerson. Thank you, Chairman. Since this is our first 
hearing, I just want to say for the record that I enjoyed 
working with you and other members of the Subcommittee last 
year.
    Mr. Serrano. Thank you.
    Mrs. Emerson. Because we have jurisdiction over such a 
diverse group of agencies, many of which have a profoundimpact 
on Americans' lives and financial stability of our economy, it is good 
when we try to work in a bipartisan way. And I look forward to 
continuing that practice this year.
    I also want to say that, with the federal debt at more than 
$12 trillion, I sure hope we can work to find ways to minimize 
and reducing spending this year as we construct a bill that 
also safeguards the integrity of our nation's financial system.
    Welcome back, Commissioner Shulman. I really do appreciate 
your being here with all of the--your employees and their 
families on your mind. And it is important for all of your 
employees, too. Hopefully they know how deeply moved and how 
deeply you have been touched by this tragedy as well.
    Let me just start by addressing an issue that I know you 
are hard at work on, and that has to do with tax cheats, for 
lack of a better way of saying it. Over the last decade, 
surveys by the IRS oversight board have noted a general 
downward trend in the acceptability of cheating on your taxes.
    However, the 2009 survey reported an increase from six to 
nine percent of those who feel it is acceptable to cheat on 
their taxes a little bit here, a little bit there, and similar 
increases over the next few years of those who believe it is 
acceptable to cheat on their taxes may highlight a major 
problem. So hopefully we will be able to work with you to find 
ways to prevent people from accepting the notion that it is 
okay to cheat.
    As I have stated in the past, I am committed to making sure 
that you have all of the necessary resources to educate 
taxpayers on how to comply and identify those who have not paid 
their fair share, those who willfully file frivolous returns, 
or conceal assets at home or overseas. But I have to say, with 
our FY2010 deficit projected to be at $1.6 trillion, and 
deficit spending expected to continue throughout the next 
decade, I think it is really critical to review every single 
area of government spending.
    So I need to ask, probably more rhetorically at this moment 
in time than not, if a $487 million increase to the total 
budget is really necessary. I am grateful and appreciate the 
fact that you have proposed a number of cuts and efficiencies 
in the budget request, but I am interested to know if there are 
any additional areas that might be trimmed back as well, and 
look forward to your testimony.
    Thanks so much.
    Mr. Serrano. Thank you.
    Commissioner, we are ready for you. And after all of these 
wonderful things we have said about you, we now have to tell 
you that you have five minutes, and that the rest of your 
statement can go in the record, so that we can take time to 
grill you today.

               Statement of Commissioner Douglas Shulman

    Mr. Shulman. Thank you, Chairman Serrano, Ranking Member 
Emerson, members of the Committee. I am glad to be here to talk 
about our 2011 budget. Before I do, let me say a couple of 
things about the tragedy in Austin.
    As you know, a plane was intentionally flown into an IRS 
building targeting IRS employees. I just came back yesterday 
from Austin, and am going back down tomorrow. What I will tell 
you is what I told the employees. I am incredibly proud of this 
agency. Thousands of people have reached out to me from across 
the country, and (a) said they will do anything to support 
those employees who are traumatized--we lost a life--and (b) 
said that it is not going to deter them from their work.
    I tell folks that as a leader of a government agency, I 
stand on the shoulders of those who came before me, to try to 
improve the agency, to continue with excellence. We are all now 
going to be standing on the shoulders of a colleague who served 
two tours in Vietnam, and then died at his desk working for the 
IRS.
    We are going to stand on his shoulders and the shoulders of 
the people who are traumatized, and try to make this agency 
better. And I will definitely convey to the workforce your 
thoughts, and I very much appreciate them.
    Moving to the budget, I am very pleased that the President 
recognized the critical role we play in this country, both 
serving taxpayers and collecting the money needed to run the 
government. The unique thing about the IRS is that we have a 
positive return on investment, so investing in us actually 
brings more money in and it does have a net positive outflow.
    This budget recognizes that, but also recognizes the need 
to have a balance between service and enforcement, as well as 
technology and people investment, so we are investing in the 
long-term future, not just in next year.
    On the service side, we tried to balance all of the IRS' 
needs, from processing paper to dealing with people in person. 
We increased funding for telephone service, and we increased 
funding for the web, which meet the greatest variety of needs. 
And I would be happy to talk to you more about the issues that 
you brought up earlier around VITA and low income taxpayer 
clinics.
    On enforcement, we are continuing to focus on high income 
individuals, international evasion, and non-filers. This is a 
relatively balanced portfolio. We try to maximize impact, 
maximize deterrent effect across the entire economy, but do so 
in the least burdensome way to taxpayers while continually 
respecting their rights.
    On the modernization side, we have asked for an increase in 
our funding for our taxpayer database. I believe that by making 
this investment we will be able to have all individual 
taxpayers on a centralized relational database by the end of 
fiscal year 2011, meeting the promise of faster refunds, better 
service, and providing consistent information about what a 
taxpayer owes in our database. I think we are on a path to that 
promise that we set out to meet in the late '80s, and actually 
finish it with the funding in this budget. There is also 
judicious investments in people, so we make sure we have the 
workforce to do the job.
    Let me end by just saying there are a number of legislative 
proposals. A lot of the reason for our phone level of service 
going down and other things, is legislation being passed that 
results in us being given more and more responsibilities to 
both distribute money and collect taxes. We have asked for some 
legislative authorities that will actually allow us to better 
collect taxes, better serve customers, and better do our jobs.
    Let me just highlight three. One is repealing the 
requirement of a partial payment when you try to get an offer 
in compromise, especially in these difficult economic times 
with high unemployment. We do not think people who want to 
settle their tax debt should have to pay a 20 percent 
downpayment. They should be able to come in, and we should be 
able to settle their tax debt with them and get them to pay 
what they owe.
    Second is a proposal relating to Section 530 of the Tax 
Code, which would allow us to create more certainty for small 
businesses, large businesses, and individuals about whether 
they are an independent contractor or an employee. And, third, 
there are a variety of international proposals in the budget 
that will help us do our job better, including support for a 
bill that is before Congress right now, which is called FATCA, 
which gives us better tools to detect non-compliance by those 
hiding money overseas.
    So, Mr. Chairman, this concludes my oral testimony. I would 
be happy to answer questions.
    [The prepared statement of Commissioner Douglas Shulman 
follows:]

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                         TAX RETURN STATISTICS

    Mr. Serrano. Thank you so much. Let me ask you a question. 
Does the agency have any information on how many tax returns we 
get in the country?
    Mr. Shulman. Give or take, 140 million individual returns 
annually.
    Mr. Serrano. Okay. And of those, do we know how many folks 
prepare it themselves, how many have an accountant, and how 
many just go somewhere other than an accountant?
    Mr. Shulman. The last year for which we have the data 
analyzed and collated is '08. About 60 percent of people used a 
preparer, some form of a paid preparer. About 20 percent used 
software packages, so they were doing it themselves with the 
assistance of technology. And then, about 20 percent just do it 
themselves on their own.
    What I will tell you is, interestingly, the numbers are on 
the rise around people who do it themselves and file directly 
on the Internet. We have a horrendously complex tax code, but I 
believe we should have as many people as possible able to file 
themselves and do it for free. And so that is why we have a 
variety of outreach. We prepare millions of returns between us 
and our partners.
    We also put online a web application that allows you just 
to fill out the form and the application does the math 
calculation for you. It does not go as far as the software, 
which guides you through your answers. And so I think more and 
more people are trying to do self-service. I would be happy to 
talk later about the return preparer initiative, which is 
incredibly important because of those 60 percent of people that 
are getting service from a return preparer, which is also 
affecting their compliance.

                        PAID PREPARER INITIATIVE

    Mr. Serrano. Right. And that was my question. It was a 
lead-in to the fact that I commended you for the position you 
took, and you noted in your written statement that the IRS is 
increasing its ``knock and talk'' visits with tax preparers 
this year. What are the specific steps that will be taken over 
the next year to begin implementing the paid preparers 
initiative?
    Mr. Shulman. The preparer initiative has multiple 
components, and the goal is, really, to make sure preparers are 
providing people good service and making sure preparers are 
helping us make sure people pay the right amount of taxes. So 
it is a compliance and service initiative.
    People are going to register, take a test, and make sure 
they are prepared through continuing education. We are going to 
have a database once everyone takes the test, so the public can 
look and say, ``Am I using a registered preparer?'' And then, 
we are increasing enforcement.
    This is going to be a multi-year effort. We estimate about 
a million people are preparers, and so to implement this kind 
of regulatory regime for the preparer community is not an 
overnight thing. This year we sent out 10,000 letters reminding 
people of obligations, and we stepped up calling people and 
saying we were going to come talk to them, make sure they were 
doing things right, audit preparers, etcetera.
    And so that effort is happening right now, and ``knock and 
talks'' include calling them and telling them, but also some 
undercover visits where we suspect fraud.
    We are going to get guidance out this year. Our goal this 
year is to get everybody to have a preparer number, so we can 
start tracking them. Our goal next year is to start the testing 
regime and let everyone have about two years to test in and be 
a preparer, and also next year to start pushing out continuing 
education.
    And so within three years, the initiative will be fully 
implemented. Anyone providing any peparation service will have 
been tested and be in a database available for the public. It 
is our goal, but this is all very fluid. One of the things I am 
committed to is a very open process for this initiative. We 
held public hearings. We have talked to people. We signaled 
what we were going to do. We took comment. And so we have 
listened to taxpayers, we have listened to consumer advocates, 
we have listened to the preparer community, and we are trying 
to make this a smooth transition to ultimately help the tax 
system.
    The last thing I would say is that this initiative is 
potentially the most transformational step that we will take 
while I am here to really increase compliance and service. What 
we are really doing is saying let us make sure those million 
people who are part of the overall tax system are qualified. 
And if we are going to have a complex tax code where people 
have to go to preparers, let us make sure they are part of the 
overall solution to serving Americans.
    Mr. Serrano. Right. You know, with that in mind, we all 
come to Congress bringing with us our likes and dislikes, those 
things we feel strongly about, and those things that make us 
nervous. I may be totally off base here, but I tell you, it 
makes me nervous to see in my district a person dressed in a 
Statue of Liberty outfit handing out cards, saying down the 
block, ``We will prepare your taxes for you.''
    Now, in a way, that is a contradiction to who I am, because 
the person who is dressed in the suit is probably otherwise 
unemployed, and that is the job they have. And the people who 
are taking the card to go see that preparer cannot afford to go 
to where I go or to where JoAnn goes to get her taxes done, or 
do not have access to a computer, or would not even dare try to 
fill out their own.
    So, in a way, I realize that as I am making this statement 
I am kind of contradicting myself, because I am commenting on 
the very people that I know somewhat about the condition they 
find themselves in. But paying your taxes, filing your taxes, 
to me is one of those issues that is very serious.

                    EARNED INCOME TAX CREDIT AUDITS

    And the whole idea of a circus attitude around it makes me 
nervous, so I support anything that happens in the direction of 
finding out whether the person who taxpayers meet after they 
walk through the door is qualified to give them the best 
assistance. That is something that you will get a lot of 
support on from this Committee and from this Chairman, because 
it just makes me nervous that we are heading towards a major 
problem, which leads me to the next point, and that is, as you 
recall when we first met, my biggest complaint was the fact 
that--what was it, 44 percent of all the audits were being 
conducted on 17 percent of the taxpayers? Which were the--if I 
have got my numbers right, the EITC folks?
    And I suspect that a lot of the EITC issues were not 
necessarily harassment by the IRS, but the people who were 
preparing these forms. What was there, intentionally or 
otherwise, that caused so many audits?
    Mr. Shulman. You and I have talked a number of times about 
EITC. It is a tricky issue, because in one respect, we are 
incredibly proud that the IRS is part of the process of putting 
out about $50 billion a year to help raise people out of 
poverty, about 24 million people. But when there is a large refundable 
credit, there is also opportunity for fraud.
    I think you hit the point right on, which is a lot of fraud 
is happening not because the taxpayer is intending to defraud, 
but they go to unscrupulous preparers who help coach them 
through. They say, ``You can get more EITC if you have a child 
living with you for six months,'' and so the taxpayer says, 
``Well, they were with me five months.'' And the preparer says, 
``Well, why not just put down six months and you can get a 
bigger refund?'' and then these people get a refund 
anticipation loan and it all churns.
    We have, over the years, had a steady number of EITC 
audits. The have gone down as a percentage of overall audits, 
because we have been increasing the number of audits, for 
instance, in the last five years, on millionaires. And we have 
increased the audits on people earning over $200,000. We have 
not increased EITC audits.
    With that said, EITC audits bring in or save, because we 
stop money before it goes out--about $3 billion a year. And so 
our main focus is to keep it steady, to not unfairly target 
people who get EITC, but in the same respect, have a decent 
coverage rate because big refundable credits are where there is 
often incentive for fraud. And then, the preparer strategy, we 
think, is a cornerstone to reducing that fraud and error, 
because error is a big issue with EITC. It is a 68-page form. 
It is incredibly convoluted.
    And so part of this initiative is educational outreach, and 
our whole EITC program is all about maximized participation, 
minimized fraud. As with a lot of things we do at the IRS, we 
have got to get that balance right, and that is what we try to 
do.
    Mr. Serrano. Thank you.
    Mrs. Emerson. You know, let me mention something 
interesting. I recently, probably two weeks ago now, did a--had 
all of my community organizations come in and we actually did a 
taxpayer clinic with a lot of these community-based 
organizations and some of the organizations that actually do 
free computer--you know, like Intuit and, well, the TurboTax 
people and all those folks, just to help train some of these 
folks to then assist their clients who would be able to claim 
the EITC.
    And one of the interesting things that we did talk about, 
too, though, are those refund anticipation loans which I hate. 
It is like going to the payday lender and getting all sorts of 
outrageously high interest rates and, in essence, you know, 
those companies are ripping off the people who, you know, need 
that short-term help. But hopefully through your business 
systems modernization, and other services that you are able to 
provide, will make the refund so much faster that they do not 
have to get those anticipation loans, because I do not like 
that whole concept, just because they have to pay so much 
interest.

                       TELEPHONE LEVEL OF SERVICE

    I wanted to ask you a little bit about the telephone 
service. And if I could, just because it is such an important 
part of your mission, just looking at the figures, between 
FY2007 and FY2008, the level of phone service plummeted from 82 
percent to 53 percent. And we have been told that was 
attributable to all of the demands placed on the agency by the 
passage of nearly 50 new tax provisions, of course that we 
imposed upon you all from Congress.
    But in looking at this year's budget request, your goal is 
to get from 71 to 75 percent, which I do not find particularly 
exciting. I mean, it does not seem to me for $20.9 million that 
four percent of an increase is enough of a stretch I guess. I 
would think that we would want to expand the phone service a 
little bit better.
    But does not it make sense that if we want to improve tax 
compliance then the phone service should be a guaranteed avenue 
available to all taxpayers to get their answers? Are you 
comfortable, or do you find 75 percent acceptable?
    Mr. Shulman. No. I am glad you asked me about phones 
because there has been a lot of focus on it. Let me just start 
by saying I am not happy where we went, but let me also put it 
in context. We were hitting the 80 percent level of service. 
Let me explain what level of service is because 80 percent 
level of service does not mean 20 percent are not getting 
through, which is important. But we were hitting our level of 
service internal numbers for a number of years when we were 
getting about 65 million calls a year.
    When we sent out the stimulus checks we went from 65 
million to 150 million calls that year. Last year, as we were 
cleaning up from the stimulus checks and implementing the 
Recovery Act, we had about 100 million calls. And so, while 
this one number everyone has been focusing on--level of 
service--has been dropping, we have been answering five million 
more calls every year.
    Telephone level of service is a composite number that 
includes people who get through, people who cannot get through, 
and people who voluntarily hang up. And one new feature we made 
available is estimated wait time. If you call at peak season, 
first week of April, first thing in the morning, you are going 
to have a longer wait than if you call later in the evening or 
you call at a different time.
    We put a wait time on the phone lines, which was a service, 
so you tell taxpayers it is going to be a six-minute wait to 
talk to an assistor. And if someone does not have six minutes, 
he or she hangs up and calls back at a different time.
    If you look at last year, our 70 percent number, and you 
take away people who hung up within three minutes, because this 
is the first time it ever said it would take this long, that 
number went up to 79 percent. And so included in there is what 
we call voluntary disconnects.
    I will also tell you the phone calls are taking longer, 
because the tax law is getting more complex. There are a bunch 
of new tax laws in place. We are doing a lot of Recovery Act 
calls, and so that is important.
    And the last thing I would say before I answer your 
question directly about the 75 percent is look at the main 
service number, which is the American Customer Satisfaction 
Index. Again, it is not how many people are happy, but it is 
what is the taxpayer experience with filing, phones, walking 
in, Internet.
    So it is really looking at all of our channels, not just 
one of our channels. That score actually jumped this year from 
68 percent to 71 percent, so we continue to make it easier for 
people to deal with their taxes. But the phones are an issue.
    The reality is demand is driving these numbers, and so we 
are going to answer more calls this year than we answered last 
year, and we are going to answer more calls next year than we 
answered the year before. We are anticipating more calls than 
before.
    My goal is to next year, in '11, get it back up to 75 
percent, but we have those wait times, so it is well over 80 
percent if you take away the people who are hanging up right 
away. We will keep driving that back up to historical levels. 
Hopefully we do that by getting back to historical levels of 
tax changes every year, as well as helping drive demand down.

                    TAXPAYER SERVICE FUNDING LEVELS

    Mrs. Emerson. Well, I hope so, too, because since we are 
giving, you know, a fair--I used to think that $20.9 million 
was a lot of money, but as we start using the ``trillion'' word 
somehow it does not seem quite as high as it used to. But, 
nonetheless, hopefully you will be able to achieve those goals.
    And let me just mention, too, because Joe did as well, the 
VITA services that you all provide have been tremendously 
helpful in my district, and I actually went on a couple. Have 
you ever been on one? They are great. To go with--to go to like 
a senior center and have the voluntary--the tax preparers 
there. And it is hugely popular, and I just would like--I am 
not happy with the amount of money for that service being cut, 
and hopefully, Mr. Chairman, you will be able to figure out how 
to add some more back, so that the Commissioner----
    Mr. Serrano. Is this without adding to the deficit, or 
what?
    Mrs. Emerson. I am sure we could take a little bit from 
here, but we do not----
    Mr. Serrano. I know.
    Mrs. Emerson [continuing]. Want to have to ask the 
Commissioner to say bad things about OMB.
    Mr. Serrano. Right.
    Mrs. Emerson. All right. I will stop there and----
    [Laughter.]
    Mr. Serrano. Thank you so much. And, by the way, I was 
unpopularly trying to be funny.
    Mrs. Emerson. I know.
    Mr. Serrano. But you are right, there are services that 
should not be considered part of a concern about how we spend 
money, because those services have to be there.
    I am supposed to make a statement right now, since it is 
the beginning of our second season of hearings, for members to 
stick to the five-minute rule. But I am not worrying too much 
about it, since I broke it at the beginning.
    Ms. Lee.

                  OPENING STATEMENT, CONGRESSWOMAN LEE

    Ms. Lee. Well, thank you very much. You are a very fair 
chairman. And thank you, it has been a pleasure being on your 
Committee. I think last year was my first year on the 
Committee, and it has been very enlightening and very helpful 
for me and my district, so thank you, Mr. Chairman.
    Mr. Serrano. You are quite welcome.
    Ms. Lee. Good morning, Commissioner Shulman, and let me 
just thank you, first of all, for your testimony, also for your 
service during this very challenging period.
    And I want to also associate myself with the remarks of my 
colleagues. My sympathy goes out to the family and members and 
staff of the IRS, and to yourself, and just know that we all 
stand to help you during this very tragic period in anything 
that we need to do to help your family, our family, move 
forward.
    Mr. Shulman. Thank you very much.
    Ms. Lee. I want to also just thank all of the dedicated 
staff for rapidly and efficiently putting into place some of 
the very vital tax breaks for working families that the 
Congress passed and the President signed during the height of 
the economic crisis.
    I know that many of the provisions have really directly 
impacted the work of the IRS, like the homeowners tax credit, 
the make work pay credit, and the extended child tax credits, 
as well as the COBRA extension. Your leadership and the work of 
your staff really has ensured that taxpayers were able to take 
advantage of these vital programs during the downturn that 
really did help stabilize the economy and helped to reduce the 
terrible impact of this financial crisis.
    The ongoing recession, rising unemployment, this means that 
millions of Americans continue to face the harsh reality of 
living in poverty. The work of the IRS to rapidly follow 
through on implementing the credits and other initiatives that 
the President, you know, put forth, that has kept untold 
families out of poverty, those hanging right on the edge, and 
also has provided vital assistance to families who find 
themselves facing the brunt of this economic crisis. So I have 
to thank the IRS for that.
    Oftentimes we do not focus--at least many in my district do 
not focus on the positives of the IRS. The IRS sometimes 
becomes a very difficult agency for many people to deal with, 
but I think they have seen a different side of the IRS during 
this very serious economic downturn.
    I want to ask you--well, first of all, I am glad that you 
are getting Americans to file taxes electronically and 
streamlining the filing process and the refund process. I also 
support the increased funding that the IRS requests for 
business systems modernization, and it is my hope that 
strategic investments in these systems will make tax time more 
efficient for the IRS and the American taxpayer.

                          READY RETURN PROGRAM

    Now, in California, which is my home state, we have a 
program called Ready Return where the state sends a pre-
populated or pre-filed--pre-filled tax return to tax filers, 
and they are very simple, these returns. Taxpayers then just 
simply review the form for errors, and, if everything is 
correct, they just sign it and mail it in. And I believe the 
President has supported the possibility of a pro-populated 
return as--a pre-populated return as well.
    I think that the IRS could save a lot of money if you 
implement this national Ready Return Program. It will save 
time, it will increase compliance, it will make tax season 
really a lot less painful. And so I would like to know if you 
looked at that. Do you think that makes sense? And how can we 
help if it does?

                         TAX EXPENDITURE CHART

    And then, secondly, let me just say I think it would really 
be an important public service to provide the American taxpayer 
a breakdown of how much of their tax dollars go to programs 
like housing, education, science, technology, transportation, 
infrastructure, health care, defense.
    And I would like to ask you, and I would like to ask the 
chair, if we could consider including a detailed graph or chart 
of how the United States--how our government spends tax dollars 
with each tax form distributed by the IRS, you know, maybe a 
pie chart or some kind of a graph or something that really 
shows the taxpayer how their money is being spent.

            BUSINESS SYSTEMS MODERNIZATION AND READY RETURNS

    Mr. Shulman. On a couple of the points you raised, one is 
thank you for your support for BSM, our business systems 
modernization. I have run big technology projects outside of 
the government, and coming in I saw the IRS had some missteps 
in the '90s around its modernization, butfor an agency that 
interacts with 140 million individual Americans, not to mention all the 
non-profits and businesses, and processes, two billion information 
returns, crunches huge amounts of data, I think we have underinvested 
in our technology over the years. And so getting us back on a prudent 
path makes sense.
    I also think that modernization is linked to any concept of 
pre-populated returns. A lot of what this investment is is 
getting us to the point where we have all of the data on the 
taxpayer in one place. It is getting this relational database 
done.
    And so we certainly have looked at and are very familiar 
with the California Ready Return example. I think there is a 
question of how many people would be eligible, because I 
understand the California program is for single people who take 
the standard deduction who only have wage income. There is a 
set of criteria around it, and so it is not 140 million 
eligible people.
    But, you know, I think our goal is to get this 
modernization done, and then really open our eyes and say, 
``How can we better service taxpayers once we get this 
investment over the goal line?''

                         TAX EXPENDITURE CHART

    On the chart idea, it is very interesting. I tell people 
that people say, ``Oh, you are the tax collector.'' And I say, 
``Yes, well, that is our moniker, and that is what the IRS 
thinks of, but we are also the people who make it possible to 
have national defense, and to have environmental protection, 
and to have whatever else you want the government to do for 
you.''
    And so communicating that kind of a message is a big part 
of what I try to do as a leader of the IRS. I will not speak to 
the specific proposal. I view it as probably a broader policy 
call whether you want to tell people exactly where their tax 
dollars are going, but I know you directed that to the 
chairman. [Laughter.]
    Ms. Lee. Thank you very much. But also, Commissioner, I 
would like to just hear your feedback, and thank you for your 
feedback.
    But, Mr. Chairman, I would like to talk to you and our 
ranking member about that, because I think the more 
transparency taxpayers have about where their tax dollars go 
the better equipped taxpayers are, you know, to really 
communicate to us what they think about our priorities.
    Mr. Serrano. Thank you so much. As the saying goes, you 
collect it, we spend it. [Laughter.]
    Mrs. Emerson. And then spend and spend.
    Mr. Serrano. Please stop. [Laughter.]
    We are very frugal on this Committee.
    Every time that we have a hearing I ask my staff, are we on 
TV? And I want to tell you the reason is because I love that 
tie, and that tie should be on TV. [Laughter.]
    Mr. Crenshaw.
    Mr. Crenshaw. Thank you, Mr. Chairman. I like your tie, 
too.
    Mr. Serrano. Thank you.
    Mr. Crenshaw. Yes, it is a nice tie.

             TAX GAP, INVESTMENTS AND RETURN ON INVESTMENT

    But thank you for your service in the difficult times, and 
thank you for your testimony today. I wanted to ask you about 
this so-called tax gap. You know, it has to do with compliance 
I guess. I mean, everything I understand about compliance is 
that either people--they underreport their income or they do 
not pay all their income, or they just do not even file a 
return.
    But most of the non-compliance, as I understand it, is just 
underpayment. And everything I read that--for every dollar you 
collect you miss maybe $15 or $20, that the so-called tax gap 
is about 15, 20 percent of the overall tax revenues. And if 
that is the case--and you can comment on that--but if we 
collect, let us say I guess, $2.7 trillion, you figure it up, 
then maybe--and I have read that the tax gap is about $350 
billion, which kind of fits, about 15 percent of that $2.7 
trillion, I just wonder--and I guess from time to time we have 
all heard some of our colleagues, you kind of use the tax gap 
as kind of a piggybank. And they say, ``Well, I have a new 
program. It costs $50 billion. So if we just spend a little 
more money on enforcement, then we will get $50 billion.''
    And in your budget, you have got almost $6 billion, almost 
half the money you spend you spend on enforcement. And so I 
have always been curious about that. Number one, how do you 
kind of determine what that tax gap is? How do you decide that 
this year's ballpark is going to be $350 billion, or whatever? 
And then, number two, how do you decide--I mean, obviously, it 
is not that simple, because if you say--if you appropriate $6 
billion, then the tax gap will only be $350 billion, which is a 
lot of money, and somebody would say, ``Well, why do you not 
ask for $12 billion, and then the tax gap maybe would go down 
by half, $175 billion, and that is money well spent.''
    So I guess it is not that easy, or you would just say, 
``Give us more money for enforcement, and we will eliminate the 
tax gap altogether.'' So talk about that. How do you kind of 
figure out what it is? And then, how do you decide how much 
money you want to spend on enforcement? For every dollar you 
spend, you know, is that money well spent in decreasing that 
tax gap?

                                TAX GAP

    Mr. Shulman. Let me try to address it in a number of ways. 
The tax gap is basically the voluntary compliance rate in the 
country because we have a voluntary tax system in general. We 
are not going in to everybody and taking the money before you 
ever have it. Generally, people get their money, and they fill 
out a tax return themselves, and they send it in. Then we have 
audit coverage, we have programs, et cetera.
    The tax gap number to which you are referring, I would say 
is imperfect. It is very hard to say what it is. You know what 
you get. It is hard to figure out what you do not get. The way 
we do it is through a National Research Program. Usually when 
we do an audit, we go and do it because there is some 
indication of error or fraud. We have a variety of formulas and 
algorithms that point us in the direction of places that it 
would be fruitful to do audits, as well as doing some 
geographic coverage and industry coverage, so people know that 
in general, they are just not going to get off scot-free.

                       NATIONAL RESEARCH PROGRAM

    To study the tax gap, we actually have a program called the 
National Research Program, which does random audits. So instead 
of going and doing an audit and finding out how much someone 
really owed because we had some indication to conduct an audit, 
we audit people where we have no indication of issues and see 
what that spread is. And, as you said, the gap runs about 16 
percent, but we then bring in about two percent, so it runs 
about 14 percent.
    There are only five other countries that try to measure 
their tax gap, and generally it is all about the same as ours. 
There is some level of noncompliance, and it depends on how 
your society runs: how much cash economy you have, how much 
information you have. I have told a variety of people, there 
are some Nordic countries where you are born and you are given 
a number, and you have that number in the hospital, and that is 
your number at your school, and that is your number for your 
health care, and that is your number for your employment, and 
there is a lot of tracking.
    That is not how our society works. We do not have as much 
government intervention. You could go in a different direction 
and probably narrow that gap.

                         LEGISLATIVE PROPOSALS

    Half of the money we bring in, we bring in from people who 
pay their wages by having taxes withheld at the source. So half 
the taxpayers are 99 percent compliant. So your schoolteachers, 
your firemen, your policemen, we get their W-2, they get their 
W-2, their employer withholds taxes, and there is no 
noncompliance.
    Almost all of the noncompliance in the tax gap comes where 
we do not have third party information or there is no 
withholding. And so a lot of the thrust of where you have seen 
my major initiatives and the administration's initiatives over 
the last several years, supported by President Obama and the 
Secretary and others, are around information reporting, better 
information reporting for us, so that we are less intrusive. So 
we are not doing audits, as much as we are matching information 
and sending a letter that says, ``We see a mismatch.'' And 
there are a bunch of proposals in the President's budget.
    For international compliance, where money crosses the 
border and you do not see it, it disappears, we are asking for 
some information on cross-border transactions, as well as 
heightening the responsibility for banks to give us information 
on their clients once they leave the country.
    Then, we have this preparer initiative that the Chairman 
was talking about, again, enlisting them to help us do our job. 
In this budget we have roughly $300 million of pure enforcement 
investment. That is going to return $2 billion. We do audits, 
we get money from that effort. The deterrent effect is much 
higher than that, and we do not try to, especially for 
Appropriations Committees and budgets, say exactly what that 
is.
    But if we are focusing on high income individuals who have 
non-reporting, the word is going to get out there. So we are 
going to get a certain amount in the audits, but we are also 
going to deter noncompliance. But a lot of the future to get 
the real money in the tax gap is some of these much broader 
programs, from information reporting, the preparer initiative, 
and some of our international strategy.
    But I think there is a real tradeoff. You are never--I do 
not think you want a society where there is no tax gap because 
it means the government is so intrusive. I am the IRS 
Commissioner and I think it is a balance between how intrusive 
the IRS is, how much burden is imposed, and bringing in the 
money. And we try to balance all of those along the way.

                  RETURN ON INVESTMENT AND THE BUDGET

    Mr. Crenshaw. Just one quick followup. There is really not 
any empirical data, like if you spend an extra dollar--when you 
decide you want--like you said, it is not only enforcement 
money, it is a lot of the other programs, so that you really 
cannot quantify, say, ``If I just had $1 million more to spend 
on enforcement, I could pick up an extra X dollars.'' It is not 
really that sophisticated.
    Mr. Shulman. Oh, no. We absolutely can do that.
    Mr. Crenshaw. Then, why do you say, ``We want $5.7 billion 
for enforcement,'' and not say, ``We want $6 billion,'' which 
is another $300 million which might get you, you know, more 
than you spent.
    Mr. Shulman. I mean, I think you have to balance the 
investment with capacity. And so we have rough orders of 
magnitudes. When we bring people on, it actually takes three 
years to get them fully up and trained and productive. We have 
to take our best people offline to recruit and analyze if we 
are getting a good person who can do financial forensics, who 
has an accounting degree.
    Then, we take good people offline to do training. So a lot 
of this decision is about capacity. I mean, this is basically 
what we think we can handle. What you really want to do is a 
multi-year investment that is somewhere in this range over 
multiple years and buildup. If you gave me $1 billion and said, 
``Hire a bunch more agents next year,'' I would say, ``I do not 
want that,'' because I have got to run the operation, I have 
got to have my exam coverage this year.
    I think the way we came up with this $300 million is, how 
do we invest money to make sure we are part of bringing down 
the deficit, collecting the money that is due? What is a 
prudent investment, given what was invested last year? What are 
the other priorities of the agency?
    But this revenue-producing enforcement money, we have 
formulas, and they are heavily vetted between OMB and CBO. They 
have done a 10-year look-back. They have said, ``What have we 
brought in based on what has been invested?'' And so the pure 
enforcement numbers are very clean, and we know thaton average 
it is about a seven-to-one investment.
    What is harder to quantify is BSM, our business systems 
modernization. I can guarantee you that is going to help 
compliance. There is going to be better service; there is going 
to be better enforcement. It is very hard to get a number that 
the budgeteers around Washington and the analysts will all 
agree on. The preparer strategy is going to bring in money.
    Those investments do not have return on investment attached 
to them in the submission because we do not have the 10-year 
history around them. That is part of the trick of how do you 
run an agency? How do you make bets on the future? How do you 
keep getting better every year in a world in which throwing a 
dollar at an examiner is the thing that you know returns the 
investment but you have still got to move the agency forward?
    Mr. Crenshaw. Thank you. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you. I want to take this opportunity to 
inform the Committee that David Reich, our Committee Clerk last 
year, is now the Committee Clerk for the Labor-HHS 
Subcommittee. And Mr. Lee Price, this very studious-looking 
gentleman watching over my shoulder here, is our new Committee 
Clerk. And he has promised, Mrs. Emerson, singlehandedly to 
make sure our bill gets through the Senate as a stand-alone 
bill. [Laughter.]
    Mrs. Emerson. And come to the House floor?
    Mr. Serrano. Oh, it will come to the House floor. It will 
pass. I mean, but then no omnibus bill. You know, there will be 
a signing ceremony for you and I to attend.
    Mrs. Emerson. And in return?
    Mr. Serrano. In return, I just told a lie. [Laughter.]
    Welcome. Welcome aboard.
    Mrs. Emerson. Welcome, Lee.

