[Joint House and Senate Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 111-196
FOLLOWING THE MONEY: A QUARTERLY REPORT
BY THE SPECIAL INSPECTOR GENERAL
FOR THE TARP
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
APRIL 23, 2009
__________
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Carolyn B. Maloney, New York, Chair Charles E. Schumer, New York, Vice
Maurice D. Hinchey, New York Chairman
Baron P. Hill, Indiana Edward M. Kennedy, Massachusetts
Loretta Sanchez, California Jeff Bingaman, New Mexico
Elijah E. Cummings, Maryland Amy Klobuchar, Minnesota
Vic Snyder, Arkansas Robert P. Casey, Jr., Pennsylvania
Kevin Brady, Texas Jim Webb, Virginia
Ron Paul, Texas Sam Brownback, Kansas, Ranking
Michael Burgess, M.D., Texas Minority
John Campbell, California Jim DeMint, South Carolina
James E. Risch, Idaho
Robert F. Bennett, Utah
Nan Gibson, Executive Director
Jeff Schlagenhauf, Minority Staff Director
Christopher Frenze, House Republican Staff Director
C O N T E N T S
----------
Opening Statement of Members
Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New
York........................................................... 1
Hon. Kevin Brady, a U.S. Representative from Texas............... 2
Witnesses
Statement of Neil Barofsky, Special Inspector General, Troubled
Asset Relief Program........................................... 4
Submissions for the Record
Prepared statement of Representative Carolyn B. Maloney.......... 40
Prepared statement of Representative Kevin Brady................. 40
Prepared statement of Neil Barofsky.............................. 42
Letter dated April 28, 2009, from Representative Hinchey to
Chair Maloney.............................................. 49
Letter dated May 29, 2009, from Neil Barofsky to
Representative Hinchey..................................... 50
Letter dated May 20, 2009 from Neil Barofsky to Chair Maloney 53
Prepared statement of Representative Michael Burgess............. 55
FOLLOWING THE MONEY: A QUARTERLY
REPORT BY THE SPECIAL INSPECTOR
GENERAL FOR THE TARP
----------
THURSDAY, APRIL 23, 2009
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The committee met at 9:30 a.m., in Room 210, Cannon House
Office Building, the Hon. Carolyn B. Maloney (Chair),
presiding.
Senators present: Klobuchar and Casey.
Representatives present: Maloney, Hinchey, Sanchez,
Cummings, Snyder, Brady, and Burgess.
Staff present: Gail Cohen, Nan Gibson, Colleen Healy,
Hayley Matz, Andrew Wilson, Lydia Mashburn, Chris Frenze, and
Robert O'Quinn.
Chair Maloney. The meeting will come to order, and I
welcome the members of the panel and our special guest.
Good morning. I want to welcome Mr. Barofsky, the Special
Inspector General for the Troubled Asset Relief Program, and
thank him and his staff for his testimony today on the
SIGTARP's new report to Congress, just released last Tuesday.
OPENING STATEMENT OF HON. CAROLYN B. MALONEY, CHAIR, A U.S.
REPRESENTATIVE FROM NEW YORK
Chair Maloney. The SIGTARP reports to Congress quarterly,
and this is the second report. Like the first report, issued
February 6th, this report takes a strong but clear position
against the aspects of the TARP program that the SIGTARP
believes risk promoting fraud, waste, and abuse. Mr. Barofsky
is a former prosecutor who does not shrink from telling it like
it is, so the interests of the SIGTARP's mission is to make the
best use of our taxpayers' dollars.
The SIGTARP's reports distinguish themselves by thorough
but very clear explanation of the TARP programs and the
SIGTARP's audit and investigation strategy, as well as specific
recommendations on steps Treasury should take to prevent waste,
fraud, and abuse in the program.
Regrettably, some of the key recommendations in this report
reiterate critical recommendations in the first report--
recommendations that would promote transparency and
accountability and reduce the potential for fraud and
misappropriation, but which Treasury has yet to adopt.
The second report is even more critical to our
understanding than the first, in part because the TARP has
become such a complex series of programs and in part because
the dialogue between the SIGTARP and Treasury on key issues is
more advanced and is getting into some specific issues that are
of great interest to policymakers and to this committee.