               EFFECT OF COLLECTION ACTIONS ON TAXPAYERS

    Mr. Serrano. Commissioner, the IRS taxpayer advocate, in 
her most recent annual report, argues that the IRS too often 
does not consider the impact of its enforcement actions on low 
income taxpayers. In particular, the taxpayer advocate argues 
that IRS lien filings are too often counterproductive, damaging 
the taxpayer's credit score and thus harming their ability to 
find employment, making them less able to pay their tax debt 
and future taxes, obviously, if they are not working.
    How does the IRS respond to this concern? And, secondly, 
why does the budget propose a five percent cut in funding for 
low income taxpayer clinics, which help low-income taxpayers 
who experience difficulty as a result of an IRS enforcement 
action?
    Mr. Shulman. Collection is one of the most difficult things 
we do because, obviously, Congress expects us to collect the 
taxes owed. If people are in a collection situation where they 
have not paid their taxes on time, or they have said they are 
not going to pay and we need to go find them, it is also where 
we need to be incredibly sensitive and respect taxpayer rights. 
We need to make sure that we are not doing anything that overly 
burdens someone while we are doing collections.
    The history of the IRS is collection efforts is something 
that is expected of us. It is not easy to do. It is one of the 
toughest jobs at the IRS, but we try to do it with balance.
    For low-income taxpayers, I am very focused on going the 
extra mile, especially in this last year where people were 
trying to make decisions such as, ``Am I going to pay for my 
medical expense? Am I going to keep my kid in college? Or am I 
going to pay my taxes?'' I mean, Americans were making some 
unprecedented decisions, given the economic downturn.

                         COLLECTION FLEXIBILITY

    We gave our collectors extra flexibilities. We raised the 
threshold number where they could make judgments that someone 
could not pay. We let people skip payments if they previously 
were compliant taxpayers. We allowed people into offers in 
compromise programs. If their home equity was the only thing 
staying in the way, we let people subrogate liens if they were 
refinancing houses. And so we did a lot of extra special things 
to try to help people through this difficult time, while 
collecting the taxes owed.
    As to the report that came out from the Taxpayer Advocate, 
because we are the IRS, we touch every American and it is very 
healthy for our agency to have lots of people pushing and 
prodding from different angles.
    With respect to liens, one, I will tell you I am looking at 
that report and assessing what, exactly, we are doing and if we 
should take any of her recommendations. Two, liens are an 
authority that Congress gave us, and it protects the American 
taxpayers' interest. It protects the public, the FISC, the 
whole government's interest. We try to use those judiciously.
    I am looking at the report. I think lien authority is a 
tool we are given, we are expected to use it, we need to 
collect the money that is owed. But we want to do it in a way 
that gets us the money that the government is owed, but does 
not hurt taxpayers, if we can help it.
    Mr. Serrano. Do you have a schedule at which time you will 
say, ``We looked at the report, and now we will either take 
some actions, make some changes based on the report, or ignore 
it?'' And I am not being sarcastic, but, you know----
    Mr. Shulman. Yes.
    Mr. Serrano [continuing]. A point where this Committee 
would know what happened to that report in terms of your 
actions?

                       COLLECTION PROCESS REVIEW

    Mr. Shulman. Yes. I am a big fan of continuous improvement, 
and I challenged our leadership to not get complacent and to 
keep looking freshly at things and seeing how the program 
evolves. I have asked our new Deputy Commissioner for Services 
and Enforcement to do a thorough review of collection, taking 
input from Congress over the last several years, taking input 
from the GAO, taking input from the Taxpayer Advocate's report.
    And so they have started taking a broad look at collection, 
and this is part of the mix. That review is going to be done in 
this fiscal year, and then we will see how to evolve the 
program.

                          OFFSHORE INITIATIVE

    Mr. Serrano. Okay. One further question here. Last year the 
President requested, and the Congress provided, funding to 
enhance the work of IRS enforcement aimed at the offshore tax 
evasion schemes. What can you tell us about the progress the 
IRS is making in hiring the additional personnel to address 
this issue?
    Mr. Shulman. Last year the President gave us 800 new people 
for international enforcement. This year for FY11, he has 
requested funding again. We are well on track to hit those 
goals. This area is a priority of mine, it is a priority of the 
President, it is a priority of the Treasury Secretary, and so 
we are going to keep focusing on that.
    Some of that money is going towards agents who are pursuing 
individuals hiding assets offshore. Some of that money is going 
to make sure that we have specialists who can identify 
corporations when they do things like transfer pricing, 
transfer of intangibles, financial products. We have 
economists, financial specialists, lawyers, who we can match up 
with business, which is getting more and more global.
    On the international individual noncompliance we have made 
much more progress. I am very pleased with our progress there. 
We have gone much further than I think our team would have 
imagined a year and a half ago when we started down this path. 
We had a ground-breaking deal with UBS, in which the Swiss 
government made some agreements with us that they had not made 
in the past.
    We ran a voluntary compliance program or a voluntary 
disclosure program, in which we told people the U.S. Government 
is beefing up enforcement and getting very serious about 
offshore tax evasion. The risk of being caught has just gone 
up. We are going to give you a chance to come in, pay your back 
taxes, pay a severe penalty, but avoid going to jail.
    We thought maybe a couple thousand people would come in. We 
had 15,000 people come in under that program, which (a) is 
going to bring us a lot of money, but (b) means these 15,000 
people are going to be tax-paying Americans for the next 10, 
15, 20 years. The money is brought back. They are paying taxes 
now.
    Also I have become Chairman of the Federation of Tax 
Administrators, which is the global forum on tax 
administrators. And we are stepping up our international 
cooperative efforts, and we are making great strides.
    I think the next big thing that needs to happen, and that 
we hope happens, is Chairman Rangel and Chairman Baucus both 
put forward this Foreign Account Tax Compliance Act. It is in a 
number of things, including a jobs bill that is moving around 
now in the Senate. We are quite hopeful that passes, because it 
is going to give us a bunch more tools to continue on this 
effort.
    Mr. Serrano. Okay. Just one quick question. You know, we 
who serve in this House I find at times will use words or 
phrases, and we do not stop to say, ``Do I really know what I 
am saying?'' Not that we do not know what we are saying, but 
rather what does a term mean?
    So we talk about offshore all the time. Can you very 
briefly tell us, what does that really mean? Is it people 
putting money in savings accounts? Is it people hiding money 
somewhere? Where do most of these accounts or these hiding 
places exist? What countries? And how does the scheme or the 
plan work?
    For instance, if I take what little savings I have and put 
it somewhere else, I already paid taxes on it. It was taken out 
every month. Downstairs they take the taxes out. So how would I 
then be hiding that?

                          OFFSHORE INITIATIVE

    Mr. Shulman. I think, generally, when people talk about 
offshore tax evasion by individuals they are talking about 
wealthy individuals who put money in a bank secrecy 
jurisdiction and keep it over there. So as they get dividends, 
they get interest, they get capital gains when they sell it, 
they are not paying their taxes on it.
    Sometimes it is illegal source activity. So someone got 
money illegally, did not pay any taxes on it, and parks it 
offshore, so it is the double-compounded issue.
    And regarding where it is and how the schemes work there 
was a well-publicized scheme last year where people from 
another country were sending bankers over here with encrypted 
laptops and secret words and hiding their travel records and 
going to a variety of locations around the U.S. selling to 
people. They were saying, ``You are going to get a better 
return on your investment because you are not going to have to 
pay your taxes.'' And so that happens.
    There are also promoters in foreign jurisdictions who work 
with intermediaries, whether it be disreputable accounting 
firms or law firms or others who are trafficking in setting up 
sham trusts. So you really control the trust, but you go down 
to the Cayman Islands or someplace and set up the XYZ 
Corporation, and all the monies flow to that. It is going to 
appear like a corporation, but it is really for your benefit. 
So there are a variety of schemes that are out there.
    Regarding where this happens, our voluntary disclosure 
program had accounts flowing in from every continent, except 
for Antarctica, and over 60 countries. Anecdotally, one of the 
great things about this voluntary compliance program, as we are 
churning through submissions and analyzing and creating 
databases of these accounts, is we are seeing patterns of 
intermediaries, patterns of institutions, patterns of 
countries. There has been a lot of news media, and I am not 
going to confirm it here, but there has been news media about a 
lot of movement out of places like Switzerland, and into Asia, 
Latin America. We have been working with other law enforcement 
agencies and tracking the flow of money.
    And, again, the interesting thing is one ofthe reasons we 
are doing so well, I think, is because the U.S. Government is very 
focused on this effort. It is a priority. All of our people know it is 
a priority. We are putting our best people on it. We are investing in 
technology. We are investing in our diplomatic relations around this 
effort.
    But also, the world is changing. Most people in this room 
have a retirement account or a 401(k). Most of those have some 
investment in a foreign stock. You can trade a stock 
electronically while sitting on the beach in Perth, Australia, 
on the New York Stock Exchange. You used to actually have to, 
you know, call a broker or call someone on the floor who ran 
over with a ticket.
    Technology is making things move, and countries who want to 
participate in the global capital markets know that they need 
to reach certain global capital norms to do so. And so I think 
both global trends, as well as our efforts, are helping move 
this in the right direction.
    Mr. Serrano. Great explanation. Thank you. Now we know what 
we are talking about. [Laughter.]
    Mrs. Emerson.

                              EQUITY SWAPS

    Mrs. Emerson. Speaking of concealment, I have some 
questions about equity swaps. And perhaps I should define what 
an equity swap is. According to my notes here, it says 
financial derivatives that accomplish a number of goals 
basically by straddling the U.S. border.
    Mr. Serrano. I knew that.
    Mrs. Emerson. Have you made one before?
    Mr. Serrano. No. No.
    Mrs. Emerson. Anyway, so at least this is what we are told. 
So, number one, they enable a bank to avoid withholding taxes 
on the payment of a dividend by disguising who owns the stock. 
They enable an offshore hedge fund to collect a stock's 
dividend without actually owning the stock. And they enable 
both parties to somehow avoid paying any taxes on the 
transaction, which is ordinarily subject to a 30 percent tax.
    So, anyway, I wanted to ask the Commissioner about it, 
because I know that the IRS has been scrutinizing these 
securities. And so, first, I want to know if you all have 
reached any conclusions. It just seems to me that it is pretty 
unfair that the big banks would be allowed to hold assets in 
offshore accounts with hedge funds for the sole purpose of 
avoiding taxes.
    And I have also read that IRS regulations that govern 
equity swaps may be at the heart of the matter. So if that is 
the case, have you all considered changing the regulatory 
treatment of those equity swaps?
    And my last question, or maybe two more, with regard to 
that is, how successful have you all been at capturing dividend 
tax revenues at offshore hedge funds that are collected by 
foreign investors? And what can we do, or are there things that 
we can do legislatively that would make it easier for you to do 
your job and close that gap?
    Mr. Shulman. Let me say a few things about it. A swap is 
basically a contract where two parties, usually big parties--an 
institutional investor or a brokerage firm or a bank--enter 
into a contract that says, you will get this economic benefit 
based on this, and so it can be any number of things.
    I think the issue you are referring to is about publicity 
around some ongoing investigations about institutions that own 
a U.S. stock--say IBM, although this is all hypothetical--two 
weeks before or a week before there is going to be a big 
dividend, and there would have to be 30 percent withholding in 
it, they actually change that ownership into a swap contract. 
It gives them the same kind of economic benefit as if they 
owned the stock.
    And so they go into a swap contract, and they are basically 
going to get that dividend, but they no longer officially are 
the owner of record of the stock. And then, there is an 
agreement around not paying taxes on that or how you allocate 
those taxes.
    We continue to be focused on this issue and we look at that 
action. And some taxpayers have publicized what we cannot, what 
we are doing with individual taxpayers.
    I think the whole issue around the complexity of financial 
markets and people using financial instruments, whether you in 
Congress find the current laws tasteful or not, they are legal. 
Some things they do are not legal. When they are not legal, we 
are willing to push it, and we have been pushing it. That is 
why some of the 800 people who we are hiring are financial 
specialists and others who can look at these issues.
    I will say one more thing about swap contracts. In the old 
world everybody said, ``Okay. You deal with a big counterparty, 
and you do a swap with them, and it is just like owning the 
stock.'' I think over the last year where some big 
counterparties failed, people say, ``Okay. There is some 
counterparty risk involved,'' and that is the argument on the 
other side.
    When you ask what to do, and you and I talked a little bit 
about it at other times, is you could potentially do something 
around swaps, but then you still have equity-linked notes, you 
still have securities lending, you still have other 
derivatives. I think there is disparate tax treatment for 
different financial instruments. And as long as you have an 
incredibly complex global capital market, and complex tax laws 
around financial products, you are going to have opportunities 
for arbitrage.
    And our job is to hone in on it, make sure we keep people 
on the right side of the law, make sure that we are as 
sophisticated as folks, so if they are doing things legally and 
structuring it legally, so be it, but, if they are pushing the 
envelope, we are able to call them on it.
    And so this is not an issue that is going away. When people 
ask me, ``what is the focus on large corporate audits?'' in a 
world with this kind of global capital flows, complex financial 
markets, complex tax laws, we are going to have to keep 
investing to be able to keep up with people who are looking to 
make money.
    Mrs. Emerson. And it is very complex, and it seems to get 
more complex, and the more complex it is the better.
    But, anyway, let me ask another couple of question, because 
I really do not have too many more, Mr. Chairman.

                   EFFECT OF ECONOMY ON TAX REVENUES

    You know, we are all concerned--so very much concerned with 
the declining economy, and the impact, though, that that has on 
the amount of incoming revenue collected by all of you. Do you 
all estimate, talk about--I mean, internally, do you estimate 
the impact on your revenues by the declining economy? I mean, 
is that even a measure that you all specifically take other 
than simply revenues? You know, wehave this many--this much 
less revenue this year? And so I want to know that.
    And then, I have to assume that the bad economic state also 
affects the amount of your enforcement collections.
    Mr. Shulman. Yes.
    Mrs. Emerson. We talked about that a little bit. Can you 
all provide estimates of how much revenue has declined in the 
2009 tax year? Do you all know that answer?
    Mr. Shulman. Yes, we do. I am happy to get them to you. Let 
me answer off the top of my head, and with a big disclaimer for 
the man typing to my right--and we will get you the exact 
numbers--tax revenues went down in the 20 percent range. 
Corporate revenues, though, dropped from $300 billion down to 
$140 billion because people were experiencing so many losses.
    Our actual enforcement dollars dropped, but not as 
dramatically. And they dropped because people did not have the 
money. There are lots of ways we measure enforcement, but we 
have an enforcement revenue number which is literally cash in 
the door that year, resulting from some sort of action we took, 
and those dropped. People just did not have the cash.
    We also had a lot more people file--a lot of times people 
file a balance due. So, I owe $3,000 taxes, I file my tax 
return on time, April 15. I say I owe $3,000, but here is 
$1,000. We send out a collection notice, and within six months, 
these are compliant taxpayers, and they send the other $2,000 
in and we are done. A lot of those people just did not catch 
up, and so that decreased the dollars in.
    And then we went and examined you and said, ``No, you owed 
money from two years back or three years back.'' Usually we get 
checks when we close the exam. This year we had people not able 
to write checks. And so our enforcement dollars went down less 
than the overall revenues.
    Those revenue projections, though, are in the President's 
budget, and so we will get you the specific numbers.
    Mrs. Emerson. But you did say corporate revenue decreased, 
you thought ballpark, $300 billion to $140-?
    Mr. Shulman. That is the number I have in my head, but let 
us have the staff follow up and----
    Mrs. Emerson. Okay. Thank you so much.
    Mr. Shulman. No, no, that is not corporate revenue. That is 
tax----
    Mrs. Emerson. Tax.
    Mr. Shulman [continuing]. Revenue coming in. So a 
difference. That is how much the corporations are paying the 
government in taxes, not their revenues.
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    Mrs. Emerson. So, well, it would be interesting to carry on 
that discussion further to determine whether or not there are 
different tax schemes they are using or whether it was just 
simply a reduction across the board in----
    Mr. Shulman. There are a lot of people in the loss position 
last year.
    Mrs. Emerson. Yes.
    Mr. Serrano. Thank you.
    Ms. Lee.

          AUDITS OF ORGANIZATIONS IN RECEIPT OF BAILOUT FUNDS

    Ms. Lee. Thank you very much. Let me just ask you, in terms 
of a list of all of the banks, financial service companies, and 
other corporations who have received TARP or TALF funding, and 
have sold any of the assets of the Treasury programs like 
commercial paper funding facility or mortgage-backed securities 
to Fannie Mae or Freddie Mac, let me ask you if you are 
actually auditing any of those companies.
    Do they have any outstanding tax liabilities? They are 
benefiting from billions of dollars of taxpayer funds, and so 
how are you all kind of looking at what is taking place within 
those companies?
    Mr. Shulman. Without talking about any company 
specifically, a lot of the very biggest companies in the 
country are under continuous audit by us, and always have a 
variety of things in the pipeline that we are auditing, pending 
appeals of our decisions, things in the Tax Court. And so they 
have a variety of different books.
    I think when I was up here last year there was a number out 
there about money that TARP recipients had not paid. I actually 
think that number was a little skewed, because any big company 
in the country always has a variety of disputes going on, five 
or six tax years open with us, some things that are in appeals. 
So that is their right.
    We, obviously, are continuing to be part of the whole 
recovery effort. I would tell you I think we run a pretty fair, 
even-handed, long-term audit program. And so we are not doing 
anything special, but we are also not giving anyone any 
breaks----
    Ms. Lee. Okay.
    Mr. Shulman [continuing]. In that regard.
    Ms. Lee. I know you may not be doing anything special, but 
maybe you should. I mean, these are low interest loans that 
these companies have received. This is a special effort, and I 
would think that if these companies--or at least you would want 
to know if they have any outstanding tax liabilities or would 
consider doing some special audits, because it is a special, 
you know, type of initiative. But you are not.
    Mr. Shulman. We will definitely take that under 
consideration.
    Ms. Lee. Yes. I think it would be, Mr. Chairman, very 
prudent to do that. I think taxpayers----
    Mr. Serrano. Well taken.
    Ms. Lee [continuing]. Are angry enough about what has taken 
place, and I think any way to ensure transparency, to ensure 
that their tax dollars are being spent appropriately as it 
relates to TARP and TALF, I think that would be very helpful.
    Thank you.
    Mr. Serrano. Thank you.
    I have a set of questions that I will submit for the 
record. Any other member also that has----
    Mrs. Emerson. I have some for the record, yes.

                       TAXES ON FOREIGN NATIONALS

    Mr. Serrano. I just have one more question to ask, 
Commissioner, but I have a fun question ahead of that, because, 
you know, it is about 39 days before the baseball season 
starts.
    Mrs. Emerson. Oh, I was waiting for this.
    Mr. Serrano. Right?
    Mr. Shulman. We are all looking forward to this, Mr. 
Chairman.
    Mr. Serrano. So if you are here on a work visa from another 
country playing baseball, as so many are now, I know you pay 
your federal taxes for working here, for any money earned here. 
My understanding also is that you file state taxes for every 
state that your team visits during the season. So you have your 
home state, and then, you know, California, Georgia, whatever, 
those states.
    Now, the folks who still have their legal address, if you 
will, back home--Dominican Republic, Venezuela, China, Japan, 
wherever the countries are--Mariano Rivera, Panama--some of 
those folks who maintain those addresses, legal residents, 
still pay taxes there.
    Now, I know there are deals--there are arrangements made 
between state taxes and federal taxes where sometimes you get 
credit for that, that does not go on, does it? I mean, we do 
not give these millionaires a break on their federal taxes here 
because they are paying taxes somewhere else?
    Mr. Shulman. Before I answer, can I clarify, is this the 
Red Sox or the Yankees you are referring to? [Laughter.]
    Mr. Serrano. When it comes to the money they make, it is 
any----
    [Laughter.]
    The fact that the Yankees have had a cost-effective and----
    [Laughter.]
    Mrs. Emerson. Excuse me? They have----
    Mr. Serrano. And actually do something with the money they 
pay----
    Mrs. Emerson. Like build $2 billion stadiums?
    Mr. Shulman. You know, I believe the----
    Mr. Serrano. By the way, you know that I passed a 
resolution in the House congratulating the Yankees for the 
World Series. Let me tell you what we have. Resolutions like 
that pass 400 to zero. No. There are people who abstained, 
people who voted no. Mostly it is from Massachusetts and 
Pennsylvania, but----
    Mrs. Emerson. The Cardinals fans, we would get in trouble 
if we voted for the Yankees.
    Mr. Serrano. See what I mean? Go ahead.
    Mr. Shulman. I think the law, generally, is in the U.S. you 
pay taxes where you make the money, and it follows folks. I 
think if you fly over New York air space and you live in 
another state, but you are going there for work, you, in theory 
owe taxes. And so I think that is how it works, and we try to 
just apply the law----
    Mr. Serrano. Right.
    Mr. Shulman [continuing]. As it stands.
    Mr. Serrano. But to your knowledge there are no 
arrangements with other countries. In other words, just because 
they pay taxes there, but they work here, there is no----
    Mr. Shulman. Not to my knowledge.
    Mr. Serrano [continuing]. Not given a break.

                        TAX ON FOREIGN NATIONALS

    Mr. Shulman. I mean, we have treaties. We have treaties 
with a variety of countries a lot of times in the corporate or 
individual setting where if someone pays taxes--the basic 
theory of treaties is around double taxation, which is you 
should only pay tax once. And so they may actually, when they 
pay here, not have to pay it on their income there, so they are 
paying on their taxes once. But, you know, our general rule is 
if you make it here, you pay taxes here.
    Mr. Serrano. Yes. I would be concerned if it is the other 
way, that we would not tax them because they are paying taxes 
somewhere else.
    Mrs. Emerson. But if, in fact, you have let us just say a 
German guy who worked for a woman who works for a German 
company, and their residence is there but they spent more than 
50 percent of their time here, and they work here and get paid 
here, I mean, there is the credit. I mean, that is what 
happened when I used to work abroad and live here at the same 
time. I paid taxes where I lived and then got a credit and then 
paid the difference if it was less I think----
    Mr. Serrano. Yes, but you were not making $25 million a 
year.
    Mrs. Emerson. I was not even making $25,000 a year. 
[Laughter.]
    Mr. Serrano. There you go.
    Mrs. Emerson. But I still was complying with--I mean, the 
law was the law I guess is what I am trying to say.
    Mr. Serrano. I better end this, because I suspect that 
after a very good hearing this may be the story in tomorrow's 
papers about baseball players. And I do not want to do that to 
this hearing, you know?

                   ELIMINATION OF AUTOMATIC MAILINGS

    But I have one last question. It seems--well, the budget 
request assumes a savings of several million dollars by 
eliminating the automatic mailing of Form 1040 booklets. That 
is that thick, soft booklet that we all expect in the mail, and 
we cheer when we get it, or we cry, but there it is.
    So here is the question. Will you really save money? Will 
people now for the first time, in as long as I can remember not 
seeing that booklet, decide something is not happening? You may 
even get calls asking you, ``Does that mean I do not have to 
pay taxes this year?'' So the cost of those calls, the cost of 
the time you will be dealing with that, does that really offset 
the savings for not mailing the book out? And how much 
confusion?
    I mean, I know it sounds silly, but there are people who 
actually wait for that booklet to come, and then they open it 
up the middle, they rip out the----
    Mrs. Emerson. They are so excited.
    Mr. Serrano [continuing]. They rip out the form, right?
    Mr. Shulman. Yes.
    Mr. Serrano. That is the form they fill out. Now some folks 
must be going to go to your offices to look for forms. So was 
that truly a cost-saving move?
    Mr. Shulman. That is a great question. The President 
challenged all of us to say, ``Look, we will make prudent 
investments where needed,'' and I am very pleased that he 
decided to make an investment in the IRS. But he said, ``I want 
you to challenge yourselves and see where you can have 
efficiency savings.''
    This is one we debated. There is the issue of compliance, 
and it is unknown whether getting that book actually increases 
compliance. With that said, 60 percent of the people are using 
preparers; they do not need to get a book. Twenty percent are 
using software; they do not need to get a book. We only send 
the books now to people who filed on paper, and the paper 
filing decreased. The e-filing went up over 10 percent last 
year. It went up to 66 percent, and so we made this prudent 
choice.
    I will tell you there is a general target to decrease 
mailings, and the 1040 is an example. I have challenged our 
staff around inserts, can we decrease inserts, can we decrease 
all mailings? And so if this budget gets approved, we will make 
decisions about exactly what we do mail and do not. But we are 
committed to $20 million in mailing savings. That is really 
what the budget means.
    Mr. Serrano. Do you realize you are helping to kill another 
one of your accounts that we oversee, the Postal Service?
    Mr. Shulman. So be it. [Laughter.]
    Mrs. Emerson. Well, they could send out ``save the date to 
file your tax'' cards. That is expensive to print.
    Mr. Shulman. I know, I know.
    Mr. Serrano. So you think in the long run the push is to do 
as little mailing as possible.
    Mr. Shulman. It is kind of like I talked about with Mr. 
Crenshaw. You have got to move an agency forward. You have got 
to make the best decisions you can with the information you 
have. We think this is a prudent move. If we find out it is a 
big problem, we will deal with that and correct ourselves. But 
we are going to try cutting down some mailings.

                   ELIMINATION OF AUTOMATIC MAILINGS

    Mr. Serrano. In closing, you are not going to believe this. 
This falls under the category of ``You Are Not Going to Believe 
This.'' Someone on the street came up to me--as you know I have 
a walking district in the Bronx, and I walk around all the 
time--and this person said, ``And I understand, because there 
are no secrets, that the IRS is not going to send that book out 
anymore.'' I said, ``That is what we hear.'' He says, ``You 
have got to get me one, because I collect them.''
    Mr. Shulman. I will get him an autographed copy. 
[Laughter.]
    Mr. Serrano. Absolutely. It will be sold on eBay.
    I have no further questions. Do you?
    Mrs. Emerson. I only have questions to submit for the 
record, Mr. Chairman.
    Mr. Serrano. All right. So will I.
    I want to thank you. We want to thank you for your 
testimony today. We repeat our desire to stand ready not only 
on our budget issues, but also to stand ready to assist you in 
any way during this very difficult time. And please, once 
again, convey to the staff and to the folks at IRS this 
Committee's concern and heartfelt condolences for your tragedy. 
And we thank you for your testimony today.
    Mr. Shulman. Thank you.

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                                         Wednesday, March 10, 2010.

              FY2011 BUDGET FOR DEPARTMENT OF THE TREASURY

                                WITNESS

HON. TIMOTHY F. GEITHNER, SECRETARY
    Mr. Serrano. The subcommittee will come to order.
    Mr. Secretary, before we go on, I join Mrs. Emerson in 
having you convey to the folks at the IRS our deepest 
sympathies and our condolences. That was a tragic situation and 
one that can never be tolerated regardless of how anybody feels 
about anyone in government.
    And so, please let them know, as we told Commissioner 
Shulman, that our thoughts are with them, our prayers are with 
them and, personally--and I know Jo Ann feels the same way--
that we respect and admire the work that they do on a daily 
basis.
    Secretary Geithner. Mr. Chairman, could I say before we 
start, thank you for that. And I wanted to begin my remarks 
today, actually, by thanking you for what you said at 
Commissioner Shulman's hearing.
    And I agree with everything you said, that we owe them our 
support, our gratitude, our respect. They are a remarkably 
dedicated group of public servants. They take great pride in 
their work. And nobody in that position should have to face 
what they faced. And they showed great bravery in evacuating 
that building quickly. They saved tens and tens of lives by how 
they acquitted themselves in that moment of panic and attack. 
And when I went out there with Commissioner Shulman, they were 
very strong and very brave and remarkably dedicated and 
committed to the work of the Service.
    Mrs. Emerson. Let me also say, Mr. Secretary, that all of 
the families and employees are in our deepest prayers and our 
thoughts every day. And they showed a remarkable resilience, in 
my opinion, as well. And oftentimes bureaucrats are not 
treated, perhaps, with the respect that they are due. But, in 
this particular case, I think it just points out to how many 
hardworking people there are really working for all of us on a 
daily basis.
    Mr. Serrano. Thank you.
    Today the subcommittee meets to consider the budget request 
and conduct oversight over the Department of the Treasury. We 
welcome the Secretary of the Treasury, Timothy Geithner, back 
for his second appearance before the subcommittee.
    For fiscal year 2011, the Treasury Department is requesting 
authority to spend $14.1 billion, an increase of $551 million, 
or 4 percent, above 2010.
    I welcome the second straight requested increase for IRS 
enforcement efforts to prevent offshore tax evasion. While most 
Americans rely on salaries from employment that are taxed 
before they receive their paycheck, many wealthy individuals 
and businesses continue to use offshore accounts to hide 
billions of dollars in income generated by investments and 
income from abroad.
    I note that Treasury's budget request also proposes to 
reform our taxes on international activity and to counter the 
use of offshore tax havens. These proposals would increase 
revenue by more than $120 billion over the next 10 years. These 
are good initiatives.
    I also welcome your proposed increase in funding for 
financial and technical assistance by the CDFI Fund and look 
forward to learning more about the proposed new CDFI 
initiatives on healthy food and banking the unbanked. I believe 
that the CDFI has done some of the most important work in 
lifting up disadvantaged communities and look forward to 
discussing this work with you today.
    The Treasury budget request has other notable increases, 
including a 13 percent increase for Treasury's departmental 
offices after a 9 percent boost for this year.
    I am concerned, however, that the Treasury budget proposes 
to reduce grants for low-income taxpayer clinics, tax 
counseling for the elderly, and the Volunteer Income Tax 
Assistance Grant Program. All three programs assist low- and 
moderate-income taxpayers. I believe that supporting these 
taxpayers is of paramount importance and have made them a 
priority in my years as chairman of this subcommittee.
    In addition, I am dismayed that the administration has once 
again included a $106 million proposal to tax all stores 
selling alcohol and tobacco the same amount regardless of their 
size. I am opposed to charging my neighborhood bodega the same 
flat fee as big suburban mall liquor stores, and Congress under 
both parties has repeatedly rejected it. As a practical matter 
under the current budget circumstances, I would probably have 
no choice but to consider budget cuts elsewhere to make up for 
this unrealistic proposal.
    Mr. Secretary, you may have come here to defend your 
budget, but, as you know, we never allow you to leave without a 
discussion of economic policy. You are the highest 
administration official with a major role in economic policy 
who is required to testify before Congress. From the outset, 
you have been at the center of the debate over how to respond 
to the financial crisis, first as president of the New York Fed 
and then as Treasury Secretary. Much of that debate here in 
Congress has been concerning the Troubled Asset Relief Program, 
TARP, which continues to be a point of great interest among 
Members on both sides of the aisle.
    Thankfully, it seems that perhaps the worst of the economic 
crisis is behind us, and yet we still have plenty more to do to 
get the economy back on its feet again. To that end, over the 
course of the last year, you have announced initiatives to 
respond to the concerns of everyday Americans: small business 
credit, mortgage relief, and limits on executive compensation 
at firms rescued by the taxpayers.
    Many of the next steps for these issues remain in the hands 
of Congress, but, as a matter of practice, we must trust that 
you are looking out for the American people on a day-to-day 
basis. I feel confident that you are doing so and look forward 
to discussing the administration's efforts on behalf of the 
American people with you today.
    And, with that, I turn to my colleague and sister, Mrs. 
Emerson.
    [The information follows:]

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    Mrs. Emerson. Thank you, Mr. Chairman.
    Secretary Geithner, thank you so much for being here with 
us this afternoon. And I know, as Treasury Secretary, you are 
facing many daunting challenges, including the attempts to 
reinvigorate bank lending to consumers and small business; 
trying to stabilize housing and commercial real estate markets; 
and, most important, protecting the American taxpayer, their 
investments, and preserving the long-term financial health of 
the Federal Government. And I know that you and your staff have 
been working extraordinarily hard on these issues, and we 
appreciate your dedication.
    Regarding the financial condition of the Federal 
Government, I am very concerned that there does not appear to 
be a short- or a long-term plan to address deficit spending. 
The administration's budget estimates that the fiscal year 2010 
deficit will be $1.6 trillion, with deficit spending continuing 
to exceed $700 billion per year through fiscal year 2020 when 
it increases back up to $1 trillion.
    This level of spending will increase our debt-to-GDP ratio 
to almost 80 percent, the highest level since 1950. How is this 
level of debt sustainable, especially as more and more of the 
baby boomers, like Joe and I, reach retirement age? And are we 
on the same fiscal path as Greece? Are we irrevocably damaging 
the economic opportunities for future generations?
    Regarding the economy and unemployment, I am concerned with 
the administration's sometimes confusing message with regard to 
job creation. On the one hand, the Federal Government is 
running up enormous debts in an effort to stimulate the economy 
and create jobs; however, on the other, the administration is 
pushing for massive new regulations on health care, greenhouse 
gasses, and the financial industry. These new regulatory 
policies don't stimulate growth or small-business lending. In 
fact, they are creating a lot of uncertainty among lenders, 
among the many, many small businesses with whom I speak on a 
daily basis, and consumers.
    While I agree that there are some commonsense reforms 
needed in all of these areas, massive new government 
intervention in these areas will hinder short-term economic 
growth. So I am concerned that, while the administration is 
trying to spend our way out of the recession and high 
unemployment at the cost of future generations, that you all 
are also advocating policies that will hurt short-term job 
growth, not stimulate it.
    So, as I said to begin, you face a lot of challenges in 
managing the Federal Government's finances and in attempting to 
reinvigorate the economy. I hope to be able to work closely and 
collaboratively with you, the chairman, and the rest of our 
committee to address these matters. So, thank you.
    Thanks, Mr. Chairman.
    Mr. Serrano. Thank you.
    Well, Mr. Secretary, you know the routine. We hope you stay 
within 5 minutes. Your full text presentation will go in the 
record, and that will give us time to grill you as the time 
goes on.
    Secretary Geithner. Thank you, Chairman Serrano and Ranking 
Member Emerson, members of the committee. It is a pleasure to 
be back up here today. I want to thank you for all the support 
you have given Treasury and the IRS in the past. And I am very 
committed to, of course, working with you closely as we go 
forward meeting the many challenges the country faces.
    I want to begin, Mr. Chairman, just with a few remarks on 
financial reform. Many of you may have read today in the paper 
that we saw another of the Nation's large banks today decide to 
sharply limit the practice of charging customers outsized fees 
for overdrafts. And I just want to say we welcome these efforts 
by banks to try to begin the process of restoring trust and 
confidence of their customers. And we welcome the fact we are 
seeing banks now try to get ahead of the President's financial 
reform effort that is now working its way through the Congress.
    After years in which we saw many financial companies 
competing to exploit vulnerable borrowers, it is good to see 
banks once again competing to benefit their customers. And I 
want to urge other large banks that have not acted to follow 
the lead of some of their competitors.
    But voluntary action is not enough. Progress today can too 
easily erode, as memories of the crisis fade. And that is why 
the President has proposed a very strong set of reforms for 
Wall Street, including an independent consumer agency charged 
with making sure that customers get better access to 
information, better choices, with clear rules enforced across 
banks and nonbanks. The House has acted, and we hope that the 
Senate will support Chairman Dodd's efforts to move ahead now. 
We can't afford to go through another period where we see a 
race to the bottom across our financial system.
    Now, a little over a year ago, when President Obama took 
office, the urgent challenge facing the country was preventing 
a second Great Depression. At that time, as you know, the 
American economy was shrinking at an annual rate of 6 percent. 
Now, in the fourth quarter of last year, we saw the economy 
grow again at about that rate, about 6 percent. And this was a 
result, of course, of forceful action by the President and 
Congress under the Recovery Act and the result, also, of the 
steps we took to prevent the collapse of our financial system.
    But we still face enormous challenges as a country. 
Therecession caused enormous damage. Millions of Americans are still 
out of work. Many are still facing foreclosure. Many are still 
struggling to keep businesses open. They are still living with the 
consequences of the worst recession in many decades.
    Now, that is why job creation remains our principal focus. 
Working with Congress, we propose to expand and extend tax cuts 
for job creation and investment, a $30 billion small-business 
lending fund, and expansion of the SBA's programs. The 
President's budget also proposes investments in American 
innovation and education, in exports and infrastructure that 
will help lay a foundation for stronger future economic growth.
    And we are proposing to make these investments and reforms 
in a fiscally responsible way. As part of this commitment, the 
President proposed to freeze nonsecurity discretionary 
government funding for 3 years starting next fiscal year. And 
this, along with other steps to restore fairness to the tax 
system and what we hope will be the recommendations of the 
bipartisan fiscal commission, will help limit the growth of 
government spending in the future and reduce our deficits over 
time.
    Now, as you know, the Treasury Department plays a central 
role in this agenda of spurring job creation, encouraging 
innovation and investment, promoting strong economic growth, 
and restoring responsibility to our Nation's finances. And I 
just want to highlight briefly some of the key features of the 
Treasury Department's budget request for fiscal year 2011.
    At the start of this budget process, I asked Treasury 
senior staff to identify efficiency gains, program cuts and 
reforms. And, as a result of this process, you have before you 
today program cuts and new reforms that would generate nearly a 
half a billion dollars in savings and revenues for the 
Department. Just to cite two examples, we propose to cut $100 
million by not funding the CDFI Capital Magnet Fund and Bank 
Enterprise Award funds. And we identified savings that would 
generate for the IRS nearly $43 million through more electronic 
filing and by eliminating the automatic mailing of tax booklets 
to taxpayers.
    Now, we are proposing to use these savings to fund a series 
of targeted, modest investments in the Internal Revenue 
Service; the Community Development Financial Institutions Fund, 
the CDFI Fund; our global economic and national security 
priorities; and rebuilding the Treasury Department's 
professional staff. The resulting budget amounts to a modest 
but significant 3.5 percent increase over last year.
    Just very briefly, Mr. Chairman, for the IRS, we proposed 
to strengthen IRS enforcement with a $250 million investment to 
increase voluntary compliance, an effort that would produce as 
much as $2 billion in additional tax revenues; other targeted 
investments to improve IRS customer services; and technology to 
enable the IRS to process tax returns more quickly.
    We have proposed to expand the CDFI Fund, which has a long 
record of leveraging private money to help attract private 
investment to some of the country's most hardest-hit, 
distressed communities.
    On the international side, as you know, Treasury plays a 
very key role in advancing U.S. economic interests abroad and 
protecting our national security interests. And our budget 
request would provide funding for the Department's efforts to 
improve international cooperation on economic recovery and 
financial reform and to make sure that we have adequate 
resources put into our national financial sanctions program, 
which is designed to deprive terrorists, nuclear proliferators, 
and other illicit actors of access to financing.
    Now, Treasury entered this economic crisis with its 
professional ranks seriously depleted. We entered the worst 
economic downturn in generations with, just as an example, only 
25 economist in the Office of Economic Policy, which is a third 
fewer than in 2000, about a decade ago. Just to give you a 
comparison, similar offices at the Departments of Housing and 
Urban Development, Agriculture have 140 and 330 economists, 
respectively. The Federal Reserve system has over 500 Ph.D. 
Economists. Another example, our two key offices, Domestic 
Finance and Tax Policy, had very modest levels of staffing 
coming into this crisis, significantly below the levels that 
prevailed in the past.
    We have a long tradition in Treasury of operating with a 
very lean staff, and we are proud of that tradition. We have no 
intention of changing it, especially given the severe financial 
constraints the country faces as a whole. But we are going to 
have to make some targeted investments in rebuilding that 
institutional capacity at Treasury if we are going to have an 
adequate capacity to respond to future economic challenges. So 
we have proposed a modest additional investment to try to 
rebuild and strengthen in a very targeted way those three 
offices in the Treasury: Domestic Finance presides over the 
financial system, Tax Policy, and our Economic Policy division.
    Now, I have the honor of leading a team of very smart, 
dedicated individuals who are working every day to make our 
government more effective, make our economy stronger and more 
fair. Treasury officials work every day in critical, important 
priorities, from helping restart small-business lending to 
working to contain the nuclear ambitions of Iran, from 
promoting job creation and investments to supporting debt 
relief for Haiti, from extending the benefits of growth to the 
hardest-hit communities in our country to promoting American 
exports around the world, from cracking down on mortgage scams 
to providing technical assistance to the Governments of 
Afghanistan and Pakistan, for example.
    We have accomplished a lot over this year, but we have a 
lot of challenges ahead. And the investments we proposed in 
this budget will give us the tools to meet those challenges 
more effectively in the future.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Geithner follows:]