As a proponent of greater transparency of the program, I
requested that the Federal Reserve release AIG counterparty
information; and the disclosures were made last month. The
SIGTARP is set to audit the payments to the AIG counterparties
and investigate why it was deemed necessary to redeem these
securities at full value. This is a key issue that lies at the
heart of the AIG rescue: Why were the counterparties made whole
at the expense of the taxpayer? Shouldn't they have had to
share in the loss?
The report repeats the recommendation of the first report
that Treasury must require TARP recipients to report the use to
which they put the TARP money. This recommendation echoes the
concerns of legislation I have introduced with many of the
members of this committee that would require Treasury to track
the TARP funds, even using presently reported or public
information. Treasury has not adopted this very important
recommendation, but the work of the SIGTARP, including a survey
they conducted of some 364 TARP recipients, shows that
additional information can be provided.
On a basic level, it is absolutely critical that we know
where the money has gone and how it has been used. There are
reports that some banks getting TARP money have used it to buy
banks in China and highways in Spain or even to short the stock
of their competitors. These emphasize the need for us to know
where the money has gone. Beyond that, we should be able to
assess, looking at available data and performance measurements,
whether or not these funds have been used effectively.
However, these lessons are not always reflected in the new
proposed programs. As this report notes, the PPIP has some
inherent features that make it vulnerable to conflicts of
interest. The government would be remiss in its duty if it were
not to impose rigorous reporting and disclosure requirements on
these managers and investors. I am concerned that Treasury
Secretary Geithner, in his testimony Tuesday, headed in the
opposite direction, saying that Treasury would exempt the PPIP
participants from the executive compensation requirements of
the TARP statute.
The goals of transparency and accountability that guide the
SIGTARP inform this new report and its recommendations. It is
crucial not only to the success of the TARP but to the recovery
of our financial system and our economy that we pay very close
attention.
[The prepared statement of Representative Maloney appears
in the Submissions for the Record on page 40.]
Chair Maloney. I very much look forward to your testimony
and recognize the ranking member, Mr. Brady.
OPENING STATEMENT OF HON. KEVIN BRADY, A U.S. REPRESENTATIVE
FROM TEXAS
Representative Brady. Thank you.
I am pleased to join with you in welcoming Inspector
General Barofsky before the committee this morning. His office
is one of the most important guardians of the trillions of
dollars taxpayers have at risk in the massive bailouts of large
financial institutions.
Unfortunately, as Kansas City Federal Reserve President
Thomas Hoenig testified earlier this week, these bailouts
``risk prolonging the crisis while increasing the cost.'' In
this context, I found the Inspector General's most recent
report quite disturbing.
Mr. Barofsky, your report contains very troubling
information that has not been previously disclosed. This report
identifies numerous key weaknesses in the design and
implementation of the government bailouts that could greatly
increase their cost.
For example, according to your report, the Treasury
Department has indicated it will not adopt the special
Inspector General's recommendations that all TARP recipients
``account for the use of TARP funds, set up internal controls
to comply with such accounting, and report periodically to
Treasury on the results with appropriate sworn
certifications.'' The complexity and lack of transparency in
TARP programs are further reason for concern.
I think the key question before the committee this morning
is why this Treasury continues to resist adopting many of the
commonsense safeguards recommended in your report. The massive
Public-Private Investment Program unveiled by Secretary
Geithner is, to many, key to our Nation's economic recovery.
Your report notes many aspects of the Public-Private
Investment Program could make it inherently vulnerable to
fraud, waste, and abuse. Vulnerabilities include the huge size
of the program, along with conflicts of interest, collusion,
and money laundering.
With regard to money laundering, which you identify as a
potential risk, your report notes it would be unacceptable if
TARP or related funds, ``were used to leverage the profits of
drug cartels or organized crime groups.'' Unlike banks and
retail brokers, the government's proposed public-private
partnerships are not currently subject to comparable disclosure
rules to prevent money laundering and abuse. The question is,
why not?
Furthermore, the report demonstrates how interactions
between two different bailout programs could encourage
excessive leverage and greatly magnify taxpayer losses. In
other words, without adequate protections, the toxic loan
program could be gamed for profit by the financial institutions
it is trying to save, or used as a legal vehicle for those who
cannot launder their money through existing financial
institutions. The question is, why not address in advance the
vulnerabilities your report has identified?
With regard to another component of the bailouts
administered by the Fed, your report said Treasury should
require additional anti-fraud and credit protection provisions
specific to all mortgage-backed securities before participating
in an expanded TALF, including minimum underwriting standards
and other fraud prevention measures.