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    Mr. Serrano. Thank you, Mr. Secretary.
    Let me begin by stating, when they devised TARP, our 
friends on the authorizing committees provided an open-ended 
funding stream for operational expenses. Congress has an 
obligation to do oversight of TARP operational spending.
    In the report language adopted by our committee for the 
fiscal year 2010 financial services bill, the committee 
required the Department to provide a full accounting of TARP 
spending and staffing to date in your projections for next 
year. That report was due with your budget request last month, 
but, unfortunately, the committee has yet to see this 
information.
    Do you have a time frame in place for providing this 
information to the committee? How much have operational 
expenses for TARP cost to date? And how much do you anticipate 
operating expenses for the TARP program will cost for the rest 
of this fiscal year and next?
    Secretary Geithner. Mr. Chairman, we will provide that 
information as quickly as we can. I assume we can do it quite 
quickly.
    But I just want to underscore, we are now in the process of 
winding down TARP. We have been able to achieve this recovery 
in the financial system at dramatically lower costs than we 
expected. The costs of this program have fallen--overall costs 
to the government of this program have fallen by over $400 
billion from the initial estimates just a year ago. We have had 
over, I think, $170 billion come back to the American taxpayer 
by forcing banks to replace the government's investments with 
private capital. We are seeing a very substantial return to the 
American taxpayer on the investments the government made in 
banks.
    Now, even though we have seen a lot of healing in the 
financial system, as you both said in your opening remarks, 
small businesses across the country still face a very difficult 
time getting credit. Our housing markets are still in the 
process of recovery; housing and finance still overwhelmingly 
dependent on the government. And we are going to need to 
continue to make some carefully designed, targeted programs to 
support additional credit expansion in those areas most damaged 
by the crisis. But I think the administrative costs of that are 
going to be a fraction, going forward, of what they were at the 
peak of the crisis.
    But I just want to underscore that the overall program has 
achieved a dramatic improvement in stability in the system at 
much, much lower costs than anybody anticipated. And if the 
Congress joins with the President in adopting this fee we have 
proposed to recoup any losses from the Nation's largest banks, 
then you can tell your constituents, you can tell the American 
people that they won't be exposed to a penny of loss in this 
program.
    Mr. Serrano. Let me ask you a question on that. Experts in 
the field tell us that consumer confidence and investor 
confidence are what drive our economy. If people are afraid, it 
doesn't work; they don't invest, they don't buy, they don't 
purchase. But, at the same time, there is another part to that, 
and it is the part that falls on Members of Congress and the 
administration, and that is to create consumer confidence that 
what we are doing is correct.
    So, on one hand, it might be--and it is, in many cases--
that so much of what is going on is beginning to take hold. But 
the public thinks that we just threw money away, in many cases, 
and that we bailed out people we shouldn't have.
    How can you and how can we work together, how can you help 
us, to get a better message out, if nothing else? You know, why 
is there such a disconnect with what many believe to be what is 
really going on to what the public thinks is going on?
    Secretary Geithner. Well, I think it is very important to 
recognize that, even though the economy is now growing again 
and even though you are seeing the pace of job losses fall 
from, you know, three-quarters of a million Americans losing 
their job last January every month to--we are just now at the 
verge of the economy as a whole starting to create jobs again. 
But the crisis caused a huge amount of damage to confidence of 
the average American family, of the average business. And we 
are going to be living with the lasting effects of that damage 
to confidence for a long period. It is going to take some time 
for that to heal.
    But it is very important that we are able to demonstrate to 
the American people that the programs Congress authorized in 
the Recovery Act and to help rescue the financial system are 
delivering what they were supposed to do. And, again, the best 
measure of that is you had an economy that was shrinking at an 
annual rate of 6 percent a year to an economy now growing at an 
annual rate of 6 percent per year. You are seeing the costs of 
credit to municipal governments, to someone who wants to borrow 
to get a mortgage, to buy a car, put their kids through 
college, come down dramatically. Credit is much more available 
to an average business today than it was when we took office, 
when this Congress came into power about a year ago.
    Those are very, very substantial returns. In highlighting 
those returns--and they are the direct result of the actions 
Congress authorized in the Recovery Act. You know, remember, 
the Recovery Act was a third in tax cuts that went to 95 
percent of working Americans and to businesses across the 
country. It was about, roughly, a third in infrastructure 
investments, targeted investment in infrastructure and support 
to State and local governments. And a substantial chunk went to 
help the unemployed, help those people hardest hit by the 
recession. But those things are generating a very substantial 
return, and you would not have an economy that had moved this 
quickly from deep contraction on the edge of a Great Depression 
to an economy growing, as I said, at an annual rate of 6 
percent a year in the fourth quarter of last year.
    So we have a lot of challenges ahead, but I think the best 
thing we can do is, you know, just make sure we can draw 
people's attention to the concrete aspects of those programs.
    When you ask people whether they support tax cuts for 
working families, whether they support targeted infrastructure 
investments to help rebuild schools, rebuild bridges, when you 
ask them if they support assistance to State and local 
governments so they don't have to fire teachers and firemen, 
the American people support and welcome those investments. And 
it is important to draw their attention to the specifics, 
because it is sort of hard to understand when you limit the 
debate to these broad programs out there.
    And, again, just one more thing, Mr. Chairman. The efforts 
we took to stabilize the financial system were never going to 
be popular. But it is very important for people to understand 
that, when we came into office and when this Congress took 
office in January of last year, the governmenthad very 
substantial investments already in the banking system, and we have 
brought back more than two-thirds of those investments already. We did 
not write a check to a major U.S. bank since we came into office. We 
wrote some modest additional checks to small community banks, regional 
banks, but we did not give another dollar of the taxpayers' money to 
the Nation's major banks.
    Now, we had a bunch of problems we had to solve, bombs we 
had to defuse, problems we had to dig out of, but we have been 
very, very careful in managing this very, very unpopular 
program in ways that allowed us to get the American people's 
money back from the financial system, to save them, as I said, 
over $400 billion in potential losses. And we are in a much 
stronger position as a country today to come out of this 
stronger. We have saved dramatic amounts of money that we can 
use to meet the many, many challenges we face as a country 
today.
    Mr. Serrano. Well, I want to keep going on this subject, 
but I will defer now to Mrs. Emerson, because I suspect we will 
have many Members today and the chairman should set an example 
for the 5-minute rule, which I just broke.
    Mrs. Emerson. Darn it, I was hoping that you would go over, 
Mr. Chairman, so I could as well.
    Let me switch gears to the Federal debt for a moment, and I 
am sure we will come back to TARP. I have no doubt about it.
    As I mentioned in my opening remarks, I have great concern 
about where we are going to end up in 2020, where our Federal 
debt held by the public will be about 77.2 percent of GDP, 
which would be the highest percentage of Federal debt to GDP 
since World War II, 1950, when I was born. So I have about 
three questions I would like to ask with regard to this. Well, 
actually, it is probably four, but I know you will indulge.
    Given the size of the Federal debt, number one, is Treasury 
crowding out investment in the private sector? You know, 
obviously, to what extent are investors buying Treasury bonds 
instead of investing in businesses?
    Number two, given the trouble in the world economy, how 
difficult is it to attract buyers of Treasury debt? And are you 
increasing interest rates in order to attract those investors?
    And, three, who is investing in Treasury debt? And are you 
concerned about our dependence on foreign investors, foreign 
governments, sovereign wealth funds, and the like to finance 
our deficit spending?
    Secretary Geithner. Excellent questions.
    Let me just start by saying, as we discussed when I was 
here last year, that you are right to point out that our 
deficits are too high. They are unsustainably high. If you just 
look at over the next 10 years, they are unsustainably high, 
and they get dramatically worse, if Congress does not act to 
reform our Medicare and Social Security, they get dramatically 
worse in the succeeding decades.
    So they are too high. They are unsustainable. And if we do 
not act to address them, then we will face much greater 
challenges as a country. Growth will be weaker. America will be 
poorer as a country. And you are right to highlight these 
challenges. And, of course, we are deeply committed to make 
sure we start the process now of building consensus on the 
policies to bring those deficits down.
    Now, on your specific questions: You asked, is government 
borrowing today crowding out public investment? No, it is not. 
In a financial crisis, in a recession like this, the only 
fiscally responsible way to act as a country is to make sure 
you are providing temporary, targeted support to get the 
economy back on track, growing again.
    And the best measure of what I just said, which answers 
your second question, is that U.S. long-term interest rates 
today, the rate at which Treasury borrows today, is really 
remarkably low. And it reflects the fact that, for the moment, 
again, given the echoes of this crisis, the most responsible 
thing we can do as a country is try to make sure we are 
providing the support and the investments necessary to lay a 
foundation for strong, sustainable private-sector growth.
    Now, these things need to be temporary and targeted. And 
that is why we have proposed in the President's budget to begin 
the process in fiscal year 2011 of bringing down these deficits 
over time.
    One more thing that goes to your third question. Today, the 
American people are providing most of the financing for our 
deficits, for these temporary exceptionally high deficits. Over 
the last year or so, in particular, you have seen the savings 
rate of Americans start to rise again. Private savings rates 
have risen from a modest negative to a rate which is in the 
positive 4 percent territory. At the same time, our current 
account deficit, which is the amount of money we are borrowing 
from the rest of the world, has fallen very, very sharply.
    So, if you just step back, generally what you are seeing so 
far is a very high level of confidence among foreign investors 
in our economy and our financial system and a willingness of 
Americans to provide the financing the government needs 
temporarily to help get through this basic crisis.
    But you are absolutely right to underscore the fact that 
these deficits are too high. They are unsustainable. And as 
soon as we are confident that we have a self-sustaining 
recovery in place led by the private sector, then it is very 
important we shift at that point to bring those deficits back 
down to Earth.
    Mrs. Emerson. I appreciate your answers, but if we are 
still at a trillion-dollar deficit at 2020, when will the 
savings actually materialize?
    Secretary Geithner. Thank you for raising that.
    For an economy like ours--and this is the critical 
imperative--we need to make sure we are bringing the deficit 
down to a level that stabilizes our overall debt burden as a 
share of our economy to a level that is not going to be 
acceptable and not threaten future growth rates. And for an 
economy like ours, that requires we bring our deficits to below 
3 percent of GDP. It sounds like a magic number, but it is 
just, given the structure of our economy, that is what it takes 
to stabilize the overall debt burden as a share of our economy 
at an acceptable level.
    What we have proposed in the President's budget is a series 
of detailed measures on the expenditure side and the resource 
side that would bring our deficit down over the next 4 years to 
below 4 percent of GDP. That is not far enough. We are very 
explicit in the budget saying that is not far enough, we need 
to go further.
    And that is one reason why the President has proposed to 
form a bipartisan fiscal commission and to ask a set ofnational 
statesmen to step back from politics and try to take a fresh look at 
measures that help get us down further over the next 5 to 10 years but 
also begin to propose measures to deal with the long-term deficits in 
the further decades, which are clearly unsustainable and will be very 
damaging.
    Mrs. Emerson. You have great faith that that will work.
    Secretary Geithner. No, it is a--as you know, Congress has 
to enact policies that restore gravity to the Nation's fiscal 
position. We have proposed a series of detailed measures that 
begin that process. But we are, you know, following the model 
of President Reagan, who proposed and ran, helped establish I 
think the best example of a successful bipartisan commission on 
Social Security reform, and we are using that, proposing that 
model to try to build a consensus on things that will bring 
sustainability back to the Nation's finances.
    Mrs. Emerson. Okay. One more quick question, and then I 
will be finished. And it is a more philosophical question. How 
do you balance a desire for short-term benefits to the economy 
versus the long-term risk to the future generations of 
increasing debt? I mean, I feel like we are being greedy or 
something.
    Secretary Geithner. No, I think, again, with an economy 
facing the risk of a Great Depression, an economy living with 
the echos of the worst financial crisis in generations, the 
only possible, the only credible response of any government and 
the only thing that is fiscally responsible is to temporarily 
provide the kind of support on the tax side and on the 
investment side that can help reestablish a foundation for 
growth. That is what we did in the Recovery Act and our 
financial recovery efforts. And we are still in the period now 
where, as an economy, the best thing for us to do right now is 
to provide some modest additional targeted support for job 
creation and investment.
    But that will not work, will not be effective, unless we 
can make people confident, in the United States and around the 
world, that we are going to find the will as a country to start 
to bring those deficits down as we shift to growth that is 
going to be sustainable.
    So the imperative right now is still job creation and 
reinforcing growth. But, once we are confident we have an 
economy that is growing again, led by the private sector, then 
the right thing for the country to do is to bring those 
deficits down. That is how you balance them.
    And if you make sure these investments we make today, like 
in the Recovery Act, are temporary and targeted and they are 
focused on things that will help restart growth and job 
creation, then you are doing the responsible thing and the 
effective thing to help restore our Nation's finances over the 
longer term.
    These deficits are high today, as you know, they are high 
today overwhelmingly because of the policy choices made by the 
country over the past preceding 8 years and because of the 
consequences of the recession. When we came in office, you 
know, we had a--before we did one thing, asked Congress to 
propose one change to policy, we had a deficit of about $1.6 
trillion, more than 10 percent of GDP, and that was a legacy of 
the recession and the policy choices the country made over the 
preceding 8 years. Those choices left us with very high 
projected future deficits, unsustainably high debt burdens. And 
we are going to have to work together across the aisle, 
Republicans and Democrats, to dig our way out of that.
    Mrs. Emerson. Thank you.
    Mr. Serrano. Just a quick comment, not a question, but it 
seems to me that we never had major wars where we didn't raise 
taxes. So we are all guilty of the $2 trillion that it will 
cost us over the next generation just to pay for the last two 
involvements. But there is one resolution on the House floor 
today that we can all be fiscal conservatives about and vote to 
get out of Afghanistan.
    Now, Mr. Fattah, the way I see this is your beloved 
Phillies will play Ms. Emerson's beloved Cardinals for a chance 
to get beaten by the Yankees in the fall.
    Mr. Fattah.
    Mr. Fattah. Thank you, Mr. Secretary. I think you have done 
an extraordinary job in a difficult situation.
    If we looked a year ago, the first 2 months of the year, we 
lost more than a million and a half jobs. And these 2 months we 
have seen job losses of 50,000 in totality. But we have seen a 
major increase in temporary hiring; we have seen an increase in 
hours worked. All of this is a prelude to what all of us, I 
think, expect to see: net plus in job growth next month and 
going forward. The stock market was at 6,000 yesterday a year 
ago; it is now at 10,500. Purchasing is up, manufacturing is 
up. I mean, if you look at all of the indicators, they are 
pointing in the right direction.
    Now, there are still some naysayers, and there are people 
who principally are responsible for the conditions that we find 
ourselves in who are critics of the work of this 
administration. But I want to go through some of the details.
    When the President was sworn into office a year ago January 
20th, the Nation's national debt was over $10 trillion. And we 
had a $1.2 trillion deficit for that fiscal year. Now, 8 years 
before that, we had Alan Greenspan in here, and we were having 
a discussion about the fact that a $5 trillion surplus could 
take the country to be debt-free at the conclusion of the Bush 
administration.
    A bunch of decisions were made, so rather than surpluses to 
erase a $5 trillion national debt and an intellectual 
discussion about the economics profile of a nation that was 
debt-free, we had doubled the debt, and as it was the case at 
the end of World War II, in part for national defense. I don't 
think anyone would suggest that we should have forfeited World 
War II rather than run up some debt or that we should concede 
to bin Laden and company, you know, and sacrifice the lives of 
Americans because we are afraid to spend money. So, in part, we 
spent it on national security. And we also did tax cuts and so 
on.
    But the point I want to get to now is that there has been a 
lot of discussions, and with the ranking member, about the 
deficit. I want to talk about the debt. The deficit is just 
what the gap is year to year. I want to talk about the national 
debt.
    Now, we have seen the President set up the debt commission 
with Erskine Bowles and with Senator Simpson. We have seen the 
Vice President say that this national debt is a national 
security issue. The Secretary of State last week said it is a 
national security issue. You have made comments about the 
challenges that it presents in the international framework of 
our dealings.
    What do you--and I know that you are short a few economists 
in the Tax Policy Office. Previous Treasury Departments looked 
at broad-based tax reform. Everyone whois knowledgeable on this 
says we have to raise some revenue, we have to cut our long-term costs 
on entitlements, and we have to engage in broad-based tax reform.
    Now, the Reagan Treasury Department and the Bush Treasury 
Department, 20 years apart, looked at the national sales tax, 
said it was fatally deficient, it wouldn't work. They looked at 
the flat tax, said it wouldn't work.
    So my question to you is, as we go forward, we need to have 
a deficit commission, which we have in place--and I am happy to 
see that Leader Boehner has said he is going to make 
appointments, and the Republicans in the Senate are going to 
make appointments. So they can look at long-term entitlements, 
and that is great.
    What I am interested to know is what you think about an 
idea of a dedicated revenue focused entirely on paying down the 
national debt, going forward, as part of a constellation of 
things. You know, we passed statutory PAYGO and so on. But a 
revenue source dedicated to debt, what do you think about that 
as a generality?
    And then specifically, I have proposed a transaction fee on 
non-stock, non-financial markets activity of a penny on a 
dollar, dedicated entirely to the debt. I would like to know 
what you think about that specifically.
    Secretary Geithner. Congressman, you are right to point out 
that we have an unsustainable fiscal position, and we are going 
to have to bring our resources and our commitments more into 
balance over time.
    Now, what we have asked this commission to do, what the 
President has charged the commission with doing is to, as I 
said, step back from politics, take a fresh look, everything is 
on the table, no preconditions, and to see if they can come up 
with recommendations on a bipartisan basis that will help 
address both problems: not just the long-term problem of the 
next 4 decades, but the more immediate problem of how we get 
the budget down to a more sustainable level over the next 5 to 
10 years. Both are necessary. Both are part of the commission's 
mandate. It is not just the very long-term problems of 
entitlement reform.
    Now, they are going to take a look at a range of ideas. I 
am sure they will take a look at a range of ideas from both 
sides of the aisle. And, again, what we wanted to do is get a 
group of people together who can step back from politics, take 
a fresh look, no preconditions.
    And, you know, I think that it is important for us to 
recognize that we are a very strong, resilient country. In the 
past when we have faced challenges like this, we have acted. 
The world has confidence in our ability to do that. We need to 
make sure we are going to earn that confidence again.
    And I have no doubt that this is within our capacity to fix 
over time. We need to get some people together working on it 
now, because, you know, again, as the economy recovers, as 
growth gets established, it is going to be time then to start 
to move. We can't put this off.
    Mr. Fattah. Has Treasury looked at any new ideas, revenue-
raisers?
    Secretary Geithner. As you know, Treasury has a great 
tradition, a great, pragmatic, creative tradition in tax policy 
and elsewhere, of looking at all ideas. And, you know, we will, 
along with OMB, we will provide some support to the commission 
as it goes through this. But we are going to leave the 
commission the task of trying to evaluate the options and help 
educate the American people about the challenges ahead.
    Mr. Fattah. Well, I understand. I appreciate that. The 
commission, obviously, has to have ideas that have been 
rigorously analyzed, and your department is most capable, so 
that they can make an informed choice. So----
    Secretary Geithner. And we will provide that, as we always 
have attempted to traditionally.
    Mr. Fattah. So my last question then is, can we get the 
proposal that I have made in H.R. 4646 analyzed by your 
department, torn apart, and looked at to see whether it can be 
a part of perhaps addressing some of these issues?
    Secretary Geithner. Again, we generally try not to ``tear 
apart'' proposals made by the Appropriations Committee----
    Mr. Fattah. Well, I mean----
    Secretary Geithner [continuing]. But we will take a careful 
look at anything that you all have proposed and asked us to 
take a look at.
    Mr. Fattah. Well, I will ask the chairman to submit it to 
you officially and ask for its review. Thank you.
    Mr. Serrano. Good idea. We will do that.
    Mr. Kirk.
    Mr. Kirk. Thank you, Mr. Chairman.
    You met yesterday with the Prime Minister of Greece. And I 
am particularly concerned by, as The Washington Post reported, 
Greece's problems, critics argue, have only partially to do 
with speculators, more to do with false economic data, broken 
tax system, runaway spending. The Greeks report that only 5,000 
people make over $136,000 in their whole country.
    I am particularly concerned about the role of U.S. 
financial institutions, particularly Goldman Sachs, that as 
Greece got on the heroin of borrowed money, Goldman was the 
crack dealer and did not disclose these increasing liabilities 
to the EU financial system, to the IMF, or to the Fed.
    Now, Papandreou asked you for money and backing. But it 
would seem that not only should we very carefully review any 
request he has, but have you had any frank discussions with 
Goldman about their very questionable role in this?
    Secretary Geithner. Congressman, just to clarify one thing, 
the Prime Minister did not ask me or the President for 
financial assistance yesterday. What he did do was to outline 
the reforms they have enacted so far and the plans they have in 
prospect to help dig themselves out of a unsustainable fiscal 
position and restore growth and competitiveness to that 
economy. He has a lot of challenges to face, but he is 
beginning that process. And he also walked us through their 
discussions with the Europeans to try to make sure they are 
managing through this carefully.
    Now, it is very important that the United States work with 
Europe to put in place a comprehensive set of reforms to 
provide oversight over the derivatives markets. It is important 
to us. It is important to them. It is something you have to do 
globally if you are going to do it effectively.
    And, as you know, we proposed in the House a sweeping set 
of reforms that would bring oversight to all participants in 
those markets, move the standardized parts of those markets on 
to clearinghouses, bring transparency to those markets, make 
sure that our enforcement authorities, the SEC and the CFTC in 
particular, have the ability to police, to goafter, to deter 
fraud and manipulation.
    And that is very important to us. We are going to work very 
closely with the Europeans to help support those reforms. Part 
of the imperative here is to bring as much transparency as we 
can to those markets now.
    Mr. Kirk. Let's go to the question.
    Secretary Geithner. I am coming to your question, which is 
that, you know, I can't comment on any ongoing investigations, 
but, of course, as you have heard the Federal Reserve chairman 
say, the responsible people in the U.S. are taking a careful 
look at these things, as you would expect them to do.
    Mr. Kirk. And so you have called Goldman and said, ``What 
is up?''
    Secretary Geithner. I am not going to comment on anything 
we have done specifically, but I just will draw your attention 
to the statements made by the chairman of the Federal Reserve 
Board and by the SEC, who are the competent authorities in this 
case, that they are going to take a careful look at this stuff, 
again, as you would expect them to do.
    Mr. Kirk. Okay. Yeah.
    As Treasury Secretary, you oversee much of the enforcement 
of the sanctions regime of the United States. We passed 
legislation in 1996, in the Clinton administration, to sanction 
any entity which invests more than $20 million in the energy 
sector of Iran. The Congressional Research Service has 
identified 25 companies that appear to have violated this.
    We now learn that the U.S. Government has provided $107 
billion to companies who are in direct violation, it appears, 
of the Iran Sanctions Act. We also understand that the Ex-Im 
Bank has extended $4.5 billion to entities which have directly 
violated the Iran Sanctions Act. Of the companies that have 
violated the act, 49 of them have no plans to suspend any 
activities in Iran.
    Also, just a few blocks from your office, the World Bank is 
about to send $258 million to the finance ministry of the 
Islamic Republic of Iran. Since we own about 20 percent of the 
IBRD, that is 50 million U.S. Taxpayer dollars under the Obama 
administration that would be paid to the Ahmadinejad treasury.
    We understand that Dalian Industrial made a $700 million 
investment in Iran oil refineries in direct violation of the 
act; that in 2009 the U.S. Army contracted $111 million with 
Dalian. Petrobras invested over $100 million in Iran oil. That 
is five times the trigger level of the act. Ex-Im Bank provided 
recently a $2 billion credit to Petrobras.
    Mazda is in business with the Iranian Revolutionary Guard 
Corps and yet still is winning U.S. Government contracts using 
U.S. taxpayer dollars. Any updates on that?
    Secretary Geithner. Congressman, let me just start by 
commending you for the support you provided for a more 
aggressive approach to implement existing sanctions, to 
strengthen those sanctions. I think you are right on that 
issue. And we are committed to working with countries around 
the world to put in place a stronger, more effective 
enforcement regime globally.
    As you know, the activities of the Iranian Government on 
the nuclear front to support terrorists in the region and 
around the world are a substantial threat to our national 
security interests, to the interests of the countries around 
the region. And we are working very hard, the President is 
working very hard with the Secretary of State to build support 
for a stronger U.N. Resolution. We are working with countries 
to encourage them to more aggressively enforce the existing 
sanctions regimes. The United States is running a very 
effective program now to tighten those existing sanctions using 
the authority we have. And we are going to work to build on 
that record.
    And, as you know, the Treasury plays a very important role 
on the financial side. And we have had remarkable success in 
making it much harder for those entities to get access to 
finance around the world because of the successful work with 
other countries to tighten up those sanctions----
    Mr. Kirk. But no success in stopping U.S. taxpayer money 
going from companies who are directly violating, no success 
whatsoever. And I have raised this with you before: no success, 
no effort whatsoever to stop World Bank payments----
    Secretary Geithner. No, no. Let me--I want to address--you 
know a lot about this, Congressman. And I know you have written 
to the Secretary of State about the concerns you began with, 
which are enforcement of the----
    Mr. Kirk. Iran Sanctions Act.
    Secretary Geithner [continuing]. Iran Sanctions Act. But 
let me just address the World Bank concerns directly.
    As you know, the World Bank has approved no new loans to 
Iran since, I believe, 1985. There are only----
    Mr. Kirk. No, that is not the issue. The issue is----
    Secretary Geithner. You are right, you are right. I am 
coming to it.
    There are only two loans outstanding where the World Bank 
is still disbursing. Those are two loans that go to water 
projects that are consistent with the humanitarian exemption 
that is under the U.N. resolution, permitted under the U.N. 
Resolution. These are modest----
    Mr. Kirk. I am running out of time, but are you naive 
enough to think that the money paid----
    Secretary Geithner. I don't have a naive bone in my body, 
Congressman, not a naive bone.
    Mr. Kirk. Okay. Okay.
    Mr. Serrano. Can we let the man respond?
    Secretary Geithner. I am saying that, as you know----
    Mr. Kirk. Are you naive enough to think that $258 million 
paid from the World Bank to the Ahmadinejad treasury actually 
goes to those projects? Do you actually think that?
    Secretary Geithner. No, what I am saying is that the U.S. 
has worked very effectively across administrations to make sure 
the World Bank was not authorizing any new loans. That has been 
successful policy of the government for a long period of time. 
The only two loans outstanding are these two loans permitted 
under the U.N. Resolution that go to support humanitarian and 
development projects.
    Now, I just want you to know that we agree with you and 
share your objective of making sure we are working around the 
world, as we have been doing, to tighten the effectiveness of 
this existing enforcement regime. And you are right to point 
out that it is an ongoing challenge. You can't stay still. If 
you don't keep intensifying the sanctions regime, people will 
get around these existing regimes. They will be able to find 
new opportunities to exploit it.
    But for us to be effective, we have to work with countries 
around the world to tighten up this net. And we are committed 
to that, and we are going to do it.
    Mr. Kirk. I just would hope that this is--right now, given 
the New York Times article, it is less to do about what is 
happening with other governments and more that the U.S. 
Government stops contracting with companies that do business 
with Iran.
    Secretary Geithner. That I wouldn't agree with. But I 
think, again, we have more in common on this than we may have 
on many other issues----
    Mr. Kirk. Okay.
    Secretary Geithner [continuing]. Which is, you are right to 
underscore the importance to our national security.
    Mr. Kirk. Yep.
    Secretary Geithner. But the critical thing for us to do is 
to make sure we are not just using our authority that Congress 
has provided to tighten up these sanctions, to make sure we get 
other countries to move with us, as they are doing on a--I 
would say we are having some impact now, and it is get getting 
some traction.
    Mr. Kirk. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    There is no way--no reflection on you, Mr. Secretary--there 
is no way that Mrs. Emerson and I can pass up this moment just 
to note that, if any of those folks had invested $2 in Cuba, it 
would be a major scandal throughout the country.
    Mr. Schiff.
    Mr. Schiff. Thank you, Mr. Chairman.
    Thank you for being here, Mr. Secretary.
    I have questions, really, on two different areas. The first 
is the proposal of the President to use some of the TARP 
funding to encourage small banks, community banks to lend to 
small businesses. I would like to know what the status of that 
is and what conditions or measures can be put in place to make 
sure that the small banks don't simply hold on to the money.
    I have heard--well, we have all gotten unstoppable feedback 
from small businesses in our districts that institutions they 
have had long relationships with, where they have perfect 
credit history, won't lend to them. They are arguing that the 
regulators--the banks will tell them the regulators won't let 
them lend. I don't know whether that is an excuse the banks are 
using or whether regulators really are putting on that kind of 
pressure.
    I am also hearing feedback, though, that the small banks 
are saying, ``Hey, you know, if we get the money, we will keep 
it, and we are not going to necessarily use it to lend.'' So in 
order to avoid some of the pitfalls that characterize the 
support for the big banks that didn't always turn around and 
lend it, what precautions have been put in place?
    And the second question is on the jobs issue. This recovery 
so far looks different than prior recoveries. It has not been 
as robust, even though the GDP growth last quarter was 
encouraging. Still, the job numbers are sluggish. And I am 
interested to know your both sense of why the jobs aren't 
bouncing back as quickly as in prior recessions and what are 
the most significant things that we can do to stimulate that 
job growth.
    Secretary Geithner. Excellent questions.
    First, on small-business lending, we are proposing, really, 
four separate things to help address this problem. One is we 
have a series of well-designed, targeted tax measures that go 
directly to small businesses: expensing, depreciation, zero 
capital gains on new investments in small businesses, new jobs 
tax credit. The second is to expand substantially SBA's 
existing guarantee programs. A variety of specific proposals in 
the President's plan, and we think those would be very 
effective.
    Those are important, but they are not sufficient. We are 
encouraging the supervisors--they are independent of the 
Treasury, but we are encouraging them to try to make sure they 
are providing a more balanced amount of guidance to examiners 
across the country so the examiners don't overcorrect and 
contribute unnecessarily to tightening of credit conditions 
that would hurt viable businesses.
    In addition to that, we propose, as you said, a $30 billion 
small-business lending fund that would give capital to small 
community banks that commit to use that capital to expand 
lending. We designed this in a way that gives pretty powerful 
incentives to lend the money out. So if you increase lending to 
small businesses above a certain baseline, then we have reduced 
the dividend you pay the Treasury over time.
    Now, our view is that is a pretty powerful package, set of 
proposals. And you can't be certain that small banks will take 
a dollar of capital and increase lending. But if small banks 
who could otherwise raise capital in a normal market can't 
raise capital, don't have access to capital, then they will cut 
lending. And that has a pretty negative effect on business 
access to credit. So capital is a very effective way of helping 
mitigate this problem.
    Mr. Schiff. On that last point, though, what baseline are 
you using to measure whether they increase lending? And, also, 
do you buy what the banks are saying about the kind of 
regulatory straitjacket they are in, or do you think they are 
using that as a fall guy?
    Secretary Geithner. I think you said it right. You know, 
think of it this way: A bank has been doing business with a 
customer for 30 years. The bank made a bunch of other decisions 
with a bunch of other clients in the real estate area that cost 
it a lot of money, left it very exposed, not enough capital. It 
is going to have to cut back on assets and lending to survive. 
What do you say to your customer that has been a good customer 
for 30 years? It is easier to say that the supervisor is making 
me do it than to explain that I made a bunch of judgments that 
got me too exposed to commercial real estate. So I think there 
is a lot going on.
    But, on the other hand, in every recession what happens is 
that there is a risk that examiners, after a period where in 
hindsight they look like they were too easy, tend to 
overcorrect. And so I think it is good that the leaders of our 
supervisors, bank supervisors across the country--and this is 
the FDIC, the Fed, the OCC, and the OTS--they need to make sure 
they are leaning against that tendency to overcorrect in a 
recession, because that can cause a lot of damage too.
    Just briefly on the job front----
    Mr. Schiff. Before you go, what is the baseline?
    Secretary Geithner. Oh, I am sorry, the baseline. I 
believe--but I have to check and make sure I say this 
correctly--I think we leave it at the level in 2009. We have 
designed that in a way--we think that is a realistic baseline.
    You know, the pipes, the parts of this financial system are 
still clogged. You can't force money through those pipes. We 
can't force banks to lend without taking a riskthat the 
government ends up with too much loss and risk. But we think we have 
designed this in a way that would substantially increase the odds that 
we are really helping mitigate the small business credit problem, where 
it remains.
    On the jobs front, you know, you won't have jobs without 
growth. Growth has to come first. There is always a lag. But I 
think most economists across the country would say we are on 
the verge now of seeing a sustained level of positive job 
growth for the country as a whole.
    And I think the best story, looking back, of why 
unemployment increased so much and why job losses were so steep 
was just that you saw just shattering damage to business 
confidence across the country. People were just too scared to 
do anything, and they cut back just dramatically because of the 
fear that they faced a very long period of no demand for their 
products. And that is going to take some time to heal, but it 
is beginning to heal. As your colleague said, you are seeing 
the early signs now: hours increasing, temp employment 
increasing. And that should----
    Mr. Schiff. One last short question, Mr. Chairman.
    Does this recovery look different to you? GDP growth was 
greater than expected but still smaller than in prior 
recoveries, and the commensurate job situation has improved. 
Why do you think this looks different?
    Secretary Geithner. I think, in many ways, growth came more 
quickly, stronger, and more broad-based than many people 
expected. In that sense, it is encouraging.
    But because this is a recession caused by a long period of 
excessive borrowing, a huge overinvestment in real estate, a 
huge increase in leverage in the financial sector, there was no 
way that recovery was not going to be dampened by those basic 
forces. So, as households across the country save more, start 
to deduce their debt burdens, as the financial sector digs out 
of this terrible mess it was in, any recovery was going to face 
significant headwinds in that context.
    So we are seeing, I think, the necessary, inevitable 
consequence of a recession that is borne in part of a very 
damaging financial real estate boom that was fed by excessive 
borrowing and lending.
    Mr. Schiff. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    Mr. Culberson.
    Mr. Culberson. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary. I heard you talk a lot this 
afternoon about the importance of bringing down the deficit, 
controlling spending, and I appreciate your saying those 
things. I wondered if you would tell for the record, could you 
explain how the creation of the Obama health care entitlement 
will help bring down deficits?
    Secretary Geithner. I will be happy to do that. That is not 
the way I would describe the health reform plan, but I will be 
happy to describe and answer the question.
    The CBO estimates, and they are the independent scorekeeper 
of the Congress, they estimate that the reforms that are in 
prospect now would reduce the long-term deficits, the 10-year 
deficit, and would substantially reduce the rate of growth in 
health care expenditures over the succeeding decades.
    Mr. Culberson. Are you talking about the Senate bill?
    Secretary Geithner. Well, I would say that you can take the 
Senate bill as with suggested changes that the administration 
put out a few weeks ago, but they are all in the same basic 
ballpark. You say a meaningful reduction in the 10 years 
numbers and a very substantial reduction in succeeding decades. 
And that is because, as you know, that the biggest driver of 
the long-term deficit is the rate of growth in health care 
expenditures. It is more important than, for example, the fact 
that our population is aging. So there is no path of fiscal 
responsibility that does not go through health care reform that 
reduces the rate of growth in costs.
    Mr. Culberson. But the reductions they see in the future 
are all based on assumed reductions in health care expenditures 
in later years.
    Secretary Geithner. Well, again, they are doing what they 
always do is they take proposals Congress is considering, and 
they quantify those estimates on future spending by the 
Congress. They are just doing what they always do.
    Mr. Culberson. Right. And you recognize that those 
proposals entail 6 years of spending with 10 years of revenue.
    Secretary Geithner. Again, I am not trying to characterize 
their proposal. What I said is accurate in their estimates of 
the----
    Mr. Culberson. You are talking about the CBO?
    Secretary Geithner. Yes, CBO. But again, the most important 
thing to point out, which I know you understand, is that if you 
care about the fiscal position of the United States, you are 
worried about those long-term deficits, there is no way to deal 
with that without reforming the health care system in a way 
that reduces the rate of grown in costs.
    Mr. Culberson. Well, those of us on the fiscal conservative 
side are approaching it from the perspective of focusing on 
making health care affordable and portable so you can buy it 
across State lines and shop. I want to be able to buy coverage 
from my carrier in Arizona or Texas. That law needs to be 
changed. We need to focus on that, on medical malpractice 
reform to protect doctors from frivolous lawsuits has worked so 
successfully in Texas, on allowing small businesses to pool 
their ability to negotiate better rates together. We could do 
those things without--and bring down the cost of health 
insurance to make it affordable and portable. That is where, 
from our perspective as fiscal conservatives, the focus needs 
to be.
    But I just have to tell you the credibility of the 
administration is not very high when you or the administration 
attempts to persuade taxpayers who are--you know, they pay 
attention, and they--it just defies common sense to believe 
that we can, as your proposals do, expand coverage to 20 to 30 
million new people that will be brought into this new 
entitlement, which is clearly the mother--this is the mother of 
all entitlement programs.
    Secretary Geithner. Congressman.
    Mr. Culberson. You are going to bring in 20- to 30-million 
new people, and you are going to reduce deficits, and this is 
just not credible.
    Secretary Geithner. All I am citing----
    Mr. Culberson. It is just not credible.
    Secretary Geithner. All I am citing is the estimates of 
CBO.
    Mr. Culberson. Of CBO. Do you believe those estimates are 
accurate?
    Secretary Geithner. Well, I think they are the best 
estimates we have. And again, they have the virtue of being a 
fair and independent arbiter, nonpartisan arbiter, of the 
proposals now working their way through Congress. So you can 
challenge those things, but those are the ones Congress will 
rely on to score your proposals as well as the 
administration's.
    Mr. Culberson. We are, as you have said, in an 
unsustainable fiscal position, and I am as concerned as I know 
every one on this committee is, no doubt, that we would become 
Greece.
    Secretary Geithner. There is no risk of that. That will not 
happen in the United States.
    Mr. Culberson. We are spending money--as of June 1st we are 
running on the Nation's credit card. My office has calculated, 
and if you look at the available revenue as of June 1st this 
year, everything we spend beyond that point is borrowed money.
    And it is a fact, and I have to say also in your opening 
remarks earlier, Mr. Chairman, if I could very quickly, we are 
kicking the Bush administration. You can't just blame others 
for the scale of the deficit. The deficits that you inherited 
were way too high. I voted against virtually all of those major 
Bush spending issues. But this, Nancy Pelosi and Barack Obama 
have managed to spend over $2.5 trillion in about 1 year. That 
is just the big-ticket items. You spent more money in less time 
than any administration in the history of the United States. 
You have created more debt than any other administration in 
your budgets than any other administration in the history of 
the country, so it just isn't credible. You damage your own----
    Secretary Geithner. I would be happy to measure our record 
on fiscal responsibility with the record of the previous 8 
years. I will just give you one example. I was a career civil 
servant in the Treasury Department. I left the Treasury 
Department in 2001. At that point the CBO projected future 
surpluses of $5 trillion. Eight years later those surpluses 
turned into $8 trillion in projected future deficits.
    I would be happy to compare the basic records of what we 
achieved in that period of time on fiscal responsibility with 
the record of the succeeding 8 years, and I will say, not to 
make a political point, it is just a fair thing. And I think 
the important thing to recognize is over that period of time, 
when we demonstrated as a country that we were able to produce 
surpluses, we saw a record of trong private investment growth, 
strong productivity growth----
    Mr. Culberson. Because of tax cuts.
    Secretary Geithner [continuing]. Strong growth in incomes.
    No. In the----
    Mr. Culberson. In the Bush administration.
    Secretary Geithner. No, no. I was comparing the growth 
record of the previous 8 years. The growth record of the 8 
years under the Bush administration did not compare favorably 
to the preceding 8 years. It was worse on growth, worse on any 
basic measure of basic returns, and, again, worse on the thing 
you care about a lot, which is on basic tests of fiscal 
responsibility.
    Mr. Culberson. I am exceeding my time. The Chairman is 
being very gracious.
    Secretary Geithner. We can't change the past. I know you 
voted against a lot of those proposals, but we can't change the 
past. And right now we need to stand together and admit that 
deficits matter, tax cuts aren't free. We have to pay for stuff 
we propose to enact, and we need to bring our fiscal deficits 
back down to a point where they are sustainable over time, and 
I look forward to working with you in how to do that.
    Mr. Culberson. Thank you. We want to you live up to those 
words, that is all.
    Mr. Serrano. Mr. Crenshaw.
    Mr. Crenshaw. Thank you, Mr. Chairman.
    Welcome back. I have two questions. One kind of has to do 
with philosophy of managing these assets, and the other is kind 
of a quick question about the tax collections.
    You mention the TARP funds are being repaid quicker and in 
a greater amount than first thought. I think that is good news. 
I think we ought to do everything we can to maximize those 
dollars. But when you look at AIG, it seems to be, again, we 
are a majority shareholder, and so I guess we are involved in 
their decisions. And it seems to me I read they sold two life 
companies last week, $51 billion, which will go back to 
American taxpayers. That is good news.
    But if the philosophy there is to sell off these assets, it 
seems to me sooner or later you will kind of run out of assets 
to sell. You will have a company that has kind of been 
downsized, and you wonder what kind of capability itwill have 
to make any further payments. I think they have over $100 billion, and 
I think they paid back $15 billion maybe. So we are still on the hook.
    On the other hand, when I look at General Motors, as I 
understand it, if you take General Motors, Chrysler and GMAC, 
we maybe gave them $80 billion, and I think maybe General 
Motors was about $50 billion of that. And then I read where you 
said we are probably going to lose $30 billion on General 
Motors' deal. But I guess it seems like if the philosophy there 
is to--GM has kind of reinstated some of the dealerships, they 
are increasing their sales, maybe their market share is going 
to increase. So you would think that is one way to deal with 
the situation. You would think if they become an ongoing 
entity, and grow, and increase sales, and increase market 
share, they will be even in a better position to pay back--you 
know, of the $50 billion, maybe they end up paying it all back.
    So just help me understand the two different philosophies, 
because we must be involved in those decisions. Is it short-
sighted on AIG? I am not asking whether we should have just 
broken it up early on, but we own it, and we want to get paid 
back as much as we can. And those are two different kind of 
case studies. Explain to me how it is working, how you think 
that works in the long run.
    Secretary Geithner. Excellent question. It is a difficult 
judgment. The two basic objectives we try to balance are to 
maximize the returns to the taxpayer, minimize the risk of the 
loss to the taxpayer. And we want to, frankly, get out as quick 
as we can. Those two objectives will sometimes be in conflict, 
as you said. So we are going to try to balance them.
    These companies where we are reluctant shareholders in 
these companies are dramatically in different positions, and 
the precise strategy is going to differ because of differing 
conditions. We are going to try to make sure we manage these in 
a way to minimize any risk of loss, maximize the achievable 
return, but we want to get out as quickly as we can, because we 
don't want to have the American Government involved in these 
companies a day longer than is necessary. So we will do it as 
quickly as we can, subject to that constraint that we don't 
want to leave the American taxpayer exposed to the risk of 
unnecessary loss in that case.
    You are right to point out that we are making really 
remarkable progress. I would say the board of AIG is making 
remarkable progress in reducing the risk and restructuring the 
company in a way that is going to reduce the expected loss to 
the taxpayer very, very dramatically. They have come down 
dramatically in that period of time. We are still exposed to 
substantial risk of loss, as we are in the other companies. But 
we are going to be very careful in managing those in a way to 
balance those two basic objectives.
    Again, I think we are being consistent in applying them, 
but where they differ is just because of inherent differences 
in the position of those companies and the opportunities we 
have to get out earlier.
    Mr. Crenshaw. Thank you. And the same question, just a 
brief question, I read in your testimony where there are going 
to be some new initiatives in terms of tax collection. You 
spend $250 million, which will--according to your testimony, 
that is going to bring in another $2 billion. Every time I read 
that, I can't help but kind of ask the question, how do know; 
how do you determine that spending $250 million on compliance 
is going to end up bringing you $2 billion? And then based on 
that, how do you decide, well, instead of spending $500 
million, we get $400 billion, or up and down the scales.
    I am just curious, because my colleagues know that from 
time to time Members of Congress use the so-called tax gap as 
like a piggy bank and say all you have to do, if you spend a 
billion, you get this. And I have always wondered are there any 
facts and figures to kind of verify that? And how do you decide 
to limit to $250 billion--$250 million to say that will get us 
$2 billion? And somebody says, well, gee, four times that would 
get you four times the money.
    Secretary Geithner. I asked the same questions when we had 
an initial discussion with Commissioner Shulman about what 
makes sense in this area. I think what he will tell you, I 
think he told you when he was up here before, and I will be 
happy to provide in more detail in writing and answer that 
question, but what he said is that those are pretty 
conservative estimates based on experience over in the past of 
putting more enforcement resources in targeted areas to 
generate better compliance. I think they are pretty 
conservative. I have seen much higher estimates than that.
    On the question which I asked, the same question, why not 
more? If the return is that high, then why not more? Part of it 
is just their judgment about this pace at which they can really 
bring on capable people to do this. There are some constraints 
on how quickly you can scale up those operations. We are trying 
to be relatively careful, given that we don't live in a world 
of unlimited resources, to do it in ways where we are confident 
you are going to see a high return. That is the best answer I 
can give, but I would be happy to follow up.
    Mr. Crenshaw. I appreciate that. You have stolen the ideas 
of all the Members of Congress, so we can't go talking about 
spending an extra $250 million to get another $4 billion. You 
kind of maxed out on that.
    Secretary Geithner. The virtue of what your colleague just 
pointed out, which is CBO is the arbiter of the extent to which 
you can actually justify investments on some return like that. 
We don't get to decide; you guys get to decide based on those 
estimates.
    Mr. Crenshaw. Thank you.
    Thank you, Mr. Chairman.
    Mr. Serrano. Ms. Wasserman Schultz.
    Ms. Wasserman Schultz. Thank you, Mr. Chairman.
    Mr. Secretary, the work that you have been doing with the 
TARP funds and the Recovery Act funds is obviously starting to 
take hold. And we have that little pinhole of a light at the 
end of tunnel that we are going to hopefully, as the recovery 
funds continue to get out there in the next couple of quarters, 
we will blow a wider hole into the tunnel.
    That having been said, I come from the State of Florida 
where the foreclosure crisis definitely puts a brake on the 
progress that we have been able to make, even with those TARP 
and stimulus funds out there. The data that I have seen 
nationwide is about 25 percent of all homeowners are upside 
down. In my State it is 46 percent, and in south Florida in 
particular it is 46 percent of all homeowners being under 
water. So the HAMP program, the Home Affordable Modification 
Program, is struggling because you have so many upside-down 
homeowners.
    So can you talk about the hardest hit fund and how thatis 
going to start to address the problem in a more effective manner? But 
specifically I mean, just to give you an example of the foreclosure 
crisis in south Florida, we have more than 97,000 foreclosures filed 
just in my 3-county area in the last year. I mean, we have got to get 
that turned around. And one of the most frustrating experiences that 
people will have is both with the HAMP program--and I hope that the 
hardest hit fund is going to fix this--is the banks just refuse to work 
with homeowners. They won't modify loans. They give them the runaround. 
I have dealt with constituents who spent months and months, willing 
constituents who can afford to make mortgage payments, but who the bank 
will absolutely not work with. So why not walk away? What is the point 
of continuing upside down?
    Secretary Geithner. You are exactly right, and I agree 
with, I think, everything you said.
    It is important to step back for a second and look back at 
what has happened over the past year. It is important to 
emphasize this before I respond directly to your question. When 
I think a year ago today, if you looked at expectations of what 
is happening in house prices in the future, people thought 
house prices might decline another 30 percent across the 
country. Instead we have seen more than 6 months of relative 
stability in house prices across the country on average for the 
first time. And that is very, very important to confidence, 
because houses are such an important source of economic 
security to many Americans.
    The HAMP program, as you know, has provided very, very 
substantial cash flow relief to now 1 million Americans; 1 
million Americans are now getting an average of $500 more a 
month in their pockets because of this program. It is not just 
that they are able to stay in their homes, but have very 
substantial reduction in their size of the mortgage 
obligations. This is a very large, very substantial tax cut. We 
are seeing very substantial increases in convergence to 
permanence, not as much as we would like still.
    But you are right to emphasize that there is just a huge 
amount of pain and damage still across the country, not just in 
Florida. In Florida and the other States targeted by this 
initiative, it is still just devastating damage. Again, it is 
just fundamentally people who did not borrow too much, who are 
very responsible, just the victims of the broader collapse, 
irresponsibility of everyone else. And we have an obligation as 
a government and a country to do everything we can to help 
those people who we can legitimately help stay in their homes.
    Now, this program targets five States where the problems 
are most acute, the combination of house price declines and 
high unemployment are most acute. We are providing substantial 
resources to help reinforce State efforts to experiment in 
assistance for the unemployed, for people who are under water, 
modifying mortgage programs, who want to support innovations at 
a State level, and maybe there are some lessons for that for 
other States nationally.
    We are also looking at, and we are looking carefully at, a 
series of other enhancements to the existing program to try to 
reach more people who are unemployed, and to help deal with the 
substantial number of Americans still who are--because they are 
under water, as you put it, they have negative equity, can't 
refinance, can't sell their homes.
    So we are looking at ways to try to reach more people, but 
it is very terrible out there still in the housing market, and 
it is very important that we keep working at trying to make 
sure we are reaching more people.
    And I want to end which is to say that it is very important 
for the servicers across the country to do a better job at 
helping these people get help.
    Ms. Wasserman Schultz. But they are not.
    Secretary Geithner. And again, the one thing we do that is 
very important is you can see now in the public domain every 
month very, very detailed numbers on how servicers are doing 
reaching these people. You can see how one bank is doing with 
another bank. And so they can look and see if their bank and 
their servicer is doing well or poorly. But I will just say my 
view is none of them are doing enough. They need to put 
substantially more resources in this program, and they need to 
do a better job of making sure they are reaching the people 
that we can legitimately reach with these programs.
    Ms. Wasserman Schultz. But mechanically how can we ensure 
that that happens, because I tell you, I stand in front of town 
hall meeting after town hall meeting where I have constituents 
legitimately stand up and say--we all do--legitimately stand up 
and say, we bailed them out; my bank wouldn't be in business 
anymore if it were not for the United States Government.
    Secretary Geithner. Absolutely. That is why people are so 
angry about it. So we have a variety of things. We have a 
detailed second look to make sure people who are eligible are 
not being denied. We make sure that we have got teams of people 
to go into these servicers and take a look at how they are 
doing. We are trying to put enormous pressure on them to do it. 
And we are going to keep at that, because we have a long way to 
go, and they can do it dramatically better.
    Ms. Wasserman Schultz. Just one more question, Mr. 
Chairman.
    I know you are going to be shocked I am asking a question 
about Cuba, but I feel a sense of obligation. In the last week 
or so, we had the tragic death of Orlando Zapata Tamayo, who 
was on an 85-day hunger strike, and who, along with the other 
dissidents, continued to protest the abuses of the Castro 
regime. I am particularly concerned about the prodemocracy 
efforts on the island and getting the funds that we have 
appropriated for the last 2 fiscal years to them.
    What is being done to expedite the licensing process to 
ensure that direct assistance and aid is being sent quickly to 
those prodemocracy organizations? The money is sort of being 
sat on right now for the last 2 fiscal years, and I realize 
that we need to be careful, and that we need to make sure that 
they are going to legitimate dissident organizations and 
ensuring that there is a vibrant prodemocracy movement, but 
sitting in the Treasury in Washington isn't going to accomplish 
that.
    Secretary Geithner. Congresswoman, I share your concern and 
would be happy to try to respond in more detail as to what we 
can do to be responsive to that concern. I would be happy to 
come talk to you and walk through that with you.
    Ms. Wasserman Schultz. That would be great.
    Secretary Geithner. I know there are strong feelings on 
both sides of the debate.
    Ms. Wasserman Schultz. Especially in this room.
    Secretary Geithner. Especially in this room. And we are 
doing our best to make sure we are enforcing the laws as 
written and we are meeting the objectives of the Congress.
    Ms. Wasserman Schultz. So you can follow up with me in more 
detail?
    Secretary Geithner. Of course. As on the issue raised by 
any of your colleagues I will be happy to listen more carefully 
and make sure that we understand your concerns and see if we 
can meet them.
    Ms. Wasserman Schultz. I want to press you a little bit 
more, though, because there are funds that we have appropriated 
for the last 2 fiscal years that aren't being spent and----
    Secretary Geithner. I am not trying to be unresponsive. I 
have to talk to my colleagues a little more to understand 
exactly what it is.
    Ms. Wasserman Schultz. The article that I just read the 
other day talked about how your Department is making sure that 
there are safeguards put in place and that we have the 
accountability measures, but it is an extraordinarily long time 
to be examining that.
    Secretary Geithner. We have careful people, and their 
obligation is to make sure they are implementing the law and 
following the intent of Congress. I am sure that is what they 
are doing, but I will take a careful look at it.
    Ms. Wasserman Schultz. Thank you very much.
    I yield back, Mr. Chairman.
    Mr. Serrano. Thank you.
    Mr. Secretary, as I noted in my hearing with IRS 
Commissioner Shulman a couple of weeks ago, I am concerned by 
several proposed cuts to programs that provide important 
services for low-income and working families, including the 
Volunteer Income Tax Assistant Grant program and Tax Counseling 
for the Elderly program. Do you believe that these cuts reflect 
the appropriate priorities as we struggle to recover from the 
economic downturn?
    Let me just say, the IRS, similar to the immigration 
department, it seems that some of those agencies, not that they 
have bad reputations, but they have a lot of people complaining 
about this all the time. And so when I saw the IRS begin to 
move in this direction, I said, what a wonderful way not only 
of helping people, but also helping the image of the agency, 
because now you are going to assist those who need help with 
those forms and everything else. So in terms of is it a real 
savings, in that budget, because of the message that it sends 
out that the people who need help the most are going to be cut 
out.
    Secretary Geithner. Mr. Chairman, I understand your 
concerns, and I would be happy to listen to those concerns in 
more detail. The Commissioner and I both believe that these are 
sensible proposals because they help us to increase resources 
we are providing to improve taxpayer servicers more generally. 
And we think that will help the same people that these programs 
help.
    But I would be happy to talk to you about it in more about 
detail. We are making difficult choices trying to make sure how 
we are using scarce resources as effectively against these 
things, and we are proposing very substantial increases in 
programs to improve taxpayer services generally, and we think 
that will help reach some of the same people that these 
programs you refer to are designed to reach.
    Mr. Serrano. Right. But these programs were created with 
the intent of both helping and showing that there was a desire 
to help. One is not necessarily the same as the other, but they 
both can work towards the same goal. So aren't you concerned 
about the message you are sending at the very time that the IRS 
was beginning to gain, I think, more respect from the public?
    Secretary Geithner. The IRS is going to continue to work 
very hard to do the right thing and earn the respect and 
confidence of the American people. One way they can do that is 
to make sure they are working very hard, and we are giving them 
the resources they need to improve service, to make it easier 
for Americans to meet their obligations. That is an objective 
that the Commissioner and I both share. And the Commissioner 
has done a very, very good job in helping improve the record of 
service IRS employees do.
    But again, Mr. Chairman, I respect your concerns and 
understand your concerns. I appreciate your support for those 
programs, highlighting their benefits, and we will work with 
you to make sure we come up with the right balance.
    Mr. Serrano. Okay. Because, you know, if this was a course 
in legislative politics 101, the professor would say, you 
shouldn't come before Serrano cutting these programs; it is not 
going to do well. And I suspect there are other folks on this 
panel who feel the same way, because this is one statement we 
can make on behalf of a community that needs help.
    Let us talk about the tax gap. How big do you think the 
overall tax gap currently is, and how much do international 
activities account for that? Where are the best opportunities 
for closing the tax gap?
    Secretary Geithner. We put out a very detailed report last 
year that went through the latest estimates of the size of the 
gap and the sources of that gap. As you highlight in your 
opening statement, the President in his budget has proposed a 
variety of ways to help make some progress reducing that gap. 
One of those proposals is to reform the tax treatment of 
overseas earnings of American companies. And the basic premise 
that underlies that proposal, just to make one specific 
example, is if you have two companies in your district, one 
invests overseas, one invests in your district, you don't want 
them facing different tax treatment.You don't want the Tax Code 
to create incentives to shift investment of jobs overseas. So we 
propose some changes to the program that would help address that issue.
    There is a range of proposals to the President's budget 
that we think are making headway. We are making a lot of 
progress, not just with Switzerland, but a range of countries 
around the world, to reduce opportunities for evasion, and we 
are committed, and we are going to keep at it. But the report 
that we laid out last year we have to provide the committee 
again is a very good, detailed analysis of the sources, 
principal drivers of the gap and the policies that we think 
would have the highest return in starting to close that gap.
    Mr. Serrano. Well, before I turn it over to Mrs. Emerson, 
let me ask my question--she will ask one, too--and make my one 
comment that you don't have to respond to.
    So much of what we discussed around Cuba is helping people 
inside Cuba oppose the government. For all intents and 
purposes, that is what it is. I often wonder how would we react 
to a foreign government funding groups here to oppose our 
government. Even during a government I didn't like, I would be 
a little upset, but anyway that is another issue.
    Last year the Department followed the lead of this 
subcommittee and allowed travel to Cuba by Cuban Americans 
visiting their families. The Department is also implementing an 
appropriations provision that partially relaxes the terms under 
which payment may be received on exports of agricultural and 
medical goods to Cuba. Mr. Secretary, please update us as to 
how implementation is proceeding with respect to these two 
areas of U.S. transactions with Cuba.
    Secretary Geithner. I can't do that justice in the hearing 
today, but I am happy to do it in writing. My sense is that it 
is going reasonably well, but, of course, open to other 
perspectives, and happy to try to respond to any specific 
concerns you have about how we are implementing. I would be 
happy to respond in detail in writing.
    Mr. Serrano. Then we will hold you to that, and we will ask 
you to write to us and tell us what is going on.
    And with that I turn to Mrs. Emerson.
    Mrs. Emerson. Thank you, Mr. Chairman.
    Mr. Secretary, looking back at the financial crisis, I, 
like all my colleagues and many Americans, are very upset with 
the lack of regulatory oversight that led to the climate in 
which our entire financial system was undermined. Our small 
banks in Missouri survived pretty well, we are tough and have 
got some good people, but life still isn't getting a lot easier 
for them.
    The burden of bank foreclosures falls entirely on the banks 
that survive this crisis, and as surviving banks continue to do 
their best to serve their customers, I do hope the Treasury and 
FDIC will give every consideration to fair descriptions of the 
risks they face and the Deposit Insurance Fund assessments that 
are based on those measurements of risk.
    And I also hope that, looking at the ultimate analysis of 
the financial crisis, something would be done in the future to 
perhaps allow FDIC to get more involved with or perhaps offer 
guidance to American banks who they identify as actually facing 
increasing risks. Perhaps by putting the bank back on the right 
track, we could limit the number of banks that must close their 
doors. Obviously the number of customers who have to turn to 
the Deposit Insurance Fund to be made whole, and a very obvious 
lack of consumer confidence in financial products.
    My real question focuses on one enforcement aspect of this 
matter. Do you all look at the financial statements of failed 
banks to see if they misrepresented their financial conditions, 
if executives took unreasonable compensation or bonuses out 
right before the bank failed? Can you all at Treasury claw back 
excessive compensation from such a bank? Because obviously the 
alternative is the Deposit Insurance Fund ends up making up the 
difference when they try to make depositors whole. And I think 
there is a Senate effort on this, but I am just curious if, in 
fact, you can claw back under those certain circumstances.
    Secretary Geithner. Congresswoman, I think I am correct in 
saying that--I will correct this if I get it slightly wrong--
which is in the Recovery Act I believe that Congress passed a 
series of provisions to provide greater constraints, encourage 
reforms in executive compensation in institutions that took 
financial resources from the government. As part of that, if I 
am not mistaken, the government was given the authority to claw 
back compensation if there was clear misrepresentation of 
financial data.
    But I will take a more careful look at the way the law is 
written and will be happy to respond in more detail in writing. 
It is a sensible provision, and I will fully support that basic 
objective.
    We are trying to make sure we are bringing about 
fundamental reform and compensation practices across the 
finance industry because we want to make sure in the future 
that we don't see a repeat of the set of compensation practices 
that provided huge returns for taking lots of risks and no 
exposure to the downside.
    Mrs. Emerson. I appreciate that, and I will be grateful to 
get a written response from you.
    Let me ask you about too big to fail. Five banks control 80 
percent of U.S. deposits, and I guess that wins them the 
moniker of too big to fail.
    Secretary Geithner. Well, not--okay, keep going. I am 
sorry.
    Mrs. Emerson. No. Am I incorrect that five banks control 
about 80 percent of U.S. Deposits?
    Secretary Geithner. No, keep going. I will be happy to give 
the details. I think that is a little high, but it may not be. 
I am going to support your concern so----
    Mrs. Emerson. So the financial crisis pretty well proved 
that ``too big to fail'' is a misnomer without the guarantee of 
huge amounts of capital from the U.S. Government. If we keep 
borrowing money at the present rate, we may even test the 
hypothesis of whether the U.S. Treasury is too big to fail.
    Let me ask you, is it good to have institutions like these 
dominating the American market for savings? It makes me think 
about the old Ma Bell, if you will, which was disassembled in 
1984. Could you unwind those big banks that are too big to fail 
without government taxpayer assistance?
    Secretary Geithner. Critical issue, critical test of the 
financial reform plan and whether we fix what is broken, 
whether we address this problem of too big to fail, you can't 
have a financial system where the management of the firm, the 
boards of directors and the equity holders expect the 
government to come in and save them from their mistakes in the 
event that that they manage themselves to the edge of the 
cliff, as we saw happen for so many institutions in this 
crisis. So that is something that we have to fix and end.
    The only way to do it is to make sure first that you have 
the ability and the authority to constrain risk taking by those 
institutions ahead of the fall. That means much more 
conservative capital requirements; constraints on risk taking 
applied more effectively, more evenly across those 
institutions. That is necessary; it is not sufficient. You also 
want to make sure that if they get themselves to the point 
where, again, they can't survive without government assistance, 
you want to make sure the government has the ability, and the 
tools, and the authority to take them over temporarily, break 
them up, wind them down, sell the businesses off, and make sure 
the taxpayer is not exposed to risk of loss.
    This is the third thing that is important as we proposed 
this just to make sure that if the government is exposed to any 
risk of loss in doing that, they will recoup that loss in the 
form of a fee applied to the financial system over time, as we 
have proposed in the President's proposed fee on banks.
    So you need the ability to limit risk taking ahead of the 
crash, you need to prevent the future crisis, but in the event 
that companies are able to still mismanage themselves, in 
addition the ability to step in and put them through a kind of 
quasi bankruptcy regime and do that in a way that doesn't leave 
the taxpayer exposed to any risk of loss. Those are the kind of 
things. We cannot do that today with the existing authority the 
executive branch has. We need financial reform do that.
    Mrs. Emerson. No, I understand that, and I appreciate that. 
I guess what I am saying is--and perhaps you don't want to 
directly answer my question, and I won't be offended if you 
don't, which is if we had to take apart those banks today, 
would we have to use taxpayer funds to do so?
    Secretary Geithner. Well, I don't--I am not trying to----
    Mrs. Emerson. If we had to unwind those big banks.
    Secretary Geithner. I may say it differently, but I am 
being responsive to your question, which is right now--and this 
is a tragic failure of the Government of the United States. We 
still do not have the authority to deal with the potential 
failure of a major firm, a future AIG. We don't have that 
today. And we can't fix that without legislation to give us the 
authority to do that. So if we get that legislation, then we 
can meet your test, and we have the ability to manage its 
failure safely without leaving the taxpayer exposed to risk of 
loss or a bunch of innocent victims across the country exposed 
to the collateral damage caused by their failure.
    Mrs. Emerson. The analogy with Ma Bell just to me rings 
pretty true, because back in 1984 the Congress said, hey, this 
is anticompetitive, and let us just go ahead and break it 
apart. So, to me, five banks having--you know, even if it is 
close to 80 percent to me is a monopoly, and I obviously don't 
think it is healthy for this country.
    And I say that, too, because I don't even know if one of 
these banks failed, I don't know even if the FDIC would be able 
to handle the enormous liabilities of deposit insurance. I 
don't think they could.
    Secretary Geithner. Again, I am agreeing with you, which is 
that a critical imperative of financial reform is to make sure 
we have the tools and authority to do it, just what you said, 
manage failure safely without the taxpayer being exposed or a 
bunch of innocent businesses, families across the country being 
exposed to the collateral damage of their failure.
    Mrs. Emerson. Well, instead of even allowing banks to 
become too big to fail, perhaps we should give someone the 
authority to----
    Secretary Geithner. To limit their risk taking, that is 
right. You read this in January. Right now we have a cap on the 
share of the Nation's deposits any individual bank can hold. 
That is a necessary constraint, it is a good idea, it is a good 
thing for just the reasons you said. But it has this following 
effect which is unfortunate, which is you can become bigger 
over time as long as you fund yourselves with other sources, 
nondeposits, more risky sources of funding. It is a well-
designed constraint, but it has the effect of still allowing 
size and concentration, but in more risky forms. So we propose 
to complement that cap with an additional cap on total size so 
you don't have a level of excessive concentration, 
consolidation in the industry over time.
    Again, just for some perspective, we have a system of 9,000 
banks in this country, and a great strength of our system is 
that not only do we have a set of large institutions operate 
globally, much stronger position today than they were 2 years, 
3 years, 4 years ago, but we have 9,000 banks across the 
country meeting needs in their communities, and that provides a 
great source of competition, resilience. We very much want to 
preserve that.
    Mrs. Emerson. I appreciate that.
    Mr. Chairman, I have to leave for about 20, 30 minutes, so 
I will be back. Thanks.
    Mr. Serrano. Mr. Fattah.
    Mr. Fattah. Thank you, Mr. Chairman.
    Mr. Secretary, I just want to deal with some issues that 
have been raised. First of all, I heard the Greece 
FinanceMinister yesterday on CNBC. He was asked about this question 
about Goldman Sachs, and what he said was that the activities that 
Goldman Sachs was involved in were perfectly legal at the time, and 
were part of the interactions that were taking place on behalf of a 
number of countries. And I don't want to have on the record allegations 
without any opportunity for a response, because I am actually 
appreciative of Goldman's efforts in another regard which I am moving 
to now, which is on the small business lending side. They have taken 
some $500 million and created a fund to try to aid in providing credit 
to small businesses. And I appreciate along with the point that you 
made earlier about Bank of America's decision on the debit card 
overdraft charges.
    You know, I think we ought to be careful as we go forward 
that we delineate where appropriate criticism should be levied 
and where it shouldn't be.
    But I wanted to get to a couple of points. One is we have 
had a number of dialogues over mortgage foreclosure. The 
program that I created in Pennsylvania, the HEMAP program, the 
Housing Emergency Mortgage Foreclosure Program, which is run 
through our housing and finance agency, which provides actual 
relief in terms of payment of mortgage payments for people who 
are unemployed by no fault of their own, it has helped over a 
couple of decades tens of thousands of families in our State, 
and you know as well, just putting it on the record, at no loss 
to the taxpayers because it then tags onto the back end of the 
mortgage, you know, those payments or as a small percentage of 
ongoing mortgages. So there has been no loss, it has worked 
very well, and we have had a moment in time in which many of 
these mortgage foreclosures were because of lending practices.
    The vast majority of foreclosures that we face now are 
related to unemployment, and there is no ability for someone 
who is unemployed to pay mortgages. And if we want to keep them 
in their home, there has to be some effort. That is why I am so 
happy that the House agreed with me and we passed some $3 
billion in the reform bill that you complimented us on earlier 
in your statement, and you urged the Senate to act.
    I hope you are also urging the Senate to keep the 3 billion 
in place. I was very pleased to see the billion and a half 
provided to what were determined to be the hardest-hit States. 
Now, States are a geographical place, but they are hardest-hit 
ZIP codes, and there a lot of ways we could delineate where 
people need the most help.
    But I am for helping taxpayers who have been law abiding, 
and who have been hard working, and who saved enough money to 
buy a home and were making their mortgage payment. They lost a 
job because of a recession that they have had no fault in. For 
us to take, on the other hand, tens of thousands--I think it is 
close to $90,000 it costs the taxpayers--to foreclose on their 
home when we could intercede to help, and we have a record of 
doing that in Pennsylvania to the tune of an average of about 
$6,000 a family, we would have been able to maintain people in 
their homes, not ruin their credit rating, not destabilize 
neighborhoods.
    So I just wanted to mention again and put it in the record 
and ask you both to comment on that, and to comment on in this 
new lending effort for small businesses, whether or not credit 
unions and CDFIs are quasi public entities in cities like 
Philadelphia may also be involved, because there you will get 
actual lending. You won't have to worry about the question of 
how much they keep for capital and how much they lend out. They 
are in the business of lending. So I would like to have your 
comment on that.
    Secretary Geithner. I have heard great things about the 
program you described, and everybody who has talked about it--
--
    Mr. Fattah. It is all true.
    Secretary Geithner [continuing]. Says what you say, which 
is that it has a very good record, very good experience. And I 
compliment you for the design of it, and it is a good example 
of how initiative at the State and local level is a good thing 
for us to encourage and incent and reinforce. We have 
supported, will support the efforts you described in the House 
bill to provide a little bit more oxygen resources for those 
programs.
    You were actually right that one of the most effective ways 
you can get small business lending to increase in communities 
where credit was still starved for credit is through the CDFI 
program. And we have, as you know, not just put substantial 
additional budget resources into that program, into the New 
Market Tax Credit program, but we announced recently that we 
would give capital to--we would provide a program for CDFIs to 
get capital from the Treasury at very attractive dividend 
rates, and I think it is going to be a very effective program. 
And we are putting that in place right away. That is under the 
TARP for them to come. And we think that would have a very good 
return in communities where typically what happens is 
investment dries up quickest, credit flees most quickly, it 
comes back latest.
    It is a very good economic case, I think, for trying to 
make sure that we are getting resources targeted to those 
community institutions that can do a good job. You and I were 
in Philadelphia together, I think, just a couple of weeks ago 
highlighting one example of that kind of program. We are very 
committed to that.
    Mr. Fattah. Yes. Last question on commercial real estate, 
which is not new, but the challenge of the greatest, I think, 
concern in the horizon now. And I know of instances in 
Philadelphia, I assume they are not isolated, where you have 
commercial real estate mortgages that have been paid, that are 
vanilla deals that have, you know, no issues versus hardship 
cases. I am not talking about hardship cases--but where you 
have vanilla deals, and these deals are still being yanked. Is 
there any thought yet about how we might go about not having a 
run of foreclosures where we don't have to have them on the 
commercial side?
    Secretary Geithner. It will still be a big challenge, I 
think, the commercial real estate challenge. It is going to 
take a while to work through this problem. We have put in place 
a series of programs that I hear you are familiar with to help 
ease that adjustment process, but it will still be very 
difficult.
    Again, one of the reasons why we proposed this Small 
Business Lending Fund is to make sure we are getting capital to 
small community banks that are still the most hardest hit by 
what is happening in commercial real estate. But we think that 
mix of programs to get capital to banks who need it and to 
support efforts to get the securities markets more liquid again 
is the best thing we can do to ease that transition. I would be 
happy to talk to you in detail.
    Mr. Fattah. I have an idea, and I would be interested in 
dialogue in what we might be able to do in that area.
    Secretary Geithner. Mr. Chairman, I want to end wherethe 
Congressman began, which is that I think it is very important to 
recognize that, of course, banks are different, not all institutions 
were the same, but I would say across the American financial system you 
saw banks and finance companies doing things that caused a dramatic 
loss of trust, of confidence in the American financial system. And I 
think that they all need to work much harder to earn back the trust and 
confidence of their customers, of the American investors, and of people 
around the world in the American financial system. I think they have 
got a long way to go, and I would like to see them all doing more to 
help restore basic trust and confidence in their customers, in the 
American people.
    You highlighted some examples of things people have done, 
but we can see a lot more of it. They have a lot more to do. 
One thing they can do is try to help make sure that we get 
financial reform passed that puts in place a level playing 
field of strong protections, deals with the too big to fail 
problem. That is a good thing for the country and, I think, a 
good thing for the future of the American economy. And I think 
it is a fair thing to ask them to support, and we are hopeful 
they will work with us to get a strong package of reforms in 
place as the House has already passed.
    Mr. Fattah. With my $3 billion emergency mortgage 
foreclosure intact.
    Mr. Serrano. So far you have proposed seven bills. I like 
it.
    Mr. Fattah. This is already passed by the House, the Wall 
Street reform bill.
    Mr. Serrano. The other one is already on the way.
    Mr. Fattah. And the Secretary promised a rigorous 
examination of this idea, pros and cons.
    Secretary Geithner. You said to tear apart, but we will do 
a careful balance.
    Mr. Fattah. I think any idea should be able to withstand 
analysis.
    Mr. Serrano. Thank you.
    Mr. Culberson.
    Mr. Culberson. Thank you, Mr. Chairman.
    Mr. Secretary, the bailout bill which passed in the last 
months of the Bush administration, which I voted against and 
strenuously opposed, did contain language that had a 
requirement that TARP money repaid to the Treasury be used for 
deficit reduction, which I wanted to ask, do you agree that is 
important?
    Secretary Geithner. Oh, absolutely. Again, the important 
thing to recognize is that we have now taken back, replaced 
with private money, more than two-thirds of the investments 
that my predecessor had to make, and he did the right thing. 
They were the necessary things to do, but we have now gotten 
back more than two-thirds of that, I think more than $170 
billion of the American people's money, and that, under the law 
as written, that goes to reduce our deficits and our debt.
    Mr. Culberson. And should not be reallocated?
    Secretary Geithner. Again, Congress, under the laws of the 
land, can decide what it does with the resource here, but we 
saved substantial resources for the American people and would 
like to work with you and make sure we are devoting those to 
the right priorities for the country. And, of course, we face 
these two priorities now, which is getting this economy back on 
track and digging out of that fiscal hole we inherited.
    Mr. Culberson. Oh, wait, wait, wait, no. You inherited 
somewhat--you inherited a fiscal hole.
    Secretary Geithner. That is right.
    Mr. Culberson. But I want to go back to that, but you dug 
the whole three times deeper.
    Secretary Geithner. No, no, no. That is absolutely not 
true, Congressman. You know the facts in this is that when we 
came into office----
    Mr. Culberson. You dug the hole much deeper.
    Secretary Geithner. No, no, no. All we did was try to 
rescue an economy that was in collapse, a financial system at 
the edge of failure. We did that in the most careful, effective 
way we could, and those actions, as you have seen, have had a 
very substantial effect in restoring growth.
    Mr. Culberson. Set aside whatever your intent was in 
spending the money, it is a fact that the annual budget of the 
United States in 2007 with about 1 trillion, in 2008 was 1.1 
trillion, in 2009 was 1.2 trillion. And yet in a little over 12 
months, 13 months that the Obama administration has been in 
office, your administration and the Pelosi-Reid-led Congress 
has managed to spend--in the course of a single year, you 
signed $3.3 trillion worth of new spending into law. You spent 
more money.
    Secretary Geithner. I would be happy to go through it.
    Mr. Culberson. More than any Congress in the history of the 
United States, and it just defies common sense for this 
administration to pretend that you are paying any attention at 
all to deficit reduction.
    Secretary Geithner. No, no. Again----
    Mr. Culberson. In any way it just doesn't square with 
reality.
    Secretary Geithner. Congressman, faced with the worst 
economy in generations, the President and Congress acted. If we 
had not acted, the economy would have fallen off the cliff. 
Growth would still be declining. Our deficits would be larger. 
If you care about fiscal responsibility, there is no way you 
could have argued that the response for the government should 
have been to stand back, let this economy collapse, let it 
collapse. That would have been far more costly not just to the 
fiscal position of the United States, but to the fortunes of 
average Americans and businesses across the country. There is 
no fiscally responsible strategy in a crisis that would have 
justified standing back and not acting in that context.
    Mr. Culberson. Let us set aside the bailout, because that 
happened under the Bush watch, and that is the principal 
mechanism I am sure you are referring to.
    Secretary Geithner. No, no. I'm referring----
    Mr. Culberson. The stimulus bill, $787 billion; the 
omnibus, $439 billion; the supplemental, $105 billion; 
consolidated appropriations bill, $446 billion. The level of 
spending is unprecedented. The level of debt that you have 
asked our kids to pay off is unprecedented.
    Secretary Geithner. No.
    Mr. Culberson. The level of deficits is unprecedented.
    Secretary Geithner. Again, Congressman----
    Mr. Culberson. And it is really important that we want you 
to live up to what your words are----
    Secretary Geithner. The great thing about this country, 
Congressman----
    Mr. Culberson [continuing]. And we have not seen it.
    Secretary Geithner. The great thing about this countryis we 
get to debate what makes sense for the American people. And you can 
look at the actions that we proposed, Congress enacted, and said you 
would have preferred we do nothing, or preferred that more of it come 
in the form of tax cuts or other things. But we put in place a set of 
well-designed, targeted measures that were absolutely essential to 
break the back of the worst economic crisis in generations, and we are 
at the beginning of the process of healing the damage it has done.
    But I completely agree with you that we have to recognize, 
make sure the American people understand is we are going to 
have to dig our way out of this hole.
    Mr. Culberson. By spending more money.
    Secretary Geithner. No.
    Mr. Culberson. But that is what your approach has been.
    Secretary Geithner. Again, in this budget, the President's 
budget proposes specific measures on the tax side and the 
expenditure side to bring our deficits down dramatically as a 
share of our economy over the next 4 years.
    Mr. Culberson. You agree all the Bush tax cuts should be 
allowed to expire and therefore----
    Secretary Geithner. No, that is not true. We propose to 
allow----
    Mr. Culberson. Your budget proposes.
    Secretary Geithner. As Congress legislated, we propose to 
allow that tax cuts on the most fortunate 2 to 3 percent of 
Americans to expire as scheduled in 2011. Now, we have also 
proposed a freeze on nondefense discretionary expenditures for 
3 years. We have also proposed some other measures to cut 
spending over that period of time. And again, some of those 
proposals will cut our deficits to below 4 percent GDP in 4 
years.
    Now, you may propose different ways to do it, you may 
propose more aggressive ways to do it at a period of time, but 
the basic imperative we all share is to recognize, as I think 
you do, that deficits matter.
    Mr. Culberson. Yeah. I appreciate your vigorous defense of 
the administration's proposals, but this is why the country is 
so upset, because what you say doesn't square with your 
actions.
    Secretary Geithner. No. You can measure it by exactly what 
we are proposing.
    Mr. Culberson. You have spent more money and less time than 
any Congress in any administration in history, you have driven 
the deficits to unprecedented levels, and you are trying to 
sell a bill of goods to the country claiming that you are going 
to create the mother of all entitlements, insure 30 million 
more Americans, and we are going to save you money. No one 
believes that.
    Secretary Geithner. Again, I don't expect you to agree. 
Again, the great thing about our country is we get to have a 
national debate on what makes sense for the country.
    Mr. Culberson. That is true, and that is why the November 
election is going to be a tidal wave.
    Mr. Serrano. Thank you. And everything that went wrong 
started on January 20th of last year.
    Mr. Culberson. Oh, no. I voted against----
    Mr. Serrano. You are going to get a chance on the House 
floor to pull us out of Afghanistan, which is going to cost a 
couple of trillion dollars. Let us see how fiscal conservatives 
vote on that.
    But I must take issue with something, you threw into the 
package the omnibus bill.
    Mr. Culberson. Yes.
    Mr. Serrano. Well, if I recall, that was the regular 
appropriations bills that we have to constitutionally pass 
every year.
    Mr. Culberson. That is right.
    Mr. Serrano. I guess you were saying that we should have 
shut down government.
    Mr. Culberson. I had a problem, Mr. Chairman, with the 85 
percent increase in nondefense discretionary spending over the 
course of the last 2 years. That is what worried me.
    Secretary Geithner. Mr. Chairman, could I just say one 
thing? This is fun for both of us.
    Mr. Culberson. It is. And we are enjoying this. And my 
Chairman and I, we get along very well. That is what makes it a 
great country, friendly debate.
    Mr. Culberson. I agree.
    Mr. Serrano. But actually in all honesty, with all due 
respect to both of you, this is quite an accomplishment. He did 
not blame anything on immigrants today.
    Secretary Geithner. Congressman, I want to point out one 
thing about this, because I think it is important for you to 
recognize. In the President's budget we proposed to leave 
nondefense discretionary expenditures--this is sort of the 
measure of the discretionary government--4 years out at the 
same level in real terms that we inherited at the last year of 
the Bush administration. So we are proposing enough restraint 
to make sure these temporary things we did to save the economy 
from collapse go away, and that we bring ourselves down to a 
size of government, taking out defense and security, that is 
where it was in real terms when we came into office.
    Mr. Culberson. Four years from now.
    Secretary Geithner. Yeah. But we are going to get there. If 
you would like to get there overnight, I would be happy to work 
with you on that. But we are going to try to get there in a--by 
restraining expenditures in a way that is careful and balanced 
and allows us to come out and heal the damage caused by this 
crisis.
    But anyway, I respect you, I am glad you are here. You are 
making the rigorous case for fiscal responsibility. We need to 
have more people do it. It is a good thing for the country.
    Mr. Culberson. Mr. Chairman, you will enjoy this. May I ask 
one quick follow-up, with your permission?
    Mr. Serrano. Yes, in your 11th minute.
    Mr. Culberson. Do you still have the Zimbabwe bank note in 
your wallet you showed me?
    Secretary Geithner. No, I don't carry my wallet anymore, 
but I am glad you raised that again, because I remember that 
exchange from last year. But I remember, as you recall, you 
showed me the pink version, but I had a better one.
    Mr. Culberson. I had a $50 billion bank note, Mr. Chairman, 
from Zimbabwe, and I was very impressed the Secretary a 
trillion, I think, dollar.
    Secretary Geithner. Ten trillion.
    Mr. Culberson. Ten trillion dollar bank note from Zimbabwe. 
And we are ready to help you get those deficits under control 
and balanced.
    Secretary Geithner. We welcome that. And again, it is good 
for people like you to try to make the case for the country 
that deficits matter, and I am glad to hear you say it.
    Mr. Culberson. Thank you.
    Thank you, Mr. Chairman.
    Mr. Serrano. What I know about capitalism, what I learned 
about capitalism is that every so often you have to invest to 
make things happen. And banks and other folks were not 
investing, and so government invested some. I think at the end 
of the day we will get a good return.
    Mr. Secretary, on March 4th of last year, you stated that 
the administration had laid out a clear path forward to helping 
up to 9 million families restructure or refinance their 
mortgages to a payment that is affordable now and into the 
future. Unfortunately the latest Treasury report on this 
program showed that only 116,000 homeowners have received 
permanent mortgage relief. The result has been that millions of 
homeowners have been forced out of their homes through 
foreclosures on short sales.
    Can you take a moment to please explain what happened 
between your optimistic forecast and the reality of what has 
instead occurred?
    Secretary Geithner. The program we announced initially to 
help modify mortgages for a set of Americans facing the risk of 
losing their house, we thought over time it would reach perhaps 
up to 3\1/2\ million Americans. Now, that program in its 
initial 8-month life has now provided very substantial cash 
flow relief to a million families across the country, as I 
said, on average $500 less, almost $600 in lower monthly 
payments to reduce their mortgage obligations.
    Now, we are seeing a substantial number of those, less than 
we would like, converted to permanent modifications. But the 
number that matters now is a million. The million is growing. 
We are going to reach as many as we can.
    Mr. Serrano. So what was the 116,000?
    Secretary Geithner. That is the number of permanent today. 
But remember, when you get a temporary modification, your 
mortgage obligations get reduced substantially right from that 
point. Now, of course, we want to see people eligible for 
permanent modifications get permanent modifications. And it is 
now a million families across the country, they are seeing an 
immediate, substantial, sustained reduction in their mortgage 
obligations so that they have a chance of staying in their 
homes. And, of course, we are going to make sure we are 
reaching as many people as we can. That number is still 
growing, and we are going to make sure that as many of those 
temporary modifications are converted into permanent as 
possible. We are committed to doing that. We are seeing those 
numbers start to increase dramatically. They are not getting 
there fast enough, but we are going to keep working on that.
    Mr. Serrano. Okay. Then can I make a suggestion and ask you 
to issue yet another report that tells us what you just told us 
so people don't rely on the other one that they know.
    Secretary Geithner. Absolutely.
    Mr. Serrano. Because I am asking my question based on that 
information.
    Secretary Geithner. Absolutely. Well, we did not claim, Mr. 
Chairman, that we would reach 9 million Americans through that 
program. We thought as it was originally designed, it would 
reach up to 3\1/2\. We may not reach that target, but that was 
going to be over a 3-year period of time. And so the architects 
of this program say we are on track to hit those original 
objectives, but we are going to do as much as we can to make 
sure we again reach as many people as we can.
    Mr. Serrano. Okay. In the 2011 budget proposal for the CDFI 
fund, you propose zeroing out two existing programs, the Bank 
Enterprise Award Program, which provides assistance to banks 
that have demonstrated increased lending activity in low-income 
neighborhoods, and the Capital Magnet Fund, which provides 
competitive grants for constructing, preserving and 
rehabilitating or acquiring affordable housing in low-income 
neighborhoods, as well as other economic development projects 
in communities where the housing in question is located. Would 
you please explain why the administration made the decision not 
to request funding for these two programs?
    Secretary Geithner. As you know, as appropriators know, 
governing requires making choices among competing priorities 
with scarce resources. So what we did, which I think you need 
to expect us to do, is to take a careful look at all these 
programs and make sure we are allocating resources where they 
have the highest return. And we, after careful reflection, with 
the knowledge that many people like these two programs we 
proposed to cut funding on, we decided we thought those 
resources would be better used in supporting the signature CDFI 
program which has so much support across the country. It has 
such a good record of success. So the simplest way to say it is 
we took a careful look, and we thought those resources would be 
better used in support of the signature CDFI program.
    I think that I am confident that is the right judgment. But 
again, we are making choices and trying to demonstrate to you 
that we are going to use the resources you allocate to us 
carefully, and we are prepared to take a careful look at 
programs that, even if they help, may not provide high enough 
return for the resources we are providing.
    Mr. Serrano. Okay. But just for the record, it doesn't sit 
well with me and, I am sure, with other Members of the Congress 
that on the first page of my questions to you, I ask why are 
there cuts in the program serving low-income taxpayers, and on 
this one I am asking you similar questions. So it would seem 
either that I am asking all the questions that are leaning on 
one side, or we are taking hits again, directing hits, at the 
low-income homeowners of this country.
    Secretary Geithner. But on balance, we have proposed a 
significant expansion in these two signature programs, which 
are the CFI program and New Market Tax Credit program. For 
reasons that we both agree, these programs have a great record 
of reaching some of the hardest-hit communities in our country, 
with a very good record of success leveraging private money to 
help make sure that our taxpayer dollars are used effectively. 
They go to institutions who have a good record of lending in 
their communities.
    So my own view is that we are increasing our investments, 
and we are reforming how we use them in ways that make them 
more effective.
    Mr. Serrano. I have one last question, and then I will 
submit the others. I know Mrs. Emerson wanted to come back, Mr. 
Culberson, but it is getting to that crunch time here.
    In the last year banks have reduced their credit 
outstanding to commercial and industrial businesses by almost 
20 percent, or $300 billion. When businesses lose access to 
credit, they cut back jobs and prolong our efforts at economic 
recovery.
    Recently the Financial Press has reported that the 
financial services sector has paid out more than $100 billion 
in bonuses in the last couple of months.
    What do you think will be required to resume business 
lending in this country? Do you agree that the obscene amount 
of money handed out for bonuses could have been retained and 
used to increase credit in our struggling economy by hundreds 
of billions of dollars?
    Secretary Geithner. Mr. Chairman, what you have seen happen 
in terms of credit is a mix of two different things. One is you 
saw demand for credit fall very, very sharply as the economy 
growth slowed, the economy contracted; and then you have seen a 
substantial reduction in credit bank supply banks who are short 
capital. Both those two things were happening, but it is 
starting to ease.
    The best measure of whether credit is getting easier or 
tighter is the price of a loan, and the cost of credit has come 
down very, very dramatically across the country for a business, 
for a family, for a municipal government, and that is a measure 
of progress we have achieved in trying to heal the damage 
caused by the financial system.
    Now, I completely agree that what you have seen happen in 
compensation practices across the financial industry is 
unacceptable. It is outrageous. And we are working very hard 
using the authority Congress provided us trying to make sure we 
are bringing about durable reforms in how financial executives 
are compensated so they don't have the incentives again to take 
a bunch of risks and leave the American people holding the bag. 
And it is very important. We have seen some progress, but not 
enough, and we are going to keep working, making sure that we 
encourage reforms that will make sure we don't get in this kind 
of mess again.
    Mr. Serrano. I know you do realize that part of the lack of 
public confidence in what we are doing is when they continue to 
see this happen.
    Secretary Geithner. Of course. Absolutely.
    Mr. Serrano. And then one last point here, and I won't 
ask--I won't make all the comments that go before the question, 
but with the whole issue of TARP and the public feeling that 
the money is not going to the right place, with 20/20 
hindsight, what more do you think could have been done from the 
onset of TARP to ensure greater transparency and accountability 
in the way that TARP dollars were being used?
    Secretary Geithner. Mr. Chairman, it is a little hard for 
me to say that even with the benefit of hindsight now, but let 
me tell you what we did and what we are committed to.
    We made sure that we put the precise financial terms of all 
the investments we made in the public domain on our Web site 
for everybody to see right from the beginning. We have adopted 
a whole range of proposals by the various overseers Congress 
put in place over this program to try to improve transparency 
of this basic program.
    We have put in place a dramatic improvement in the basic 
access to information the American public have about these 
programs, where their resources went, what they were for, the 
terms in which they were provided, and we will continue to work 
on ways to do that.
    But the important thing to take, just to reflect on as you 
look at how this program was run, is that we have now again got 
back more than $170 billion from the financial system. We have 
reduced expected losses by more than $400 billion from where 
they were just a year ago. We have saved substantial resources 
for the American people to devote to our long-term fiscal 
challenges, not just our near-term priorities. We have done 
this at much lower cost than people expected, and we have seen 
a very dramatic improvement in credit conditions across the 
country.
    So I think the American people can look at that record, and 
they can see the detailed numbers on the return, on the risk of 
losses still where that is concentrated, and they can see the 
benefits where they are.
    Now, but we all recognize that there are a lot of 
challenges ahead of us still, in small business credit, in 
housing markets, in commercial real estate. And this is not 
over yet, and we are not going to make the mistake many 
countries have made across history over time, which is to pull 
back too quickly, to stop before we have actually healed the 
damage caused by--and this crisis caused a huge amount of 
damage. We have made a lot of progress. We have a lot of 
challenges left, though.
    Mr. Culberson. I would like to ask about Freddie and 
Fannie.
    Mr. Serrano. One more, and then we will wrap it up. He has 
to leave. I have to speak against the war, save some money.
    Mr. Culberson. That is always good to save money.
    Thank you, Mr. Secretary. I wanted to ask about Fannie and 
Freddie in particular. I know that the Congress had put limits 
on the liability of the taxpayers, and that Treasury had the 
authority to do so and lifted, I think, those caps on the 
amount of the exposure. But we have not yet seen a reform 
proposal out of the administration, and the scale of the 
losses, of course, at Freddie and Fannie are both immense. This 
is a very scary situation, and as a fiscal conservative, I 
certainly don't like to see the taxpayers put on the hook for 
this, particularly in an unlimited way.
    Would you, if you could, tell us what the administration's 
time frame is? Why are we still waiting to see reform of 
Freddie and Fannie, and what will it entail to help provide 
protection for your kids and my kids?
    Secretary Geithner. What we have suggested, Congressman, is 
that we are going to put out on the public domain--I am going 
to testify in a few weeks on this--some broad objectives and 
principles to guide reform. We are going to put out a set of 
broad questions on the strategy for public comment.
    This is a very complicated issue, as you know. It doesn't 
just involve Fannie and Freddie. We want to take a careful look 
at the entire set of government agencies that act in the 
housing market now and the set of policies that helped 
contribute to this terrible crisis. And our expectation now is 
that as we go through that process of public hearing and 
comment, we will put together some proposals for reform that we 
present to the Congress next year.
    Now, you have asked a legitimate question, which is why not 
now? And I will just be honest with you. We are doing a lot of 
things. We just have got a lot going on, and we thought to do 
it well, do it carefully, do it right, we wanted to go through 
a process of more careful reflection. If we rushed it, the risk 
is we would not achieve enough and not get consensus, something 
sweeping enough.
    But my personal commitment is we are going to need 
fundamental reform of the government's role in the housing 
market, not just in Fannie and Freddie in their future, but 
looking across a whole range of other policies and instruments. 
And what we allowed happen was, again, a national tragedy, it 
was avoidable, and we should never have let those institutions 
get themselves in a position where they took on that much risk 
without capital to back them, without credible oversight. With 
that degree of moral hazard, it is a terrible thing, and it is 
going to require comprehensive reform to change it.
    Mr. Culberson. The sooner the better. The unlimited 
liabilities are a real concern.
    And also, Mr. Chairman, it is important to ask about--we 
haven't touched on this yet--the commercial market. We are 
about to see a tremendous number of resets of commercial 
mortgages, and a lot of those properties have been dramatically 
devalued. The valuations have plummeted for a lot of those 
properties, you get a lot of vacancies, businesses that have 
left, and the banks are being--are so spooky, of course, about 
real estate loans. And we have got potentially another tidal 
wave coming.
    What is the administration doing? And forgive me for 
throwing this in at the end, Mr. Chairman, it is an important 
question. What is the administration doing to attempt to 
mitigate the size of the commercial reset tsunami which we see 
coming, which is conceivably as big, if not bigger than the 
residential mortgage problem?
    Secretary Geithner. You are right to say it is still a 
challenge. A big part is still ahead of us. It is going be to a 
challenge for the country to work through.
    Again, as I said to your colleague earlier, the two things 
we think are most effective are to make sure we are getting 
capital to the banks, to the small community banks, which still 
face substantial exposure to commercial real estate losses. 
That will help at the margin, but we want to make sure that we 
are helping to provide more liquidity to the securitization 
markets that are helpful in this context. The programs we have 
put in place in that area have been quite helpful so far, they 
have made some impact so far, but there is a lot of challenge 
still ahead. I would be happy to hear suggestions from you on 
what would be helpful.
    Mr. Culberson. One I would like, a suggestion that I will 
pass, the Chairman has been very gracious in indulging me and 
giving me extra time, is that the regulators--I am hearing this 
consistently from the smaller banks--the regulators are being 
unnecessarily aggressive in attempting to force banks to get 
real estate off their portfolios, and it is not a good idea. 
The regulators, I think, are a part of the problem. Obviously, 
you want to make sure that the loans are prudent, that they are 
going to be repaid. In Houston, for example, I know of a 
tremendous number of these are blue-chip borrowers with very 
long, stable credit histories that have never missed a payment, 
and banks are turning down loans just because the banks are 
being hammeredby the regulators to get real estate off of 
their--do you know what I am talking about?
    Secretary Geithner. I have heard this concern, too.
    Mr. Culberson. What can you do about that, that right 
there, just giving a little breathing room to the banks on the 
regulation side? If it is a safe investment in real estate, the 
guy has always paid his bills, you have seen some reduction in 
the valuation, but come on, you know, keep loaning money. What 
can you do there?
    Secretary Geithner. It is a serious concern. I hear it 
across the country, as do you. But this is a matter for the 
FDIC, for the OCC, the OTS, and the Fed, and what we are doing 
is encouraging them to continue to provide a little bit more 
care and balance in the guidance they give examiners across the 
country so they are not overdoing it, overdoing the tightening, 
not contributing to it. They put out some guidance in November 
that would help clarify how examiners should treat loans backed 
by commercial real estate to avoid some of the risk you said, 
but I will certainly carry that message to them.
    Mr. Culberson. Thank you, Mr. Chairman.
    Mr. Serrano. Mrs. Emerson and I and other Members will be 
submitting questions for the record.
    We thank you, Mr. Secretary, for your time. We thank you 
for your direct answers. We want to work closely with you to 
make sure that the recovery is strong, and that the things you 
inherited January of last year are dealt with properly. But we 
thank you for your time. Thank you.
    Secretary Geithner. Thank you very much.
    Mr. Serrano. Meeting is adjourned.