According to the latest estimates, the amount of losses
from toxic assets in the U.S. alone may be as high as $2.7
trillion. This clearly is a huge potential liability for
American taxpayers. Unfortunately, Treasury's financial rescue
plan seems designed to marginalize Congress in this debate and
avoid the appropriations process. Nonetheless, Congress should
not finalize the 2009 budget resolution without considering the
tremendous costs of the ongoing bailouts.
Economic research shows that the national debt following
this financial crisis may increase by as much as $8.5 trillion
in as few as 3 years. This grim fiscal prospect should be an
overriding consideration as we consider budget priorities and
proposals for yet more spending. Congress should not go on an
irresponsible spending spree with trillions of dollars of
bailouts already threatening the taxpayers.
Inspector General, you have raised serious and troubling
questions in your report. Let's hope we can receive
satisfactory answers to them from this administration.
I would yield back.
[The prepared statement of Representative Brady appears in
the Submissions for the Record on page 40.]
Chair Maloney. I would now like to introduce our
distinguished witness.
Neil Barofsky is the Special Inspector General for the
Troubled Asset Relief Program. He was confirmed by the Senate
on December 8, 2008, and was sworn into office on December 15,
2008.
Prior to assuming the position of Special IG, Mr. Barofsky
was a Federal prosecutor in the U.S. Attorney's Office for the
Southern District of New York for more than 8 years. In that
office, Mr. Barofsky was a senior trial counsel who headed the
mortgage fraud group which investigated and prosecuted all
aspects of mortgage fraud, from retail mortgage fraud cases to
investigations involving potential securities fraud with
respect to collateralized debt obligations.
One of the matters that Mr. Barofsky supervised was the
broad investigation into the $55 trillion credit default swap
market which was conducted in partnership with the New York
State Attorney General's Office.
Mr. Barofsky is a magna cum laude graduate of the New York
University School of Law.
I want to thank you very much for your work, for being with
us today, and please proceed with your testimony. And I welcome
all my colleagues and thank them for being here at this
important hearing. Thank you.
STATEMENT OF NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL, TROUBLED
ASSET RELIEF PROGRAM
Mr. Barofsky. Thank you, Madam Chair, and thank you for
that kind introduction. It is a privilege to appear before you
today and before this committee to discuss our quarterly report
to Congress.
It was approximately a little bit more than 6 months ago,
close to 7 months, that the Emergency Economic Stabilization
Act was enacted and a little bit over 3 months, 4 months, since
I took office. During that time period, the original concept of
the bailout designed to be a $700 billion program to buy up
toxic assets from struggling financial institutions has changed
significantly. We are now charged with overseeing 12 separate
programs involving, by our calculation, up to $3 trillion of
predominantly government money. TARP money, the $700 billion,
is the seed; and it was combined with guarantees by the FDIC
and nonrecourse loans from the Federal Reserve.
This is a daunting and historic challenge for my office;
and, as we report in our quarterly report, as I have been
building my office I have addressed three primary areas in
carrying out this task: enforcement, transparency, and
coordinated oversight.
I would like to first discuss what we have been doing on
the enforcement front. This is of particular importance to us
because, of the four oversight bodies referenced in the bailout
act, we stand alone as the one having a criminal law
enforcement body. I recently have been described as the TARP
cop, and we take that role very, very seriously.
Our hotline is up and running, available on the Internet at
our Web site: www.SIGTARP.gov. We have a toll-free telephone
number: 877-SIG-2009. We process more than 400 referrals from
that hotline. We have had tremendous response to it. We have
had--of our 21 ongoing criminal investigations, a third of them
come from the hotline, tips from whistle-blowers, insiders, and
victims of fraud.
Our approach as an investigations division as we build is
to be extremely proactive. We are seeking to, in many ways, to
redefine Federal criminal law enforcement in reaction to large
government programs.
I think a best example of that is our assembling of the
TALF task force, which we are about to expand to include not
only the TALF program but also the Private-Public Investment
Program. This task force will then be addressing up to $2
trillion of coverage of the bailout programs. It includes us,
of course, as well as seven other law enforcement agencies,
including the FBI, the SEC, the IRS, FinCEN, the IG for the
Federal Reserve, the Postal Inspection Service, basically a
who's who of white collar criminal law enforcement.