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                                        Thursday, April 22, 2010.  

                       FINANCIAL CRISIS AND TARP

                               WITNESSES

HERBERT M. ALLISON, JR., ASSISTANT SECRETARY OF THE TREASURY FOR 
    FINANCIAL STABILITY
NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF 
    PROGRAM
    Mr. Serrano. The subcommittee will come to order. Good 
morning.
    Today this subcommittee will examine the Treasury's 
responses to the financial crisis and the implementation of 
TARP. We are pleased to have two key witnesses on this topic. 
Leading off will be Herbert Allison, Assistant Secretary of 
Treasury for financial stability, who oversees the TARP 
program. He will be followed by Neil Barofsky, the special 
inspector general for TARP.
    The financial crisis caused the deepest economic decline 
since the Great Depression in the early 1930s. Although the 
economy has stabilized since the freefall of late 2008 and 
early 2009, credit continues to shrink and unemployment remains 
near 10 percent. We have a long way to go before most Americans 
will feel that the economy is back on its feet again. We need 
to understand the role TARP has played or could play in 
responding to our economic problems.
    TARP funds have been used for a variety of purposes. 
Roughly 700 banks have received capital infusions, totaling 
more than $200 billion. With several major modifications along 
the way, TARP funds have been used to provide mortgage 
modifications to homeowners. Support for the auto industry has 
totaled more than $80 billion. Funds were set aside to back up 
efforts to revive flows for credit, for small businesses, 
students, and consumer credit cards. TARP funds have also 
provided a backstop for Federal Reserve actions with AIG.
    There is also a budget angle to today's hearing. The TARP 
legislation allows Treasury to spend on administration whatever 
it decides without further congressional check. To decide how 
much to appropriate for Treasury, however, this subcommittee 
needs to understand how much Treasury is spending because of 
TARP and where it draws the line between appropriator funds and 
TARP-related money.
    In addition, the TARP legislation created the SIGTARP and 
provided it with $50 million that authorizers tell us they 
expected to last the life of the TARP. They were granted 
another $50 million last spring. Last October, SIGTARP came to 
our subcommittee with an urgent request for $23 million to 
avoid having to shut down this spring. In other words, SIGTARP 
had made hiring and other commitments that far exceeded the 
funds that the authorizers thought sufficient to last through 
the life of TARP. We provided those funds for fiscal year 2010, 
and SIGTARP has requested another $49 million for fiscal year 
2011, far more than the $30 million annual budget for the 
Treasury Department's IG.
    We look forward to hearing from our witnesses how effective 
each of the various TARP initiatives have been in restoring a 
healthy flow of credit, a growing economy, and relief for 
worthy borrowers. And we welcome you to our hearing today.
    With those opening remarks, I would like to recognize Ms. 
Emerson for any comments she may want to make.
    Mrs. Emerson. Thank you, Mr. Chairman.
    Secretary Allison, thank you so much for being here today. 
We are grateful to you.
    The Emergency Economic Stabilization Act was passed by 
Congress to buy troubled assets. I am very disappointed that 
both the current and the former administrations have instead 
used this authority to bail out banks and to become majority or 
nearly majority owners of AIG, Citigroup, and auto 
manufacturers.
    Acquiring stock shares and lending hundreds of billions of 
borrowed dollars across the financial sector with little 
accountability or transparency in return is not what we in 
Congress intended. It is impossible to justify to taxpayers why 
banks received billions of dollars without being required to 
increase lending, account for the funds they received, or take 
meaningful steps to limit executive compensation.
    Most of the experts I talk to in Missouri see little sign 
of how TARP improved the financial environment they work in 
every day. And I am concerned that many of the troubled assets 
TARP was meant to purchase still exist. They may still be out 
there, hindering our economic recovery. No way do the 
expenditures of TARP to rescue troubled assets even begin to 
approach the estimates still being made today of how many 
troubled assets continue to exist in our country's financial 
sector.
    Despite the taxpayers' investment in banks in 2008 and 
2009, the FDIC reported that bank lending declined in 2009. The 
Missouri small-business folks I talk to all tell me that credit 
is still very, very hard to get, even for businesses with 
perfect--and I mean perfect--credit histories. In addition, 
meaningful steps to reform executive compensation have not been 
taken, home foreclosures and unemployment are still 
unacceptably high, and some experts project a crisis in the 
commercial real estate market.
    I understand that $186 billion of TARP funds have been 
returned, and I am very pleased that Secretary Geithner 
previously testified before our full committee saying that the 
funds repaid to TARP should be used for deficit reduction and 
not new government spending.
    Regarding the costs of the Office of Financial Stability--
regarding the costs that you all's office incurs to administer 
the TARP programs, I am concerned that you estimate spending at 
$298 million in mandatory funding for fiscal year 2011. And I 
hope that you will explain this to us because I need to 
understand why this level the administrative spending is 
necessary, given that most of the TARP funds banks received 
have been returned and all of theTARP programs should be 
winding down during fiscal 2011.
    Despite my concerns, I know that you and all of the staff 
at the Office of Financial Stability are working hard to 
improve our Nation's economy, and I am grateful and 
appreciative of your efforts.
    Thanks, Mr. Chairman.
    Mr. Serrano. Thank you.
    Mr. Allison, you know the drill. Five-minute presentation, 
your full statement will go in the record, and then we can ask 
you some questions. Please proceed.
    Mr. Allison. Thank you very much, Chairman Serrano and 
members of the subcommittee. Thank you for the opportunity to 
testify today regarding the Troubled Asset Relief Program, or 
TARP.
    Many Americans believe that the Federal Government bailed 
out Wall Street and forgot about Main Street. But what many 
Americans at first viewed as a distant financial crisis on Wall 
Street posed the risk of devastating consequences for Main 
Street.
    In the fall of 2008, we faced the possibility of a second 
Great Depression. Credit markets froze, and people lost 
confidence in the banking system. Without credit and 
confidence, our financial system was facing collapse. Had that 
happened, people would have not been able to use their credit 
cards to buy gas or groceries, families would not have been 
able to get a loan to buy a car or send their kids to college, 
businesses large and small would not have had the credit to buy 
inventory or pay their workers. People were seeing the values 
of their homes plummet and their retirement savings shrink. 
Without bold action, job losses that were already growing could 
have skyrocketed and our economy could have collapsed. So our 
government took unpopular but necessary steps, like creating 
the TARP program, to avert complete failure of the financial 
system.
    Before we could start economic recovery, we first had to 
achieve financial stability. The American Recovery and 
Reinvestment Act and the Financial Stability Plan launched by 
the Obama administration provided economic stimulus and 
restored liquidity that have enabled businesses to resume 
hiring, provided much-needed financing to States, and improved 
consumer confidence.
    With the new administration, the focus of TARP changed from 
primarily investing in larger financial institutions to helping 
homeowners avoid foreclosures and improving small-business 
lending.
    For the past year, TARP has been assisting distressed 
homeowners through the Home Affordable Modification Program, or 
HAMP, and other innovative methods. HAMP is now providing 
substantial relief to more than 1 million homeowners. Their 
mortgage payments have been reduced by about a third, or about 
$500 per month on average, for an estimated total savings of 
more than $3 billion to date.
    We have recently enhanced HAMP to help more homeowners 
whose mortgages are under water and those who are temporarily 
unemployed to assure homeowners that they won't face 
foreclosure while being considered for a mortgage modification.
    We have also launched an innovative program to provide 
additional relief to the 10 States hardest hit by the mortgage 
crisis and high unemployment.
    The administration is also focusing its financial recovery 
efforts on small business. We are now seeking legislation to 
create a new $30 billion small-business lending fund outside of 
TARP that would provide small and mid-sized banks with capital 
on terms with strong incentives to increase small-business 
lending.
    Additionally, Treasury will provide TARP funds to community 
development financial institutions, or CDFIs, to lend to small 
business. CDFIs play a vital role in providing financial 
services to some of the hardest-hit and poorest communities.
    Together, TARP and the Recovery Act are already producing 
positive results. Jobs are being created. Borrowing costs for 
State and local governments have been reduced. Securities 
markets essentially frozen 15 months ago have reopened. And 
housing markets are showing signs of stabilizing.
    With improving economic conditions and careful stewardship 
of taxpayers' money, TARP investments are delivering better 
returns than originally expected. We estimate that TARP will 
ultimately cost about $120 billion--far less than the maximum 
$700 billion appropriated by Congress.
    200 billion dollars in repayments and income from TARP 
investments have already been reused to reduce the national 
debt. If Congress joins the President in enacting a financial 
recovery fee, TARP will not cost the American taxpayers a dime.
    Because of the bold actions taken by Congress and the 
administration, our financial markets are more stable and signs 
of recovery are increasingly visible on Main Street.
    Thank you very much, and I am happy to answer your 
questions.
    [The prepared statement of Mr. Allison follows:]

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    Mr. Serrano. Thank you so much for your testimony.
    Let me, just on your last comment, what you are saying, I 
think, is that we may allocate as much as the $700 billion, but 
at the end of the day it may cost $120 billion because the rest 
would have been paid back?
    Mr. Allison. Yes, that is correct. In fact, we have not 
invested the entire $700 billion.
    Mr. Serrano. Okay.
    Mr. Allison. We plan to invest about $535 billion. And 
already we have seen that the investments in the banks, which 
have amounted to about $245 billion, have produced returns of 
about $20 billion. And we have been paid back about 70 percent 
of that money.
    Mr. Serrano. So did we, the Congress or the administration, 
overestimate the need?
    Mr. Allison. I think----
    Mr. Serrano. Because there was, what, 787, right? Oh, I am 
sorry.
    Mr. Allison. Well, that was the stimulus act.
    Mr. Serrano. Numbers here, numbers there. Okay.
    Mr. Allison. Actually, many people----
    Mr. Serrano. Well, that is an area code in Puerto Rico. 
Either way.
    Mr. Allison. Right.
    A lot of people conflate the Recovery Act with TARP. And 
TARP's purpose was to achieve financial stability, and, of 
course, ARRA was to recover the economy.
    Mr. Serrano. Right. But you are saying that, at the end of 
the day, it may cost $120 million?
    Mr. Allison. It could. Now----
    Mr. Serrano. But then you also said it may not cost a dime.
    Mr. Allison. Exactly. Let me explain that.
    A year ago, the estimated cost was $341 billion. By last 
fall, the estimate was down to $117 billion. That is the number 
I am using here today.
    We will be updating this number again. We expect that the 
cost could come down further. We have been encouraged by 
developments at AIG and General Motors, the car companies. We 
are starting the sale of Citigroup shares very soon. And we are 
doing our best to move out of these investments as rapidly as 
we can, consistent with protecting the interests of taxpayers.
    Mr. Serrano. Okay. I would just give you a little bit of 
advice, which usually we give at the end of the hearing, not at 
the beginning. But whatever office it is you have that puts out 
that information--I think Ms. Emerson would agree with us--
should be putting it out a little better. Because the public's 
perception is that it may be going down a hole. And you are 
telling us that, at the end of the day, it may not cost a 
penny. So I think people need to know that.
    Mr. Allison. Thank you.
    Mr. Serrano. Mr. Allison, as we consider the Treasury and 
SIGTARP budgets for next year, it is helpful to understand your 
plans for TARP activity and the relationship between your 
budget and the rest of the Treasury budget.
    You run the Office of Financial Stability, where most of 
the TARP administrative expenses seem to be incurred. Our 
regular appropriations has always funded Treasury efforts on 
financial stability. How does the Department decide what TARP 
pays for and what the regular Treasury appropriation pays for?
    Mr. Allison. We keep very careful track of our 
expenditures. We have our own finance department within TARP, 
which is unusual for a government program.
    We have also established an internal review department 
within TARP that monitors all of our expenditures. They are 
currently auditing these expenditures to make sure that all of 
the money allocated to TARP is spent only on TARP activities 
and not on Treasury activities.
    Mr. Serrano. And that is pretty much established?
    Mr. Allison. Yes, sir.
    Mr. Serrano. I mean, if people were to look at it or the 
press were to ask, you could see that clearly?
    Mr. Allison. Yes, sir. And we also work closely--our own 
financial people work closely with the GAO and the special 
inspector general and other oversight bodies who are also 
concerned with making sure that we only spend TARP funds on 
TARP matters.
    Mr. Serrano. Also, last June, the report language for our 
bill asked the Treasury for detailed information on the 
staffing and budget for specific TARP-related activities. On 
March 10th, when I expressed my disappointment in the 
information that had been provided, Secretary Geithner replied, 
and I quote, ``We will provide that information as quickly as 
we can. I assume we can do it quite quickly, but I just want to 
underscore we are now in the process of winding down TARP.'' 
That is the end of his quote. Six weeks later, we have yet to 
receive any additional information as for winding down TARP.
    The budget documents show the FTEs in your Office of 
Financial Stability are expected to increase from 260 this year 
to 271 next year. So the question is, when will the Department 
finally provide us with how the TARP-funded staff is being 
assigned by subject area, as specified in our report language, 
and the same for your contract employees?
    And the February budget documents for your office show an 
estimate for contractor services this year at $314 million, up 
from an initial estimated $213 million. What are the services 
that you are buying, and why did the estimate go up almost 50 
percent?
    Mr. Allison. Yes, sir. First of all, we are still 
increasing our staff. We expect that our staff could be in the 
high 260s or in the 270s by the end of this fiscal year. After 
that, it will begin coming down somewhat. We project 271, as 
you mentioned, for the end of the next fiscal year.
    The reason why the staff is still increasing is that we are 
still improving our control systems, and we are building 
systems that can last us the years that TARP continues to 
operate. Even though we will stop making new investments on 
October 3rd, we will still have to monitor these investments. 
We are very concerned about protecting the taxpayers' interest. 
That means having very strong controls and oversight and 
reporting capabilities. So our increases are devoted to those 
functions. And we will be winding down other parts of our 
program over time as we are repaid.
    Now, while we have received about 70 percent of the funds 
back from the banks, relatively few banks accounted for those 
funds. And so we still have well over 600 banks whose moneys we 
have to oversee. So the burden on the staff has not been 
reduced materially by being paid back all those funds.
    Mr. Serrano. You say there are 600 banks that have----
    Mr. Allison. Over 600 banks, yes. And this is primarily 
today. It is no longer a large-bank program. Thelarge banks 
have repaid. Today, we have over 600 banks that are mid-sized and small 
banks. So our program today is a small-, mid-sized-bank program, not a 
large-bank program. But it requires that we monitor the funds of 600 
different institutions.
    Mr. Serrano. And what is it that these small and mid-sized 
banks are not doing? They are not reporting back on time?
    Mr. Allison. Actually, sir, the banks are reporting.
    Mr. Serrano. Right.
    Mr. Allison. We require reports from them monthly and 
quarterly.
    Mr. Serrano. Right.
    Mr. Allison. By the way, those are all disclosed on our Web 
site. We also disclose all of our transactions, and have, 
within 48 hours after the transactions are consummated. We 
provide fulsome reporting, and we continue to improve our 
reporting for the public. And that is available on 
financialstability.gov.
    Mr. Serrano. All right. Thank you.
    Mrs. Emerson.
    Mrs. Emerson. Thanks, Mr. Chairman.
    Secretary Allison, one of the things that really is still 
troubling me, and maybe you can make me feel better about this, 
really is the question of the viability of our financial 
institutions.
    I watch and hear from different economists, from one 
spectrum to the other philosophically, talking about the 
current tactics of financial institutions is to kind of extend 
and pretend with the mountain of debt caused by assets still on 
their books from the collapse of the mortgage-backed 
derivatives market in 2008. And so, I am really worried, still, 
that we haven't gotten to the crux of the problem yet.
    And back in November of 2009, Dominique Strauss-Kahn of the 
IMF said that only 50 percent of all the bad assets held by 
banks had been declared to that date. And on October the 26th, 
IMF is actually scheduled to release the next Global Financial 
Stability Report, and we have been told that the percentage of 
unreported bad assets may go up as high as 66 percent in that 
document.
    So I guess I have four short questions to ask you: one, if 
you agree with Mr. Strauss-Kahn's numbers. How would you define 
a bad asset? As banks leave the TARP, what provisions are being 
made for ensuring a more complete disclosure on remaining bad 
assets? And, four, have you all looked at why the audits for 
the banks have not been used to disclose these bad assets?
    Mr. Allison. Well, first of all, we have been watching the 
situation of the mid-sized and smaller banks. You referred to 
the commercial real estate and bank portfolios. Those are 
concentrated primarily in mid-sized and smaller banks. These 
are banks to which we still have advanced funds, as I mentioned 
earlier.
    By the way, we do not get repaid until the regulators of 
the banks approve repayments. And the regulators are the ones 
who are most responsible for overseeing the financial condition 
of the banks. That is not a function of the Treasury 
Department. So, again, we rely on the regulators.
    However, as we have looked at the commercial real estate 
issue, while we do think it is a serious challenge for these 
institutions, we do see that actions are being taken to 
moderate that problem. There have been, first of all, write-
downs of those assets, and, therefore, their values today have 
been written down, in many cases substantially, closer to the 
present value of those investments.
    And so we are pleased to see that the accounting is coming 
to terms with the actual condition of those assets.
    Mrs. Emerson. Do you believe that all the bad assets--I 
mean, they have been written down, but, I mean, what do you all 
estimate still exists in the financial community? And I need 
you to define what you believe a bad asset is.
    Mr. Allison. Well, I think what we have found--``bad 
asset'' is a vague term, of course, and I don't think we have a 
precise definition for what a bad asset is. However, there were 
assets that were seriously troubled because they could not be 
traded. They couldn't easily be valued because there were no 
markets that were highly liquid at that time during the height 
of the crisis. So banks didn't know, in some cases, what the 
assets were worth or what the other bank's assets were worth. 
And so trading between banks, which is necessary for a fully 
functioning money market, for example, was breaking down. That 
is why TARP was so necessary: to provide additional confidence.
    I think now some markets have reopened. Spreads on assets 
are down substantially, meaning that those assets are viewed as 
less troubled today than they were a year and a half ago. And 
there has been a tremendous improvement in credit spreads, 
which are indicative of the risk seen in those assets by the 
markets.
    So I think what you see is the situation of the banks is 
much healthier than it was before. Many banks of all sizes have 
improved their capital ratios. They hold more equity in other 
capital as a percentage of their total assets today, so they 
are better able to support those assets. At the same time, the 
assets have been written down in value. So the overall 
condition of these banks, by and large, is far stronger than it 
was before.
    Mrs. Emerson. But, yet, they are doing nothing about 
lending to small businesses. You know, they are not taking--I 
mean, when they have customers who seriously--and I have had 
several meetings over the past few weeks with small-business 
people who have tremendously perfect credit scores, who 
actually have been growing their businesses in spite of the bad 
economy, and yet either they can get loans at 8 percent, which 
is ridiculous given the fact that the banks are borrowing at 0 
or maybe 0.2 percent or something like that, and yet they are 
not lended out any money.
    And then, you know, the examiners are saying, well--they 
are being very difficult on the one hand, but then you are 
saying that the regulators are really the people who are in 
charge. But, yet, the regulators are also the people who let us 
down in the first place.
    So I am not as optimistic as perhaps you are, and I need 
you to just convince me that I should be.
    Mr. Allison. All right. Well, Congresswoman Emerson, you 
point out an issue of real concern. And we agree that lending 
did decline. Small businesses especially have been hard-hit by 
this because they don't have the same access to the capital 
markets that larger corporations do. And small businesses are 
the creator of many jobs in this country, so it is vitally 
important that they have access to borrowings and capital.
    So we have been meeting with small businesses and with 
banks of all sizes, including just last week, to ascertain from 
them what is the state of lending. Now, it is normalthat in a 
deep recession, like we have just had, lending contracts for a number 
of reasons. First of all, the banks are suffering losses, they pull 
back, they are trying to conserve capital, they are very cautious, they 
raise their landing standards, typically. Small businesses and large 
businesses pull back initially, as well, because they were concerned 
about dropping revenues, and they weren't sure they wanted to take on 
the risk of additional borrowings.
    Now the economy has improved significantly, and the 
financial markets have, as well. We have been told by banks as 
recently as last week that they anticipate increasing loans to 
small business, for example, this year. They were uniform in 
saying this to us. Now, we are going to be meeting with them 
every quarter because we want to make sure that they are 
following through with this.
    We also have proposed to Congress the establishment of a 
$30 billion small-business loan fund. And it has terms in it, 
if it is passed, that would provide very strong encouragement 
to banks to lend. Because the more they lend, the lower the 
dividend rate that they will be paying on this capital. But 
they are going to have to perform before the rate comes down.
    Mrs. Emerson. I appreciate that. And we will follow up when 
it is my next turn to ask questions on the small-business 
lending. Thanks.
    Mr. Allison. Sure. Thanks.
    Mr. Serrano. Commenting on when your next turn comes up, we 
will have better attendance than usual today, so we will--and 
we have some votes lurking in the near future, so we will 
adhere to the 5-minute rule.
    With that in mind, Mr. Edwards.
    Mr. Edwards. Thank you, Mr. Chairman.
    Mr. Allison, as I recall, according to former President 
Bush, his Chairman of the Federal Reserve, Mr. Bernanke, and 
his Secretary of the Treasury, Mr. Paulson, all said in the 
fall of 2008 that we were potentially on the edge of facing a 
second Great Depression.
    I realize there are some today in Washington that, for 
whatever reasons, would elevate the Herbert Hoover approach to 
preventing depressions to some exalted level. I am one who, 
along with President Bush, agreed we needed to take aggressive 
action.
    There are some who would suggest that TARP was a terrible 
mistake. I would suggest to them that they should go back and 
see what happened to the stock market in the last 3 minutes of 
the first vote of TARP when literally hundreds of billions of 
dollars of families' life savings and businesses' savings were 
lost when the stock market went down 3 percent in the last 3 
minutes of that vote when the market realized it was actually 
going down. I would have to believe if the market believed 
there wasn't a chance to come back and have a second vote, it 
might have even dropped more precipitously than that.
    I think some who suggest the Herbert Hoover approach to 
getting us out of the terrible economic disaster we were facing 
forget that, in the year prior to the Great Depression, 
household wealth dropped by 3 percent, on average. I believe, 
in the year prior to this recession, or in the first year of 
the recession, household wealth dropped by 17 percent. You 
know, I think it was Sam Rayburn of Texas, maybe among others, 
who said, ``It is awfully easy to kick down a barn. It is a lot 
harder to build one.''
    I want to talk about TARP. My first question would be to 
ask you, if you could send to this subcommittee a list of 
leading economic indicators going back to the fall of 2008 and 
then send us what those economic indicators are today. And I 
would like to just touch on those very briefly with a couple of 
very specific questions that might allow a short answer.
    One, do you recall whether we had positive or negative 
economic growth in the last quarter of 2008?
    Mr. Allison. I am not sure what the growth rate was. I will 
be happy to check for you.
    Mr. Edwards. On an annualized basis, I think it went down 
about 6 percent. And then, after TARP and after the economic 
recovery efforts in the last quarter of 2009, if you had 
checked, I believe that economic growth, on an annualized 
basis, went up 5.7 percent. A lot better going up 5.7 percent 
than down 6 percent.
    As I recall, and if I could check these numbers for our 
committee, the last quarter of 2008, the monthly job loss in 
America was about 700,000 jobs per month being lost. And I 
believe the last economic report said that America gained 
162,000 jobs, last month I believe. So, instead of losing 
700,000 jobs a month, we are gaining 162,000.
    If you would check, I believe these numbers are close to 
correct, but in the year of 2008, the last year of the Bush 
administration, the S&P 500 that a lot of businesses and 
families have their investments in and children's college funds 
and their families' retirement funds, the S&P went down 38 
percent. And I believe, since March of 2009, it has gone up 
over 70 percent. If you could verify those numbers, along with 
other economic indicators, and send that to the committee, I 
would appreciate it.
    But I would like to, finally, ask you specifically--and you 
touched on this. But, had we not passed TARP, an effort to 
stabilize the financial system of the United States and even 
the world, do you think there could have been a high 
probability that we could have seen either a much deeper 
recession than we already have suffered through or even the 
odds were that we could have faced an actual depression?
    And I remember what my father told me it was like to go 
through the first Great Depression. I certainly didn't want to 
go through a second one.
    How serious of a problem were we facing in the fall of 2008 
when President Bush asked Democrats and Republicans to support 
the financial stabilization bill?
    Mr. Allison. Congressman Edwards, first of all, your 
comparisons are absolutely right. I think no one expected----
    Mr. Edwards. Is your microphone on, Mr. Allison. I guess it 
was on. I am sorry. Please go ahead.
    Mr. Allison. No one expected that we would see the recovery 
this quickly, a year ago. And I don't think it is possible to 
exaggerate how serious the financial and economic problem was 
in the fall of 2008. We were facing a potential catastrophe if 
action hadn't been taken quickly.
    And I think that the people who were in the government at 
the time and especially the people in Congress who had to take 
a very difficult vote for TARP were courageous and bold to do 
so. And I think that those actions saved the financial system 
and saved the economy.
    Mr. Edwards. Thank you.
    Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    Mr. Crenshaw.
    Mr. Crenshaw. Thank you, Mr. Chairman.
    Another way to answer that question that Congressman 
Edwards was talking about--and I think it is kind of clear and 
straightforward. Can you tell us, in your opinion, if we had 
done nothing, would that have been more expensive or less 
expensive than passing a TARP program?
    Mr. Allison. Well, first of all, the TARP program is going 
to turn out to be far less expensive than anyone expected. It 
already has been.
    And, secondly, the cost to the country of a financial 
collapse would have been immeasurable. We would have seen the 
financial system essentially destroyed in this country. It 
literally wouldn't have been possible for people to cash 
checks. There was almost a run--there started to be a run on 
money market funds, which many people depend upon for their 
cash. And so the government had to step in and guarantee $3 
trillion of money market funds, overnight almost, to prevent a 
classic run of the bank, if you will, like we saw back in the 
1930s.
    This country depends on a strong financial system. Every 
day, people are using their credit cards. They are borrowing 
money for a car or for their house or for college education. 
Without this system, this economy can't function. It is part of 
the lifeblood of people's everyday lives. And so, it was 
essential at the time to take unprecedented action.
    And because those actions were taken, we are recovering at 
a very rapid pace, far quicker than most people imagined a year 
ago. Now, we are not totally out of the woods. We----
    Mr. Crenshaw. No, but, just, I mean, I think whatever you 
are saying is that, you know, regardless of how much money TARP 
ends up costing--and it is going to cost less than we thought 
to start with--that is going to be less expensive than it would 
have been to do nothing. And that is your opinion. And I 
appreciate that, sir, because I happen to believe that.
    Mr. Allison. Yeah.
    Mr. Crenshaw. Now, let me ask you--you know, everybody that 
comes before our subcommittee talks about, ``We can't sustain 
the kind of debt that we have, both on an annual basis or our 
total national debt. It is just unsustainable.'' And so, people 
talk about how to get out of that mess. They talk about raising 
taxes. You hear about the value-added tax. You hear about the 
bank tax.
    And let me ask you--it is interesting, because I would like 
to, kind of, go through those numbers again to see how much 
TARP is going to cost. But one of the things--when you say, 
maybe TARP doesn't cost us anything, and that would be 
wonderful, but one of the proposals the President has made is a 
bank tax, I think he calls it a fee, that will raise $90 
billion by taxing banks that have over $50 million, in terms of 
their deposits.
    And one of the justifications for that tax or that fee is 
that that money would be used to pay back the TARP money. But 
you can see, if TARP didn't cost us anything, then I guess you 
would agree that we wouldn't need that $90 billion of new taxes 
to pay for the TARP that didn't cost anything. Would that be 
correct?
    Mr. Allison. What I said in my testimony, Congressman, was 
that we estimate--the latest estimate is that TARP would cost 
about $120 billion. And----
    Mr. Crenshaw. But if it didn't cost anything--I mean, let's 
assume--I hope you are right that it doesn't cost anything. 
Then would you say, well, we don't need to talk about this fee 
on banks to raise $90 billion. Because if you raised it, you 
might use it for something other than paying back TARP money, 
because it would have been paid back.
    Mr. Allison. What I said, Congressman, was that if a 
financial recovery fee is enacted by Congress, TARP won't cost 
the taxpayers a dime, because those moneys could offset----
    Mr. Crenshaw. So, best case maybe you would be $90 billion 
short, so you would assess a fee and have that $90 billion paid 
off. And I can appreciate that.
    Let me go through those numbers because, as I understand 
it, there is $700 billion, but some of the money hasn't really 
been spent. Isn't there about $300 million just sitting in the 
bank?
    Mr. Allison. Well, we were authorized to spend $700 
billion. We estimate that we are going to utilize about $545 
billion or $550 billion of that money.
    Mr. Crenshaw. So that is about $250 billion that you are 
not going to utilize?
    Mr. Allison. It is about $150 billion, yes----
    Mr. Crenshaw. Okay.
    Mr. Allison [continuing]. That we don't expect to utilize.
    Mr. Crenshaw. Now, what are you going to do that? If you 
don't utilize it, would you ever consider paying down the 
national debt or giving it back? Or would you, kind of, hang on 
to it just in case you need it somewhere along the way?
    Mr. Allison. Well, our ability to invest these funds 
expires on October 3rd of this year. And any money----
    Mr. Crenshaw. Well, what are you going to do if you have 
$150 billion on October 3rd of this year?
    Mr. Allison. All of that goes back----
    Mr. Crenshaw. Where does it go?
    Mr. Allison [continuing]. To the Congress. Well, we have 
not spent it. That would be used to reduce, along with the 
moneys we receive back, the national debt--or the perceived 
planning of the national debt.
    Mr. Crenshaw. You wouldn't spend it on something else?
    Mr. Allison. No, sir.
    Mr. Crenshaw. Okay.
    Thank you, Mr. Chairman.
    Mr. Allison. All the money we receive back goes into the 
Treasury to reduce the national debt.
    Mr. Crenshaw. Thank you.
    Mr. Serrano. You said exactly what he wanted to hear.
    Mr. Boyd?
    Mr. Boyd. Thank you, Mr. Chairman.
    And thank you, Mr. Allison, for your years of service to 
the country.
    I want to focus on CDCI.
    Mr. Allison. Yes, sir.
    Mr. Boyd. You alluded to it briefly in your opening 
remarks. And I think most of us understand what it is designed 
to be.
    And one of the things that we find out in our communities 
is that our CDCI applications have--they are dragging out, and 
they have very long waiting periods before approval or denial.
    Can you bring the committee up to speed on how CDCI is 
working in our communities to provide TARP funds in a timely 
manner? You know, obviously, the objective there is to infuse 
capital into our small businesses and those troubled, mostly 
rural areas.
    Mr. Allison. Yes, sir. And, Congressman Boyd, thank you for 
asking about the CDFIs. We believe and we know that they 
provide an essential service, especially in disadvantaged areas 
of this country that are not banked. Many banks don't even have 
branches in some of these areas where the CDFIs operate. So 
they are providing a vital and a unique role in the communities 
where they operate.
    So we believe it is very important to assure their 
continued operation during this very difficult time. And so we 
have already instituted a program for CDFIs. These are 
regulated CDFIs that provide the bulk of the lending and assets 
to those communities.
    And we are seeing very strong interest in this program. The 
application period to participate in our capital program, where 
we can make capital available to the CDFIs, up to 5 percent of 
their risk-weighted assets, on very good terms, that program, 
the application period expires on April 30th. So we have been 
urging them and the Secretary has written a letter to the CDFIs 
urging them to participate in this program.
    And we are very encouraged by the high percentage that are 
showing interest. And we expect a substantial number of the 
regulated CDFIs to participate, which means that more capital 
would be available to them so they can continue and grow their 
activities, where possible.
    Mr. Boyd. So you have a cutoff date for applications of 
April 30?
    Mr. Allison. Yes, sir.
    Mr. Boyd. The approval or denial of those applications, has 
that already started?
    Mr. Allison. Yes, sir. Yes.
    Mr. Boyd. Is there anything that we can, as individual 
Members, be doing about the expedition of the decision of 
approval or denial?
    Mr. Allison. Well, first of all, thank you for your 
interest in this program.
    We are encouraged, as I mentioned, by the application rate, 
which is quite high. And the applications have to be processed 
through the regulators of these CDFIs. And I know the 
regulators are working hard to process those as rapidly as 
possible. So we do expect a large participation. And, of 
course, we will be reporting on all of this to the public.
    Mr. Boyd. Okay. Have some of those applications already 
been approved or denied, or they will all be coming at once?
    Mr. Allison. Some applications--a large number have already 
been forwarded to us by the regulators. So they have been 
approved by the regulators.
    Mr. Boyd. Okay. Thank you very much.
    Mr. Allison. Thank you.
    Mr. Boyd. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you, Mr. Boyd.
    Ms. Lee?
    Ms. Lee. Thank you very much.
    Good to see you.
    Mr. Allison. Thank you.
    Ms. Lee. And I am one who was very skeptical about voting 
for TARP. You know, I am glad to see that the financial markets 
were stabilized and we saved the economy from going into a 
depression. And I am delighted that many of the goals of TARP 
have been or are being achieved.
    But many of my constituents don't know that. And I will 
tell you why: Many don't have credit cards. Many don't have 
access to capital. Because they are minority-, women-owned 
small businesses, they can't get credit. Many have lost their 
homes due to the scams of the loan sharks. And I hope that 
there will be some criminal prosecutions of these individuals. 
And so it is very difficult to explain in terms of Main Street 
benefiting from this.
    So I am curious in terms of how this administration, how 
you see us moving forward for those millions of people who 
really don't quite understand why we did this for the financial 
system and why in the world we can't require these banks and 
lending institutions to step up to the plate and lend to 
minority-owned businesses and small businesses. Because they 
are just not doing it. We had an opportune time to do that when 
we bailed them out. We didn't require them to do it. And now we 
are looking at many of our communities that are devastated as a 
result of the last 8 years, quite frankly.
    And so, how do we begin to turn this around and make sure 
that these financial institutions that did receive TARP money 
know that they have a responsibility to be fair and to provide 
equal opportunities to small businesses and to minority-owned 
businesses? Because they just haven't done that.
    Mr. Allison. Congresswoman Lee, we fully understand and 
appreciate your concerns. And you have been eloquent and very 
strong in speaking out about these things for a long time.
    We have undertaken a number of programs addressed 
specifically at that point. The first is the CDFI program, 
because, as you know, in many of these communities the CDFIs 
are the only financial institutions that people can turn to.
    Secondly, the Obama administration has set up a facility of 
about $23 billion for housing finance agencies to innovate 
approaches to deal with housing issues in these communities.
    Thirdly, we have launched what we call the Help for the 
Hardest-Hit Housing Markets, which is a program designed 
toencourage HFAs in the 10 States whose people have been hardest hit by 
unemployment and house price declines to innovate solutions for those 
people; for instance, by helping to make more people eligible for HAMP 
modifications, for example, providing additional assistance to 
unemployed people.
    We also, in Treasury, have been encouraging in our programs 
participation by minority groups. In fact, now we are 
launching, soon, our sale of Citigroup's stock, and Morgan 
Stanley has pledged to us that it will devote 25 percent of the 
economics they receive to minority- and women-owned firms. So 
we are committed to encouraging diversity in our own programs.
    Much more still has to be done. And I think by shining a 
light on this issue and making it a high priority of the Obama 
administration, which, in addition to TARP and the other 
programs I mentioned, has comprehensive stimulus efforts, 
recovery efforts aimed at disadvantaged communities. We have to 
do more; I think this administration realizes that. And they 
have made all-out efforts to try to help in these areas.
    Ms. Lee. Great. And I appreciate what you are doing 
futuristically and what we are beginning to do.
    What I want to see, Mr. Secretary, is how--and I don't know 
if you have the numbers, the statistics, the reports on what 
lending these financial institutions--how they lend it, who 
they lended their money to. Did they lend to minority- and 
women-owned businesses? If so, what is the percentage? If not, 
we need to shine some light on it.
    Mr. Allison. Yes.
    Ms. Lee. I think we have anecdotal information, but I am 
not sure if we have the facts. And so I am wondering if we 
could ask you to report back to this committee the types of 
loans and to whom those loans went to these institutions that 
we bailed out.
    Mr. Allison. Yes.
    Ms. Lee. Because I think it is important that that never 
happen again. Because, you know, we raised a lot of 
expectations in many of these communities, and businesses have 
gone out of business because they could not get access to 
credit, regardless of whether TARP was there or not. They just 
froze it.
    Mr. Allison. Yeah. We will be happy to follow up on that. 
Thank you for the question. We will come back to you.
    Let me also mention, though, that in our housing program we 
have extensive reporting on the performance of the servicers in 
making modifications available. And we have been collecting 
data by race, for example, and gender since the beginning of 
this year. And as soon as we have statistically valid 
information on that, we are going to start reporting that, as 
well.
    Ms. Lee. Thank you. It is very important, because these 
scam loan sharks--that is what I call them--they targeted 
minority communities. I mean, they didn't just do this de 
facto. They went in there and decided they were going after 
African Americans and Latinos. So it is very important that 
this report come out to show what has taken place.
    And, also, I hope you will get back to us on the lending to 
minority- and women-owned businesses.
    Mr. Allison. Thank you very much. We will do that.
    Ms. Lee. Thank you very much.
    Mr. Serrano. Thank you.
    Ms. Wasserman Schultz?
    Ms. Wasserman Schultz. Thank you, Mr. Chairman.
    Thank you so much for your public service and for being 
with us this morning.
    And I know that all of us feel that the whole notion of 
stabilizing our economy and creating jobs and getting the 
housing markets back on track--being a Floridian, that is 
particularly important, to make sure that we can continue to 
move forward.
    And I read Mr. Barofsky's testimony, in which he discusses 
some of the missed TARP payments. And we have heard a lot of 
good news lately about Goldman Sachs and GM's payment of their 
debts in full. But I want to hear a little bit more about what 
you don't think is working very well and where there has been 
room for improvement. Which payments have you not yet received? 
And which have been late? And are there any that you anticipate 
not getting back at all?
    Mr. Allison. We have had some banks not paying the 
quarterly dividends to us. If they don't pay us for six 
quarters, we have a right to appoint two directors to their 
boards.
    Ms. Wasserman Schultz. Okay.
    Mr. Allison. We have had, though, I would say, given the 
magnitude of the crisis, a relatively low rate of outright 
losses. Today, the losses are a little over 1 percent of the 
total amount that was invested in the banks. But even with 
those losses, the total net return has been about 9 percent on 
the investments. And we have received over $20 billion of 
dividends and warrant proceeds and interest on those 
investments.
    So, overall, this plan, this program, has benefited 
taxpayers. They have profited from this program, so far, 
substantially.
    Ms. Wasserman Schultz. In other words, we have actually 
made more back than we initially invested.
    Mr. Allison. Yes. We have made about $20 billion on those 
investments.
    Ms. Wasserman Schultz. Wow. That is certainly something 
that I would love to see get out there more. Because the hatred 
of the TARP and the whole notion of TARP has been 
understandable because we certainly wish we were never in this 
situation in the first place. But the fact that we have made 
the investment back with interest, to the tune of $20 billion, 
that is an important point that Americans should know.
    I want to ask you a little bit about the AIG subsidiaries, 
selling off AIG subsidiaries. There is a concern that AIG is 
selling off some of the better parts of its business just to 
repay the government. Is it AIG that is directing those sales, 
or is it the government looking to recover some of the money 
more quickly? And do you believe that AIG is cannibalizing its 
future earnings so that they can get short-term results?
    Mr. Allison. First of all, let me emphasize that we are a 
reluctant shareholder in any of these companies.
    Ms. Wasserman Schultz. Yes.
    Mr. Allison. And we would like to dispose of our 
investments in the stocks of AIG, General Motors, Citigroup as 
rapidly as possible, consistent with protecting the interests 
of taxpayers. We do not get involved in day-to-day decisions of 
these institutions, or strategic decisions.
    We do expect that the asset sales that AIG is making today 
will enable the company to repay, first of all, the Federal 
Reserve for a large part or all of its investment. We do have 
continual communications with AIG about its condition and about 
its plans.
    We are encouraged by the progress that the company has 
made, and especially the last 6 or 8 months. And we have seen 
the risk in the company come down dramatically. Financial 
Products, their financial products subsidiary, which was the 
cause of a lot of the problems in AIG, has dramatically reduced 
its exposures to the market. And so, we see a very positive 
trend so far in the improvement in AIG's condition.
    Ms. Wasserman Schultz. And, Mr. Chairman, forgive me, I was 
not here when you made your opening remarks. But, in my home 
State of Florida, restoring the housing market and helping 
ensure that we can keep people in their homes and prevent them 
from being foreclosed on is incredibly important. Our recovery 
is lagging behind the rest of the country.
    Can you talk a little bit about the Hardest-Hit Fund, how 
that and other innovative ideas using TARP funds that are 
designed to help make sure that we can bring that part of the 
economy up?
    Mr. Allison. Yes. Well, we think that the Hardest-Hit Fund 
is extremely important, especially in these 10 States. And 
Florida, of course, is one of those. And I believe Florida is 
receiving more than $400 million.
    Ms. Wasserman Schultz. Yes.
    Mr. Allison. And this will enable the State, the housing 
finance agency and others, to look at the particular conditions 
within Florida and certain areas of Florida to see what methods 
might be used to assist in stabilizing the housing markets and 
relieving the pressure on homeowners in those areas.
    And, as you well know, this housing crisis is highly 
concentrated in certain parts of the country. Southern Florida 
is one that has been particularly hard-hit, as you well know.
    Ms. Wasserman Schultz. Yes.
    Mr. Allison. And, fortunately, what we do see are signs of 
stabilizing of prices. And that is going to be essential, so 
that we attract more demand for houses and we begin to 
stabilize and balance supply and demand in those areas.
    So we are encouraged by some of these developments. Even 
though it has been extremely painful, maybe we are nearing the 
point where that market----
    Ms. Wasserman Schultz. Do you have that sense, that we are?
    Mr. Allison. Our sense is that, increasingly we are 
seeing--some of the hardest-hit places are the ones where the 
prices rose the quickest.
    Ms. Wasserman Schultz. Right.
    Mr. Allison. They came down the furthest. But they are 
actually maybe reaching a point quicker than some other parts 
of the country where they have an equilibrium of supply and 
demand. And so----
    Ms. Wasserman Schultz. From your mouth to God's ears.
    Mr. Allison. Yes, well, we hope so.
    Now, we are not complacent about this. That is why we just 
implemented this new program. We still think we have to do 
more. And, frankly, in the eyes----
    Ms. Wasserman Schultz. Pushing the banks to work mortgages 
out is incredibly important, as well.
    Mr. Allison. Exactly. And we are also publicizing their 
performance. And, frankly, they still have more to do.
    Ms. Wasserman Schultz. A lot more.
    Mr. Allison. All of them. And we meet with them 
continually. And we are seeing progress, but it is not fast 
enough. And I think, frankly, they need to invest more in their 
mortgage activities in order to reach the type of scale that we 
need.
    However, let me mention that last month is the first month 
when we actually saw the servicers convert more mortgages to 
final modifications than they had new trial modifications. So 
it does show capacity is increasing, and we are starting to get 
on top of this problem. And we expect that we will have seen 
decisions made on trial modifications awaiting decisions. Most 
of those should be completed by the end of June.
    But we are still working with the banks to increase their 
capacity. This is still a very serious problem. We still see 
the possibility of a million foreclosures in this country this 
year; maybe 3 million foreclosure starts, but usually about a 
quarter to a third of those turn into actual foreclosures. We 
are trying to prevent as many of those as we can.
    And that is why we have the HAMP program. And we are 
encouraged that we have over a million people who have already 
benefited from that. But we want to make sure that people know 
the program is available. We want to make sure that the 
servicers--and we have already reached an understanding with 
the servicers. From now on, starting in June, they must look at 
every 60-day-plus delinquent mortgage to see whether the 
homeowner could be eligible for HAMP.
    Ms. Wasserman Schultz. That is good.
    Mr. Allison. And so, that should also bring more people 
into this program. But we have to publicize it more.
    Ms. Wasserman Schultz. Yes.
    Mr. Allison. We are holding events throughout the country, 
including in Florida, to----
    Ms. Wasserman Schultz. Let Members of Congress know how we 
can help you publicize it.
    Mr. Allison. We will. Thank you very much.
    Ms. Wasserman Schultz. Thank you very much.
    Mr. Allison. Thanks for your questions.
    Ms. Wasserman Schultz. Thank you for your indulgence, Mr. 
Chairman.
    Mr. Serrano. Thank you.
    Mr. Culberson.
    Mr. Culberson. Thank you, Mr. Chairman.
    Secretary Allison, as a general rule, when a company 
accepts Federal dollars, they are subject to all the Federal 
rules and regulations. And, in this case, a company that has 
paid back the TARP money is still subject to all the Federal 
guidelines that they accepted the money under? Or are they 
completely free of Federal strings once they repay the money?
    Mr. Allison. Once they have repaid the money entirely, they 
are free from the TARP restrictions. Of course, they are 
subject to all other laws----
    Mr. Culberson. Certainly. But, I mean, in terms of the TARP 
restriction.
    Mr. Allison. Yes, sir.
    Mr. Culberson. And it is my recollection, didn't the 
original language of the October 2008 TARP legislation leave 
it--I don't know that it was mandatory, but is it the 
Secretary's discretion to use the money that is repaid to pay 
down the deficit?
    Mr. Allison. The money that comes back to the Treasury that 
is repaid under the TARP program is put back into the general 
account of the U.S. Treasury for debt reduction.
    Mr. Culberson. For debt reduction.
    Mr. Allison. Yes, sir.
    Mr. Culberson. But the Congress and this new Congress and 
the President have just routinely rechurned that money, so it 
is not--well, let me ask you this: Has any of that money been 
applied to debt or deficit reduction? Because if it has, I am 
not aware of it. I am not aware of any of that money being used 
to pay down the debt or the deficit.
    Mr. Allison. Well, actually, I would be glad to send you 
information on this. But, so far, we received about $170 
billion, roughly, in repayments--no, I am sorry, $186 billion. 
And we have received another $20 billion in proceeds from 
dividends and interest and sales of warrants.
    Mr. Culberson. About $180 billion, and has that $180 
billion all been used to pay off, pay down the debt or deficit?
    Mr. Allison. Absolutely. It has been used to pay down the 
debt and the deficit.
    Mr. Culberson. Then that is terrific. Is it going to 
continue to be any money that is paid back used to pay down 
either the debt or the deficit?
    Mr. Allison. Absolutely and that is under EESA law.
    Mr. Culberson. So that is required. It is mandatory. And it 
is not just, of course, the Treasury Department, but the 
Federal Reserve, FDIC have all been in the business of 
guaranteeing loans and ensuring, helping to provide some 
underpinning to a whole variety of industries. How much money 
and to whom has the Federal Reserve been loaning money?
    Mr. Allison. I don't have the answer off the top of my 
head. We will be glad to contact the Federal Reserve and 
provide that information to you.
    Mr. Culberson. You could provide that to the committee?
    Mr. Allison. I will. We will request the Federal Reserve to 
provide it to you.
    Mr. Culberson. Have they provided it to you? Has the 
Department of Treasury seen in detail how much money the 
Federal Reserve has loaned and to whom and under what terms?
    Mr. Allison. I will find the answer to that for you, but my 
own department doesn't look at that, but I will see whether 
others in Treasury have done so.
    Mr. Culberson. To your knowledge, has Treasury received 
that information from Federal Reserve?
    Mr. Allison. I don't know.
    Mr. Culberson. How much money, do you know a ballpark 
figure, as to how much money the Federal Reserve has either 
loaned out or guaranteed?
    Mr. Allison. I don't have that information right in front 
of me, but if you would like, I will certainly try to get the 
information for you.
    Mr. Culberson. Thank you. What about the FDIC, I understand 
they are also a part of this as well?
    Mr. Allison. Well, the FDIC oversees----
    Mr. Culberson. Sure.
    Mr. Allison. It has had its own facilities where it has 
guaranteed borrowing for a period of time. That program has 
been terminated however.
    Mr. Culberson. Has the United States Government, or excuse 
me, U.S. taxpayers, more accurately, ever guaranteed this much 
money in the private sector, this many loans, this much money 
on this broad of a scale ever in U.S. history?
    Mr. Allison. I don't know. I would doubt it, but there 
hasn't been a crisis--this is, I think, a unique financial 
crisis that this country faced. And as I mentioned before in my 
testimony, it would have been catastrophic if actions hadn't 
been taken.
    The cost to this economy would have been incalculable if 
these actions hadn't been taken. And what we have seen is, 
thanks to these actions, the economy has recovered far faster 
than most people would have dared to predict.
    Mr. Culberson. What is the amount of money that the 
Secretary of Treasury has available to him to use under the 
TARP fund to continue to make loans or guarantees? You have got 
money coming back in that is repaid, but isn't there a 
continuing amount of money that the Secretary of Treasury has 
available to continue to use at his discretion?
    Mr. Allison. The amount of TARP funding available that 
allocated at TARP was $700 billion.
    Mr. Culberson. Right. You say $180 billion of that has been 
repaid, applied to deficit reduction. And that is gone; that 
has gone to pay off debt, right?
    Mr. Allison. Yes. But the entire $700 billion has not been 
used. And as the Secretary announced when he extended TARP to 
October 3 of this year, we don't expect to use more than about 
$550 billion. We actually have made investments of about $390 
billion, as I recall, but we plan to make, we have made 
commitments of about $491 billion, and we plan toutilize about 
$545 billion to $550 billion.
    Mr. Culberson. And as that money comes back in and is 
repaid, you will apply that specifically to debt?
    Mr. Allison. That is correct.
    Mr. Culberson. Buying back U.S. Treasury debt?
    Mr. Allison. It is done. It reduces the national deficit, 
yes, sir.
    Mr. Culberson. And then the money is not reused? We will 
make sure----
    Mr. Allison. The money is not reused.
    Mr. Culberson. Thank you, Mr. Chairman.
    Mr. Allison. However, let me be totally clear with you, as 
the money is repaid, that increases the head room, because the 
actual authorization remains constant at $700 billion. However, 
we are totally transparent that the money that has been repaid 
goes back to reduce the National Debt. We disclose all of the 
utilization of the money on our Web site, and the amounts that 
I have given you will indicate that we have not used the entire 
$700 billion.
    Mr. Culberson. Maybe someone could follow up on that, Mr. 
Chairman, because it is still a little bit of source of 
confusion. The authorization level stays the same. You say you 
are paying down debt with it.
    Mr. Allison. That is right.
    Mr. Culberson. But you continue to churn within that $700 
billion.
    Mr. Allison. No, sir, because any new investment-- under 
the law, we strict reply follow the EESA law. Any money 
returned to us is used to pay down the National Debt. Within 
the $700 billion, we may make additional investments, but we 
have not come close to utilizing the entire $700 billion, so it 
is really a moot point. So any money we return back goes to 
reduce the National Debt. We will be glad to give you a table 
showing you exactly what has been utilized so far and how much 
has been paid back.
    Mr. Culberson. You are always gracious with the time. I 
have some follow up. Thank you, sir.
    Mr. Serrano. That is all right. The gentleman answered 
about nine times it was going back to pay the National Debt. 
Just for the record.
    But I understand your concern. It is the concern of many 
folks.
    Last year the TARP was used to create new public-private 
investments to increase credit for small businesses, students, 
car buyers and other consumers. How would you evaluate the 
effectiveness of these programs in making more credit available 
for creditworthy small business, students and consumers?
    Mr. Allison. The impact has been both direct and indirect. 
When the Public-Private Investment Program was announced about 
a year ago, it had an almost immediate effect on the credit 
spreads for Commercial Mortgage-Backed Securities and 
Residential Mortgage-Backed Securities. Those rates, you can 
trace it to the day of the announcement. The rates came in 
dramatically, which helped to improve the cost of credit 
throughout that sector of the financial markets.
    And, since then, we have been working with nine investment 
managers to invest in this these types of instruments, which 
help to provide additional liquidity to the market and also 
price discovery, which stabilizes and creates more confidence 
in those markets.
    And, again, that program will be also fully invested soon, 
and we plan no others because the markets have improved so much 
in terms of spreads returning to near normal, in many cases, 
that there is not a need for adding to that program.
    Mr. Serrano. My only concern would be that that is the 
program that speaks, those programs speak to areas where the 
people with the least power, if you will, in the society were 
benefited. So when you say we don't intend to add more to it or 
whatever, that is fine if everything is okay. But I would hope 
we know everything is okay before we decide to cut back on 
that.
    Mr. Allison. Well, what we are seeing is that, even as that 
program nears being fully invested, we are seeing that the 
spreads in those markets remain quite low, especially compared 
to where they were at the height of the crisis. And they have 
returned to near normal in many cases. We would like to see 
more activity in those markets. That is going to take some 
time, but they have been improving and healing, thanks to these 
programs.
    Mr. Serrano. Right.
    In the last year, banks have reduced their credit 
outstanding to commercial and industrial businesses by almost 
20 percent or $300 billion. When businesses lose credit like 
that, they cut back jobs. Recently the financial press has 
reported that the financial services sector has paid out more 
than $100 billion in bonuses this year. Do you agree that the 
money, if retained instead of paid out in bonuses, could have 
been conservatively leveraged to increase credit in our 
struggling economy by hundreds of billions of dollars?
    And what do you think will be required to get a 
satisfactory resumption of credit growth in the country? 
Treasury is required to review the executive compensation at 
hundreds of banks. How is that process going, and do you see 
any significant change in that compensation?
    Mr. Allison. Well, first of all, I think many Americans 
have been outraged by the level of bonuses in the financial 
industry, especially among the largest financial institutions 
that received the largest amount of TARP funds. These 
institutions have repaid TARP. I think what is important, our 
administration believes what is important is to enact financial 
reform legislation that would, for example, provide for 
shareholders to have a say in pay for the top executives of 
these financial companies. I think we are going to see over 
time, if this is enacted, much more discussion and much more 
information about how pay is determined in these companies, and 
that in, in turn, should help to lead to better control over 
that type of activity.
    We are, like you, we have been troubled by the shrinkage in 
lending. We do see signs, as I mentioned before, that lending 
is increasing. A number of the largest banks have pledged that 
they will increase lending here in 2010. We hope that happens 
as soon as possible.
    Mr. Serrano. You know, as you speak, I think of something, 
and my last statement here, for anyone who will care to listen, 
if they could help us with this, but the statement I just made, 
the question I just asked you raises some eyebrows at City Hall 
back in my hometown in New York, because, as you know, Mayor 
Bloomberg and others have said, sure, go after Wall Street, and 
in the process, you will destroy New York's economy.
    You know, New York gets caught up in a little situation 
there where we know that these bonuses are totally improper and 
outrageous, but then taxes are collected on people who work in 
New York and collect those bonuses. I wish there wasa way that 
we could come up with some sort of a presentation that would say these 
restrictions do put this kind of slight pain on New York, but look at 
what the rest, in dealing with this issue in general, will do for the 
State and for the city, and no one has been able to do that.
    And I wish someone could direct me in the direction as to 
where we could get those numbers to indicate that, while we may 
put restrictions on folks who work on Wall Street in New York, 
in the long run, it is better for New York City and New York 
State to have this in place rather than what we had before, 
because it is not enough to say we are trying to put 
restrictions on the folks who caused the problem to begin with.
    People tend to forget, you know, they tend to forget that 
we shouldn't have invaded Iraq or we should have been out of 
Afghanistan. They forget, so they somehow forget who caused the 
problem. Now it is, who is going to cause the current problem 
or the next problem, or why hasn't this been taken care of?
    So if you know anyone that you could direct us to, to begin 
to put together a presentation that would say, yes, we will 
restrict, but here is the final outcome for places like New 
York or Chicago or financial centers throughout the Nation.
    Mr. Allison. I think you ask a very interesting question 
and make a terrific observation. Let me also mention that for 
the seven companies that receive special assistance, what we 
call exceptional assistance, from TARP, the special master that 
was appointed by the Secretary of the Treasury directly oversaw 
the compensation of the top 25 executives in each of these 
companies. We saw that their compensation declined dramatically 
under the special master's oversight. Those companies are all 
doing better than they were before, and they are still very 
competitive.
    And so certainly the administration is well aware of the 
need for responsibility and farsightedness in compensation 
awards by these companies. And the President, of course, is 
speaking today up in New York about the financial industry and 
the need for financial reform, which includes greater 
disclosure and a say on pay.
    And it is vital that shareholders have the ability to voice 
their views about the compensation in financial companies.
    Mr. Serrano. Because, as you know, the argument we get, if 
you keep doing this, they will leave. Where are they going to 
go? I mean, are they going to quit their job on Wall Street and 
go elsewhere? When you have people in my congressional district 
in the South Bronx who might have gotten, and I am not being 
funny here, might have gotten a $100 Christmas bonus at their 
job and somebody is fighting over whether they are getting $5 
million or $10 million in a bonus, I don't think it is much of 
an argument.
    Thank you.
    Mrs. Emerson.
    Mrs. Emerson. Thank you, Mr. Chairman.
    All right. Let's go back to small business lending, if we 
could. You know, I am a little bit confused here. I have got a 
letter from the Special Inspector General, dated February 19th, 
that says, in essence, that Treasury perhaps was going to 
include the SIGTARP in overseeing the new Small Business 
Lending Program and then--or at least that is what your 
legislation would reflect--and then you all decided not to.
    But yet the way that I understand that the program has 
actually been designed really sounds pretty much like an 
extension of the Capital Purchase Program, so I am just a 
little bit confused. And perhaps you can explain to me or 
perhaps assure me that there is no reason at all why you all 
would want to involve SIGTARP's oversight in this newly 
proposed program. And just because it was kind of back and 
forth, back and forth, so I am not quite sure where we are in 
the process right now.
    So please explain.
    Mr. Allison. Yes. Well, first of all, it is important to 
point out that the new program would be subject to special 
legislation. The program would be outside of the TARP Program. 
It is not identical to the Capital Purchase Program. It is 
qualitatively different because it will be providing direct 
incentives for lending. It will be geared to stimulating 
lending. It is not primarily, as the Capital Purchase Program 
was, to bolster the capital of banks. This was to give them 
capital that they may need in order to expand lending, and they 
will only get a reduced dividend if their lending grows.
    We didn't think it was appropriate in legislation for us to 
tell Congress how we ought to be overseen.
    Mrs. Emerson. But you are using TARP money to do it, right?
    Mr. Allison. No, we would not be using TARP money. This 
would be done entirely outside of TARP, under separate 
legislation, without using TARP funds.
    Mrs. Emerson. Okay, but, if, in fact, Congress determined 
that it was, you know, because of the whole SIGTARP office has 
really ramped up and actually has the ability to oversee this, 
it would not be something that you all would push back on, 
would it? In other words, if, in fact, we decided in our 
legislation to have SIGTARP oversee, that is not a problem, is 
it?
    Mr. Allison. We welcome strong oversight over all of our 
programs. We have oversight not only by the Special Inspector 
General but by the Congressional Oversight Panel, the Financial 
Stability Oversight Board and the GAO.
    We think that they all add value to what we do. And the 
only advice we would give is that there should be continued 
strong oversight of all of these programs.
    Mrs. Emerson. Well, certainly we need to protect the 
taxpayer, but it seems to me if we have got an entity that is 
really doing its job well, we might as well just keep using 
them.
    The small, as I said earlier, my small businesses are just 
troubled by the lack of their ability to access credit. And so 
I am hopeful that whatever program comes about actually is 
going to work.
    Can you tell me what specific actions your office took to 
encourage lending, particularly from the banks receiving TARP 
funds, and then anything in excess of that?
    Mr. Allison. We think one of the best ways, Congresswoman 
Emerson, to encourage lending by the banks is to shine a light 
on their lending practices, and so we disclose their lending 
and have since the beginning on our Web site.
    We have also asked them to report to us periodically on how 
they are using TARP capital. And, by the way, some of those are 
recommendations of SIGTARP, which we thought were very 
constructive.
    We are working with banks. We have been talking to many 
banks about their lending practices to encourage them to try to 
lend responsibly. In fairness, we have seen collateral values, 
especially this affects small business, the value of their 
collateral, such as their commercial real estate that they may 
pledge or their personal real estate that they may pledge in 
order to get a loan, has dropped substantially. And that is one 
reason why some banks have cut back on their credit.
    Nonetheless, with the stimulus activities by the 
government, by the funding of many programs, by the improvement 
in the economy, we think and we are hearing from banks that 
they are reaching an inflection point where you are likely to 
see a pick up in lending in 2010, and that is very encouraging 
for small business and for the economy.
    Mrs. Emerson. Well, it certainly, in almost every single 
newspaper article that I can read, including another article in 
USA Today, ``Banks Who Took Aid Decreased Lending,'' every 
single headline. And that is very troubling, given the fact 
that part of the whole reason that we--those of us who 
supported TARP--it was to get Main Street back in business.
    Mr. Allison. Let me just also mention on that point, one 
can't just look at the loan balances on the bank's books to see 
what their current activity is, because banks have had to write 
down a lot of bad loans. And so even their lending activity may 
be stronger today, but the overall balance comes down because 
other loans have either matured or been written down.
    So one has to look at the actual lending activity of the 
bank, not at the balances on the bank's balance sheet, to get 
the real picture as to what is going on.
    Mrs. Emerson. All I have to do is talk to small businesses 
in my district, and I can get the real answer to this question. 
And we are not talking about Bank of America banks; we are 
talking Missouri, big Missouri banks, just for example.
    But, I know that for much of the last year, the secondary 
market for many types of loans was frozen, and so whether it is 
mortgages, SBA loans, other asset-backed securities currently 
functioning, I mean, tell me what steps you all are taking to 
ensure those markets do continue to function effectively so we 
can move this along faster.
    Mr. Allison. You have just given the rationale, 
Congresswoman Emerson, for this Small Business Lending Fund 
that we would like Congress to enact. This program is designed 
specifically to encourage lending. We totally agree with your 
points. We hear the same anecdotes from many businesses across 
the country. I get letters from many of these businesses.
    You are pointing to a real problem, and we understand that. 
That is why we have designed this program. That is why we are 
hopeful that the Congress will enact it as soon as possible so 
we could be providing capital to these banks and enabling, 
giving them the confidence and the capital so they can increase 
their lending.
    Mrs. Emerson. So what is going to happen if we don't pass 
legislation?
    Mr. Allison. I think it will simply take longer for the 
lending to recover. Eventually it will increase again, but we 
would like to see it happening sooner rather than later. We 
want to help create jobs, and jobs depend upon small business 
being able to get funding to purchase inventories, to make new 
investments in plant and equipment to hire more people. And so 
to get the economy moving more rapidly, we think providing 
capital to the smaller banks who do an outsized portion of 
small business lending across the country is extremely 
important.
    I and my colleagues have been talking with many of these 
banks across the country in all districts. And what they tell 
us is that they see good quality companies that they want to be 
lending to. I think that we are seeing some parts of the 
country where lending is going to pick up a little more rapidly 
than other parts. But by providing the capital, we enable banks 
to take another look at their lending practices to review loans 
that they may have turned down but they might want to review 
again with the prospect of perhaps increasing lending to those 
companies.
    Mrs. Emerson. Well, it is a problem, and hopefully we will 
get to this issue. I would certainly encourage you all just to 
make it a lot easier on yourselves by saying SIGTARP can handle 
the oversight here.
    But I also want to just, before I close, I also want to 
mention, there is another issue--and this isn't specific to our 
subcommittee at all--but the fact is that the credit unions are 
actually trying to increase the cap on their member business 
lending so they, in fact, could make some of these small 
business loans the banks are so reluctant to do because they 
have the capital to do it.
    And it seems to me ridiculous that the Treasury Department 
would be pushing back on this and saying--and this isn't in 
your field--but it is just a frustrating thing. You have got 
these very stable financial institutions wanting to do 
something to help keep the economy going, and, you know, 
Treasury is pushing back on them. And it seems to me that it 
would be a win/win if we were able to do something in that 
regard simply to increase the inventory of financial 
institutions that have money to offer. Thanks.
    Mr. Allison. Thank you.
    Mr. Serrano. Thank you. Thank you, Mrs. Emerson.
    We are going to recognize remaining members, and then we 
are going to try to wind down this first panel so that we can 
get going with the second panel. We hope to unwind this before 
we face the impending votes on the House floor.
    Mr. Edwards.
    Mr. Edwards. Mr. Chairman, in the remaining time, I have no 
additional questions other than I did want to ditto the line of 
questioning of Mrs. Emerson; while I believe we needed 
financial stabilization measures in 2008 and 2009 to keep us 
from going into the second Great Depression, clearly small 
businesses all across the country, and it certainly reflects 
that and I see that in Texas, they are having challenges. 
Anything we can do together to free up that liquidity in a 
responsible way would be very, very important.
    Mr. Serrano. Thank you.
    Mr. Culberson.
    Mr. Culberson. Thank you. A follow-up on that same line of 
questioning, I can back up what Mr. Edwards and Mrs. Emerson 
are saying, but pointing directly to information that I have 
gotten and I know they probably have heard, too, from the 
Associated General Contractors in Texas, the Greater Houston 
Builders Association, the Associated Builders and Contractors 
in Houston, the Houston Association of Realtors, the Texas 
Association of Realtors, I am sure this is true across the 
country, that the banks are flush with money. And the 
regulators have instructed the banks to unload realestate 
loans, stop loaning money for real estate loans or commercial real 
estate, even if it is a blue chip borrower who has always paid back 
their loans. So it is a regulatory problem as well, but these banks who 
have received this money are absolutely flush with money.
    This is within Treasury's jurisdiction. I know FDIC is a 
key part of this, but I know all of us, and I suspect Mr. 
Edwards would join me in this, he is nodding back there, we 
would all encourage it. We want the banks to loan money to 
people who can pay it back, but they are not loaning money to 
people who can pay it back.
    To what extent can you help, can Treasury help put pressure 
on regulators to quit forcing banks to unload or stop making 
real estate loans to good borrowers? I mean, these are good 
credit risks. In fact, most of the home building, Chet, in 
Houston, I just had home builders come see me yesterday, and 
several of them have gone out of business because the banks 
will not lend them money. And these are solid credit risks. 
They have always--you could have a nuclear attack from the 
Russians, and these guys would pay their loan back.
    What can you do to help get the regulators to quit 
pressuring the banks to stop making these loans to good credit 
risks?
    Mr. Allison. Well, first of all, we fully understand the 
importance of increasing lending to small business.
    Mr. Culberson. But good credit risk.
    Mr. Allison. Yes, sir, I understand. We do not control the 
regulators. The regulators are totally independent from the 
Treasury Department. We know that they have provided additional 
guidance to their examiners throughout the country about 
lending to small business.
    Mr. Culberson. They have, indeed. They are putting this----
    Mr. Allison. Well, I would think that perhaps the 
regulators should speak for themselves on that issue.
    Mr. Culberson. You have got a role in that, though; it is 
atmospherics. And to the extent you can, I hope you will, as 
the Department of Treasury, do whatever you can. What can you 
do? They are not complete. I mean, obviously, they are 
independent. You want them to be.
    Mr. Allison. Well, the regulators are well aware of that 
issue, and that is one reason why they have communicated 
additional guidance to their supervisors and their examiners. 
But I would invite you to speak with the regulators directly 
because they are independent of the U.S. Treasury Department. 
We obviously have dialogue with them, but they make their own 
decisions.
    Mr. Culberson. Mr. Chairman, I know it would be very 
helpful for this committee to do whatever we can, obviously, 
making sure that we want loans to be made to people who can pay 
them back. I am sure it has happened in New York, too, and in 
Pennsylvania. They are absolutely not making loans to 
creditworthy borrowers who will pay them back. And we need to 
do whatever we can, Mr. Chairman, to help get the regulators to 
quit putting the screws to the banks.
    Mr. Serrano. The point is well taken. It is a problem in 
every community in this country.
    Mr. Fattah.
    Mr. Fattah. Thank you, Mr. Chairman.
    Well, we don't live in a socialist country. We can't 
dictate to the banks what they do in a free market economy, but 
I do empathize with much of what has been said that there is a 
concern about getting credit flowing.
    Let me start here, first, to really congratulate the 
Department in its work on the TARP Program. I mean, it is an 
amazing feat, an extraordinary one, and unexpected by many of 
the critics of the TARP Program that the Department would have 
made money and expect to make money in totality when the funds 
were made available to banks to stem the financial crisis. The 
economy has bounced back significantly, and the stability in 
the financial markets, I think, is obvious to everyone.
    So you have done a very good job, and you have maintained 
stewardship over the taxpayers' money in a way that I think 
deserves to be noted for you and the work of Secretary 
Geithner.
    I do think that where we see a need that is not being 
filled in the market, it isn't inappropriate at all for the 
government to step in. That is what SBA exists for, and I think 
the administration's program of moving some $30 billion through 
CDFIs, through community banks, so that it can be available to 
small businesses who are good credit risks, I think, is an 
appropriate role.
    And this is what we have done where the market has not 
worked in the past, and the government has stepped in. And I 
think that that is something we should move expeditiously on. I 
know that the Department is working on it. The administration 
is working on it. And I just want to voice my support for it, 
because I know many small businesses in the Philadelphia 
community who have still had some challenges, notwithstanding 
being very good credit risks and having, you know, in essence, 
the narrow deals have had difficulty getting loans.
    But I think that we don't on the one hand want to criticize 
banks for the risks that they took that took the country to the 
edge of a financial disaster, as regulators are saying that 
they need to be more conscious of the risk they are assuming, 
and at the same time say, well, we want Treasury to put 
pressure on regulators to back off. I mean, you know, we can't 
have our cake and eat it, too, in that sense. But I do think 
that we can step in through the Treasury, through SBA, and 
provide assistance.
    I am more interested in what we are doing about mortgage 
foreclosures, and I know a billion and a half was made 
available to the housing and finance agencies to develop 
programs related to the unemployed, in terms of foreclosure 
prevention, different from the foreclosures we saw in the front 
end of this problem, which were largely driven by the subprime 
and other issues.
    The foreclosures that are moving through the market now are 
driven in large part because people have lost their job and 
then followed their home. And it makes no sense for us to 
create deadbeats out of persons who are taxpaying, law-abiding 
citizens, paying their bills. It created a situation where we 
now have a vacant home in the neighborhood and driving prices 
down, but also have them out on the street and their credit 
rating ruined for a decade or so.
    And the cost for the taxpayer for a foreclosure, which 
doesn't get discussed a lot, is, you know, quite substantial, 
somewhere above $80,000 per foreclosure.
    We have a program in Pennsylvania through our housing and 
finance agency that I helped create a few decades ago that has 
worked very well to step in and help unemployed homeowners who 
have lost their job through no fault of theirown and through no 
risk to the taxpayers. We have gotten every dollar paid back, and the 
average amount of help was 4 or 5 months of assistance to that 
homeowner with those dollars being paid to the long-term payment of the 
mortgage.
    So I was very happy to see the Treasury's initiative 
focused on the hardest-hit States. We have, in the Wall Street 
reform bill, the House version, a $3 billion allotment to 
mirror those efforts throughout the country to step in to help 
homeowners.
    So I would just like to get from you what has happened with 
the initial $1.5 billion and what these hardest-hit States are 
doing, if you can comment.
    Mr. Allison. Congressman Fattah, thank you very much for 
your comments and your question for help for the hardest-hit 
States. As you know, the first billion and a half, as you said, 
was devoted to five States. We then allocated another $600 
million to five other States. And we have received the 
proposals from the first five States as of last Friday. We are 
looking at those right now.
    I think you would be pleased that the HEMAP Program in 
Pennsylvania has been looked at very closely by a number of 
those States as maybe they could model something after HEMAP to 
tide people over, as you said, who are unemployed. This 
programs is aimed at areas most affected by high unemployment 
and by falling housing prices. And this is a localized problem 
in that it is acute in some particular parts of the country, 
and that is why we allocated the money to those particular 10 
States.
    So we are looking forward to seeing what their proposals 
are, to working with them on implementing those proposals.
    We will have final decisions next month on those proposals, 
and then they can get moving.
    But we totally agree with your analysis of this problem. 
That is why we innovated this program. And we have high hopes 
that it will be truly creative and develop solutions that best 
suit these particular areas of the country, because they are 
developed by people who know those communities.
    And we found that, because this is a highly concentrated 
problem, we need local expertise to work alongside the Treasury 
Department and the Department of Housing and Urban Development 
to provide and develop the most effective solutions possible.
    Mr. Fattah. Let me thank you for your testimony. Thank you 
for your testimony.
    I am going to thank the chairman.
    Mr. Serrano. Thank you.
    Mr. Allison, we thank you. I have one more question to 
submit to the record.
    Mrs. Emerson. Mr. Chairman, I have several to submit to the 
record. If you would like to wind this down, I can wait.
    Mr. Serrano. We will wind it down. The one I do have for 
the record is one that probably should have been the first one, 
and that is, tell us how you are going to wind down TARP and, 
as that winds down, all of the information.
    So we thank you for your testimony. We thank you for your 
service, and we thank you for what I know is your desire to 
keep us informed on all the different issues that we presented.
    As you well understand, both programs that were put forth, 
in our opinion, were very necessary, but they have created a 
lot of controversy and created a lot of questions, and that is 
why we ask so many questions and ask you to keep us informed.
    Mr. Culberson. Mr. Chairman, could I ask, if I could, for 
the witness to provide the chairman as well the information 
about how much money the Federal Reserve has loaned out and to 
whom and under what conditions? I know the chairman would be 
very interested in that as well.
    Mr. Serrano. The chairman would be very interested in that.
    Mr. Culberson. Thank you.
    Mr. Serrano. Thank you.
    Thank you, Mr. Allison.
    Mr. Allison. Thank you, sir.
    Mr. Serrano. In my opening statement an hour and a half 
ago, I told you that our next witness would be Mr. Barofsky, 
and we ask you now to come forward and give us your testimony. 
We will try to do this as painless as possible because we are 
running against a time constraint.
    I am always amazed at how Members of Congress get in so 
many hearings, considering what we are always up against. And 
you know the drill; 5-minute presentation, and we will put 
anything else in the record.
    Mr. Barofsky. Thank you, Mr. Chairman.
    Thank you, Mr. Chairman, Ranking Member Emerson, members of 
the committee.
    It is a privilege to appear before you today to testify 
about SIGTARP's proposed budget for 2011. As you know, in the 
President's budget request for 2011, he includes a request for 
approximately $49.6 million for the operations of SIGTARP. That 
proposed budget will allow us to continue to operate as the 
agency that stands between hundreds of billions of taxpayer 
dollars and those who would seek to steal, waste or abuse them. 
We carry out this role in three different areas: Transparency, 
oversight and enforcement.
    Let me start with enforcement. As the only oversight body 
in the TARP legislation with law enforcement authority, we 
literally have the role as the TARP cop on the beat. And to 
meet those challenges, we built a sophisticated law enforcement 
agency. We have 84 ongoing investigations. We have recently 
opened up offices in New York and are about to do the same in 
L.A. and San Francisco, and we are trying to establish a 
nationwide presence to deter and detect TARP fraud.
    Our cases are as diverse as the 13 sub-TARP programs that 
have developed. For example, we recently arrested and got 
criminal charges against the president and CEO of Park Avenue 
Bank for his attempt to try to steal $11 million fromthe TARP 
Program. We have brought criminal charges against two individuals out 
in California who are running a mortgage modification fraud scheme that 
brought in a million dollars from struggling homeowners.
    In Tennessee, Gordon Grigg, a hedge fund executive, is 
serving 10 years in prison for a fraud that he was doing by 
trying to sell fictional investments that he called TARP-backed 
securities. In Atlanta, we have a number of convictions and 
charges related to our investigation of Omni Bank, another TARP 
applicant. We have executed search warrants in California 
against a law group that is alleged to have participated in 
other mortgage modification scams. And in Florida, two banks, 
one of which had received conditional approval, was about to 
receive $553 million in TARP funds that never went out the 
door.
    On the civil side, we work with the SEC and the New York 
State Attorney General in their investigations into Bank of 
America. And all told, our investigations division has helped 
in the recoupment or the prevention of loss through fraud of 
more than $700 million.
    We also leverage our resources with other law enforcement 
agencies. We formed the TALF PPIP Task Force in New York 
consisting of eight different law enforcement agencies. We have 
the TARP Inspector General counsel that we founded here in 
Washington, and we have a leading role in the President's Fraud 
Enforcement Task Force.
    With respect to transparency and oversight, we do that 
through our auditing and reporting function. This week we 
issued our sixth comprehensive quarterly report reviewing 
operations of TARP and of SIGTARP for the preceding quarter, 
and these reports are intended to be desk books, reference 
guides that try to translate all the Wall Street terminology 
into Main Street language.
    The American people have a thirst for information about 
this program in which they are investors. In SIGTARP, we have 
tried to meet that thirst with more than 42 million hits to our 
Web site since our inception.
    As far as audits, we have issued eight audits to date. Just 
as a way of example, they have covered issues such as TARP 
recipient use of funds, the impact of outside influences on the 
TARP application process, the decision by government officials 
to pay the equivalent of 100 cents on the dollar to AIG's 
counterparties for securities that were worth less than half of 
that amount, and most recently, on the HAMP, the mortgage 
modification program, the administration's response to the 
foreclosure crisis.
    We have made about 50 recommendations to date. And while 
many have been adopted, some have not. But those that have, I 
believe, have significantly contributed to the TARP being 
better run, better executed and, most importantly, better 
protected against the risk of loss through fraud as a result.
    Finally, one of our roles is, of course, to keep the 
Congress informed of what is going on in TARP and what is going 
on at SIGTARP. And we have conducted dozens and dozens of 
individual Member briefings, staff briefings. And today marks 
my 14th time testifying before Congress as the Special 
Inspector General to discuss what is going on in the TARP and 
the TARP programs.
    Mr. Chairman, Ranking Member Emerson, again, thank you for 
this opportunity today. I look forward to answering any 
questions you may have.
    [The prepared statement of Mr. Barofsky follows:]

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    Mr. Serrano. Did you say 14, 14 times?
    Mr. Barofsky. This is number 14. We counted up for the 
testimony today. I was surprised at the number.
    Mr. Serrano. I think you were here for most of the prior, 
previous testimony, so I am going to give you an opportunity to 
comment on the answers Mr. Allison gave, particularly on 
mortgage relief and the general effects of TARP on credit 
conditions, if you have anything you would like to add to that.
    Mr. Barofsky. I think that, with respect to the mortgage 
program, the TARP mortgage program, HAMP, as I said, we 
recently released an audit, and we had new recommendations in 
our most recent quarterly report. It is a program that has a 
lot of promise. But it has had a lot of problems in execution. 
With only 230,000 permanent modifications more than a year into 
the program, it is making a very small dent into a much larger 
problem.
    We addressed that in our audit through our recommendations. 
There has been problems with execution; a lot of the decisions 
and the practices in some ways have been rushed, which has 
resulted in some inefficiencies; a lot of borrower confusion, 
which has led to avenues for fraud. And there has been problems 
in some of the program design, which leaves it vulnerable to 
redefault. That is when someone gets a mortgage modification 
but is still unable or unwilling to continue to make the 
payments, either because the payments are still too 
unaffordable or because they are too hopelessly underwater.
    To Mr. Allison and to Treasury's credit, after receiving 
that audit report, they announced some significant revisions to 
the program that do address things like underwater mortgages, 
carving out $14 billion of the program just for one program 
alone with FHA.
    Those announcements also raised some significant concerns, 
which are addressed in our quarterly report. But we are hopeful 
and confident, and we will continue to work with Treasury to 
assist them in making this a program that will have the impact 
that the dollar amount that is committed to it should deserve.
    Mr. Serrano. When you speak about you hope to continue to 
work, has the past or recent past been rocky in that 
relationship? Are things getting better if they have been 
rocky? How do you see it? Because we in this panel want you all 
to get along.
    Mr. Barofsky. I think we do get along. I think the nature--
--
    Mr. Serrano. Just in case, just for the record.
    Mr. Barofsky. I think we get along. I think the nature of 
our oversight, we are very vigorous in our oversight.
    Mr. Serrano. Well, that is the key. We want you to work 
together. We don't want you to get along too much.
    Mr. Barofsky. No. I think that, while there have been areas 
where certainly we have had some disagreement, certainly 
sometimes very passionate disagreement, I credit Treasury; I 
credit Mr. Allison. We are all working towards the same goal, 
which is helping to make sure this program protects the 
American people, it maximizes its efficiency, and it best 
protects against risk of loss from fraud. I think we have a 
great working relationship.
    Mr. Allison and I spend, at least once a week where we sit 
down and discuss the TARP issues. And as I said before, I think 
that sometimes we have to work a bit longer and a little bit 
harder to get them to see our way. But overall, this program is 
in much, much better shape because of the willingness of 
Treasury to work with us and to try to meet us at least 
halfway, sometimes all the way on our side, with some of our 
most important recommendations.
    Mr. Serrano. SIGTARP's budget request of $49.6 million is 
higher than the budget request in the Treasury's Office of 
Inspector General, which is $30.3 million. So why is your 
organization so much more costly to operate? How much do you 
pay for contracted services, and what types of the services do 
you contract out?
    Mr. Barofsky. Sure. The scope of our operations has changed 
dramatically since EESA was first passed, and originally it was 
contemplated to be one program basically to buy $700 billion of 
assets, direct purchases, a relatively straightforward program. 
It has changed a lot since then. As I said before, 13 
subprograms that put a lot of demands on our agency, which I 
think are a lot different not just from the Treasury Inspector 
General but for most non-Special Inspector Generals.
    We don't just address what is going on in Treasury. In 
other words, our oversight just isn't over Mr. Allison's 
office, the Office of Financial Stability. Because of the way 
that these programs have evolved, for example, the Capital 
Purchase Program, we also are providing oversight to more of 
the Treasury entities but also the FDIC and also the Federal 
Reserve. We also take a very aggressive role because we really 
are the sole law enforcement authority over all TARP-related 
programs. That really makes an expansive jurisdiction.
    The Treasury Inspector General doesn't necessarily get out 
to those who come into the government for a program, so let me 
just give you an example. AIG, Bank of America, and Citi have 
devoted a lot of our audit and investigative resources, more 
than 700 banks, probably closer to 800 banks just through one 
program, the Capital Purchase Program, and we are responsible 
for safeguarding those investments.
    The HAMP program is 110 different servicers, a lot of the 
large banks, and potentially millions of applicants coming in 
through the door.
    The TALF program is a very complex program run by the 
Federal Reserve and Treasury. It involves 15 or 16 primary 
dealers and their customers.
    The PPIP program is nine, now eight, sophisticated hedge 
fund asset management, which has a tremendous amount of 
challenges.
    So I think one of the reasons why--our budget is larger is 
that our scope is very broad and our responsibility is very 
broad. And I would compare us to other Special Inspector 
Generals. For example, we based a lot of our growth on the 
Special Inspector General for Iraq reconstruction, which 
oversees about $50 billion, compared to our much larger scope 
of--and our budget, when they were reaching their peak, is 
right around the same area.
    The other Inspectors General--just by way of example, when 
ours was passed, one Inspector General commented for us that it 
would only leave him resources with one auditor per billion 
dollars, which that Inspector General thought was an unmeetable 
goal. If we had one auditor for every billion dollars, our 
audit division alone would be 700, not even counting our 
investigations.
    We have taken costs very seriously from day one. We try to 
be frugal, we try to be prudent, and, above all, we try to get 
the most bang for our buck to get the most coverage possible 
for this breathtakingly complex program.
    Mr. Serrano. Thank you.
    Mrs. Emerson.
    Mrs. Emerson. Thank you.
    Thank you so much for being here and thanks for the great 
job that your office is doing under your leadership. It really 
makes those of us who have to live and breathe this every day 
feel a lot better because you all are watching over our very 
precious tax dollars.
    Let me ask you, you mentioned some of the audits and that 
sort of thing that you had done, and I read it in the part of 
the quarterly report I got through last night--I must say I 
didn't finish the whole thing--but, last year, you stated in 
written testimony--and I am going to quote: We stand on the 
precipice of the largest infusion of government funds over the 
shortest period of time in our Nation's history. History 
teaches us that an outlay of so much money in such a short 
period of time will inevitably attract those seeking to profit 
criminally. If by percentage terms some of the estimates of 
fraud in recent government programs apply to the TARP programs, 
we are looking at the potential exposure of hundreds of 
billions of dollars in taxpayer money lost to fraud, end quote.
    So, number one, have your fears materialized and have you 
been able to find any large-scale fraud in the TARP programs? 
If so, what types of fraud have you uncovered? And then, third, 
how closely are other agencies such as HUD, the FBI, SEC, FTC, 
and U.S. Attorneys working with you all to investigate and 
prosecute cases of fraud?
    Mr. Barofsky. I believe that ultimately the success of my 
organization of SIGTARP historically will be judged by how we 
do against those typical numbers of the 10 percent burn rate 
for the FBI. Sometimes it is 7 percent, sometimes it is 12 
percent. I think we are really well on our way because, even 
more important from our investigative functions, I believe, in 
detecting and bringing people to justice, is how much we do as 
a job of deterrence through building and making our 
recommendations to make these programs as safe as possible and 
then for getting the word out and making sure that those who 
are contemplating committing fraud know we are out there.
    We certainly are seeing fraud, probably inevitable of a 
program of this size. We are not so far seeing anything close 
to what the typical government burn rate is for fraud. Now we 
still have a ways to go to be sure, but I am very--we really 
try to get out in front.
    I mentioned in my opening testimony the TALF PPIP Task 
Force. That is not just a law enforcement group where we sit 
around and figure out ways to arrest people. A lot of our 
recommendations came from those discussions. We try to get 
experts from the SEC, from the FBI together so we can make 
these programs well designed.
    I think the TALF program, when we originally started, it 
was originally pitched to us by the Federal Reserve. It had 
virtually no fraud protection whatsoever. It was going to rely 
on rating agencies and investor due diligence, the two things 
that led to this financial crisis in many ways. I think now 
this program is remarkably well designed.
    They took our recommendations to heart. I remember they 
came down the day after our first initial report, came down to 
Washington and sat with us and worked with us and put in some 
really, really good protections. Sometimes they went beyond 
what we said, which we thought was terrific.
    They kept residential-mortgage-backed securities out of 
that program, which was a pretty courageous move. I mean, this 
is something that was announced by the Secretary and the 
Chairman of the Board of the Federal Reserve that they were 
going to put those securities through that program. We had real 
problems with it, because we didn't think the program was well 
designed, and they listened to it.
    So, real quick--I hear the buzzing--we have had wonderful 
cooperation with the Department of Justice, the U.S. Attorney's 
office, our law enforcement partners. We work with HUD OIG, we 
work with FDIC CIG, really, every law enforcement agency that 
has a hand in white-collar law enforcement works with us on our 
cases, Postal, ICE, and we also work with State and local 
authorities as well, like the New York State Attorney General. 
The New York State Banking Superintendent is very supportive in 
our recent case in New York.
    Mrs. Emerson. I appreciate that. Thanks.
    I think, just to let the other colleagues get a question 
in, I will wait and do another round if we do.
    Mr. Serrano. I agree. I thank you.
    Mr. Fattah.
    Mr. Fattah. Let me go back to the chairman's question about 
contracted services, services you contract out for. You didn't 
describe any or make any response to that question.
    Mr. Barofsky. Oh, I will be happy to.
    Basically, for contracting, obviously, EESA gives us the 
authority to do so. And when we do our contracting, we always 
try to do it when it is most cost-effective. As a temporary 
agency, we have to be sort of selective in what we bring in-
house and what we contract out, because we are not a permanent 
organization, to build and hire up.
    Mr. Fattah. Tell us what you do. What kinds of services 
have you the contracted out for?
    Mr. Barofsky. Perhaps our most significant contract is a 
program manager to help us with the production and design of 
our quarterly reports. The quarterly report has a tremendous 
amount of data that we collect in it, that we crunch and turn 
into charts and numbers. We do extensive vetting; and we have a 
contractor, Deloitte, actually, financial advising services, 
which assists us in that.
    We then have a bunch of smaller contracting services, 
everything from cars for our investigators, our special agents, 
to buy supplies for them, rent, obviously, as well as parking 
spots. We have other advisory services that help us with, you 
know, some of our human resource functions. We don't do all of 
our human resource functions in-house because, as I said, as a 
temporary agency it would just be too expensive.
    Mr. Fattah. Your total personnel complement is?
    Mr. Barofsky. Right now, we are at 116 FTE.
    Mr. Fattah. Can you guesstimate for the committee the 
number, the percentage, of women, African Americans, Hispanics, 
what level of diversity? Since you are the cop for TARP, I was 
interested in the question of how diverse the picture might be. 
So can you give us a general notion?
    Mr. Barofsky. I don't want to hazard numbers, because I 
don't have them, but I am happy to get those numbers to you, 
assuming our H.R. Department keeps track of them.
    I know that I have emphasized from day one from to all of 
my senior managers who do the hiring on down the importance of 
diversity, and we certainly do strive for it.
    Mr. Fattah. Your senior managers, is it a diverse group of 
people?
    Mr. Barofsky. I believe our senior staff is remarkably 
diverse.
    Mr. Fattah. In your contracting out, have you utilized 
women and minority-owned, veteran-owned firms?
    Mr. Barofsky. Yes. We actually required for our largest 
subcontract with Deloitte that they subcontract to minority, 
small business, minority-owned, women-owned small business.
    Also, with our other, smaller contracts, advisory 
contracts, I know that has been an emphasis.
    As I said, I don't have the numbers and statistics at my 
fingertips, but I will get them for you.
    Mr. Fattah. Mr. Chairman, if we could have that request 
made for the record. Thank you very much.
    Mr. Barofsky. My deputy reminded me that when we went out 
and contracted for our use of funds survey we did hire a 
minority, woman-owned small business as well. So it is 
something that is always on the forefront of what we are 
thinking, but I just don't have the data.
    Mr. Fattah. Thank you very much.
    Mr. Serrano. We will make that request on the record, Mr. 
Fattah.
    Mr. Culberson.
    Mr. Culberson. Thank you, Mr. Chairman. I will be as brief 
as I can.
    Do you know how much money the Federal Reserve has loaned 
out and to who and under what terms and conditions and can you 
provide that to the committee, please?
    Mr. Barofsky. We did a comprehensive review last July, not 
just the Federal Reserve but all the different Federal 
government support of the financial industry during the crisis. 
So we will get you a copy of our July 2009, report. I fully 
plan to update that in our next quarterly report this July; 
and, obviously, we will get that back to you as well.
    Mr. Culberson. Thank you. I am sorry I didn't see it.
    Does it give detail as to who, what entities the Federal 
Reserve loaned money to? Because that has always been a concern 
to Members of Congress. Who are they loaning my daughter and 
our kids' money to and under what terms and conditions?
    Mr. Barofsky. Hopefully, that decision will be made by the 
Supreme Court.
    Mr. Culberson. They are not releasing the information.
    Mr. Barofsky. The Federal Reserve doesn't disclose it. 
There was recently a decision in the Second Circuit Court of 
Appeals that is going to order them to make available that type 
of information. My understanding is they are appealing that 
decision.
    Mr. Culberson. I bet. Could you send that to me? I would 
love to see the court case, too.
    We are running short of time.
    The HOPE for Homeowners Program that the chairman asked you 
about, that is in section 110 of the TARP bill, I recall. It is 
now title 12 of the United States Code, section 5220. Was that 
the same program you were talking with the chairman about?
    Mr. Barofsky. No, actually, HOPE for Homeowners is 
something a little bit different. That is a HUD program.
    Mr. Culberson. It is a separate program, but, I mean, the 
statute, TARP, references that. The purpose of the subsection 
of TARP is to implement the provisions of HOPE for Homeowners 
is my point, right?
    Mr. Barofsky. In certain aspects.
    Mr. Culberson. Do I remember it correctly? That is the 
section we are talking about of TARP?
    Mr. Barofsky. I don't remember the exact section either.
    Mr. Culberson. That language of that section says that the 
Federal property managers can, as I recall--in order to 
encourage people to stay in their homes, to encourage 
homeownership consistent with HOPE for Homeowners Program, the 
Federal property manager can, to the extent that the Federal 
property manager or the Treasury owns a mortgage-backed 
security or mortgages, reduce the amount of principal, reduce 
the amount of the interest, will make any other modification 
they wish. Is that accurate? Essentially that is what it is, 
isn't it?
    Mr. Barofsky. I mean, essentially, I think that was sort of 
a carryover of what TARP was originally intended to be, which 
was that the Federal Government was going to go out and buy 
toxic assets, including home mortgage loans, mortgage-backed 
securities. Because that really has never come to pass, I don't 
think those provisions have really----
    Mr. Culberson. But is that the section you are talking 
about? You said to the chairman, there is 230,000 permanent 
modifications that have been made to mortgages. I think that is 
the same program, isn't it, Mr. Chairman?
    Mr. Barofsky. No, Congressman, it is a separate program 
that has been initiated under TARP called the Home Affordable 
Modification Program.
    Mr. Culberson. Okay, completely separate.
    Mr. Barofsky. Completely separate. There the government 
doesn't actually own the mortgages. They are actually owned by 
private investors through private label mortgage-backed 
securities, or Fannie and Freddie, which technically is not the 
government owning those mortgages. But that program addresses 
privately-held mortgages.
    We don't really have through TARP an inventory of 
mortgages. Although that was what perhaps was originally 
intended with legislation, it is not what came to pass.
    Mr. Culberson. Well, I wish you would run this down for me, 
because it is in statute. And I spotted it, and I voted against 
the TARP, but this is one of the many reasons I voted against 
it. But it was a real source of concern to me.
    This other program you were mentioning to me, does the 
Federal Government then have the ability to insist that the 
bank modify the principal, reduce the interest, or make any 
modifications they can to keep the person in the home or keep 
somebody in the home?
    Mr. Barofsky. Once a mortgage servicer signs into the 
agreement--and so far more than 110 have, which covers about 90 
percent of the market--they are required to run a net present 
value test, a computer model that determines whether or not the 
mortgage modification, which there will be certain incentives 
provided by the government, if that will make more money for 
the investor than rather just doing nothing. And when that NVP 
test is positive under the program, the servicer is required 
to--it is mandatory--to do certain modifications of the 
mortgage. Under the current program, it starts with the 
reduction of the interest rate, and then it is followed by 
other factors like extending the term of the loan or 
forebearing.
    Mr. Culberson. Can we get the name of the program?
    Mr. Barofsky. That is the HAMP Program, the Home Affordable 
Modification Program.
    Mr. Culberson. Thank you, Mr. Chairman. I know we need to 
go vote, but it was a concern just because of obvious potential 
for fraud and abuse.
    Mr. Barofsky. We are literally all over this program. We 
have more than two dozen criminal investigations pending 
relating to the HAMP Program.
    Mr. Culberson. Two other quick questions.
    If you could ballpark the total amount of the exposure of 
taxpayers, in your opinion, the potential liability of 
taxpayers. How much have taxpayers been exposed to both through 
the Federal Reserve and through the Treasury through this TARP 
Program and other guaranteed programs like it?
    Mr. Barofsky. In July of 2009, when we did this analysis, 
it was about $3 trillion. What we are going to see, as I said, 
we are going to update it this July, and we will give you an 
updated number at this point.
    Mr. Serrano. There is no way we can leave to vote and come 
back. That will take quite a while. I don't want to have you 
wait here, but you have answered most of the questions.
    I was going to ask one more. So I am going to ask one more, 
and Mrs. Emerson, and then we will let you go. And this is one 
of those great, loaded questions.
    So if your staffing number is lower than expected in 2010, 
we assume that you will have money left over to carry into 
2011, which means you won't need the over $49.6 million that 
you are asking for in 2011. Is that a fair assumption or are 
you going to tell me now how you need every bit of the $49.6 
million?
    Mr. Barofsky. I am told by my budget folks that we do. And 
the reason is that we have a lot of expenses that I think we 
anticipated that are going to be incurred in this year in 2010 
that are not going to be--specifically with respect to our 
information technology, you know, we still--right now, we are 
sort of doing it with band-aids and duct tape.
    We have to build our own IT structure, not completely from 
scratch, but decide on what off-the-shelf products we are going 
to use. We have been relying on Treasury to sort of get us 
through. And what I have been told is that those funds are not 
going to be spent in 2010 and are not reflected in the 2011 
budget.
    So to the extent that this carryover of that money is going 
to be still spent in 2011 and that carryover will apply to 
that, we do anticipate spending all of our--I get the 
terminology wrong, and I apologize--our annual money, the money 
that we are being provided for 2010, that will be spent. There 
will probably be something left over of our no-year money, 
which is part of the initial allocation, and I apologize if I 
am getting the terminology wrong.
    But, again, as my staff tells me, because we haven't 
realized some of the expenses that we thought we would in2010, 
that they are going to be realized in 2011.
    Mr. Serrano. Okay. We would like you to keep us informed of 
that. In other words, speak to staff as we go along to make 
sure that we feel comfortable that even if you don't meet the 
goals you expected that we are still not giving you more money 
than you should be getting only because, across the board, 
everybody is very tight, and we don't want to run into any 
problems.
    Mrs. Emerson.
    Mrs. Emerson. Okay, 222 people haven't voted; and we have 
zero minutes remaining.
    Very, very quickly, because I am still bothered by this, 
with regard to the Treasury Department, back in December, 
approving a tax rule that allowed Citigroup to avoid paying 
billions of dollars in taxes. And I understand that this ruling 
will help make Citigroup shares more valuable, allowing the 
Treasury to make more money when you sell the shares that the 
government owns. But I guess it is just difficult for me to 
understand why a company that receives tens of billions of 
dollars in government bailouts should receive special treatment 
in the Tax Code. So I want to know if you have looked into this 
matter and whether or not you believe that the government will 
receive more revenue once Citigroup shares are auctioned than 
it would have if the tax rule hadn't been changed.
    Mr. Barofsky. This is the initiative that we have spent a 
lot of time thinking about. And, actually, Representative 
Kucinich has sent a letter to myself as well as to Senator 
Baucus, the chairman of the tax committee in the Senate, asking 
us to do two parts of a project that will review that: our side 
to review the decision-making process that led up to that 
decision, and on the Senate side to do a review of what the 
actual costs were, what is the dollars and cents.
    It is a very complicated and complex formula. Originally, I 
was hopeful that we would be able--you know, we were thinking 
about doing it ourselves. We can't. We don't have the 
expertise. We would have to contract it out. It would cost a 
fortune.
    So we are intending, we are going to work with the Senate 
and work with the tax committee and get to the point where we 
can, you know, make sure that that part of the project is being 
addressed. And, if so, we are certainly committed to addressing 
our part of getting and auditing what the decision-making 
process is.
    Mrs. Emerson. Thank you. I appreciate it.
    Mr. Barofsky. Because we agree that it is a very 
significant concern. It is a concern where, basically, the 
stock prices of Citi is being potentially buoyed, which 
benefits the government, as a 28 percent shareholder of the 
common stock of Citi, but it also benefits those other 82 
percent, or 72 percent. So it is something that is on our radar 
screen.
    Mrs. Emerson. I appreciate it. There is something that just 
smells funny about it to me. So I appreciate the fact that you 
all are going to look into it and will appreciate hearing back 
from you about what you may have found.
    Mr. Barofsky. Absolutely.
    Mr. Serrano. We will all be interested in that.
    Mr. Barofsky, we thank you, first of all, for your service. 
We thank you for the work you do. We thank you for testifying 
before us.
    We are sorry that we are kind of rushing here, but we are 
at zero. And there are at least four votes, which means this 
will go on for a while down there, and we don't want to keep 
you waiting here for us.
    So we thank you. We will continue to be in touch, and our 
staffs will continue to be in touch. And what you do is very 
important, very important to our mission here, to keep us 
informed and to do the right thing. And we thank you so much.
    Mrs. Emerson. Thank you.
    Mr. Barofsky. Thank you very much.

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Allison, H. M., Jr...............................................   147
Barofsky, Neil...................................................   147
Geithner, Hon. T. F..............................................    65
Shulman, D. H....................................................     1

                                  
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