The way that we are seeking to redefine the policing of
these programs is to put enforcement up front. Way too often in
the past there has been a launch for a Federal government
program, then there is the fraud, then there is the law
enforcement reaction.
What we are trying to do is move that reaction up the
chain, not only just before the actual fraud but even in the
formation of these programs. And what I mean by that is, as was
referred in the introductions, in our quarterly report we make
specific recommendations about some of these programs that have
not yet been rolled out in their entirety. Those
recommendations came not just from our own study and analysis
but consulting with members of our task force. We are seeking
to combine the collective resources, knowledge, and expertise
of these fine Federal law enforcement officers to help protect
the program before they go out.
And the second thing that we are doing through that is
deterrence. By letting all those out there who may seek to
criminally profit off of these programs to know that we are out
there and we are not alone, that this is a combined Federal law
enforcement. We are going to marshal our resources to bring
those who may try to steal to justice.
And I think another great example of that is what happened
yesterday. Yesterday, I was down in Tennessee announcing the
first criminal charges being filed in connection with the
SIGTARP investigation. Gordon Grigg was charged with eight
counts of mail and wire fraud through his conducting of a scam
that involved selling a fictional investment, TARP-backed
securities, something that doesn't exist, cannot exist, was a
pure creation of his criminal imagination.
What is significant about this case is not the numbers. It
was a $10 million securities fraud. But it shows you what
coordinated law enforcement can do.
We first learned of this case back in January when the SEC
called us up and told us what was going on. They asked us for
our assistance; and we helped shut the scam down, helping them
get a temporary restraining order. After that, we used our
unique position to coordinate a criminal law enforcement
response. The FBI, the Postal Inspection Service, and the U.S.
Attorney for the Middle District of Tennessee, coordinated
together to get the filing of those charges.
And I think that these charges indicate and should signal
to those considering to commit fraud that we are out there. It
doesn't matter what the size of the fraud is, whether it is
large or small; it doesn't matter where the fraud is committed,
whether it is on Wall Street or on Main Street; and it doesn't
matter who the victim of the fraud is. Whether it is the United
States, it is government itself, individual unsuspecting
investors, such as in the Grigg case, or even struggling
homeowners, the Federal government stands ready, willing, and
able to enforce the laws and to make sure that these folks get
brought to justice.
The second area that we are focusing on is, of course,
transparency. On my eighth day in office, December 23rd, we
made our first of our series of recommendations to Treasury,
and these were largely based on our concerns about
transparency. One of them, which has been adopted, was that
Treasury post all of its agreements up on the Internet related
to the TARP, although not a terribly complicated concept but
one that hadn't been adopted at that point. And in the last
administration they largely agreed to do so; and Secretary
Geithner, shortly after he took office, fully adopted that
recommendation.
We also made the recommendation, however, which was
referenced in the opening comments, which has not been adopted;
and that is that Treasury require all TARP recipients to
account for their use of funds. This is a recommendation that
we made back in late December. It is a recommendation we
continue to make. It was referenced in our last report, and it
is referenced in this report.
Our efforts to get this recommendation implemented met only
with success with respect to two TARP recipients, Citigroup and
Bank of America, but, otherwise, it hasn't come to pass. Even
this week, when the final agreement was inked with AIG, provide
AIG with another $30 billion of taxpayer money, once again what
we believe is a basic concept of oversight, making the
recipient account for the use of funds, was left out.
What we did because of our commitment to transparency in
late January, early February, was to take matters into our own
hands. We launched our own audit by surveying each of the TARP
recipients; and what we found after we got 100 percent response
rate from the 364 institutions that we surveyed was that you
can--it is possible and you can get good results from requiring
or asking banks how they are using the money. Particularly for
those financial institutions that established internal controls
before they got the money, made the conscious effort to try to
keep track of the funds.
This is a recommendation we made to Treasury that hasn't
been adopted, but some financial institutions did it on their
own. And those that did were able to give us some very specific
answers, sometimes granular detail, about specific actions they
were able to take that they wouldn't be able to take but for
TARP funds. Sometimes even individual loans that were made out
of TARP money.
And I think that the results of the survey--and we are
going to be putting a preliminary report out hopefully in
June--will indicate that the prior complaints that are
impractical or impossible or a waste of time are simply
unfounded complaints; and we are going to continue to push the
Treasury to adopt this recommendation.
Also part of our transparency efforts in our oversight is
through our audit function. We currently have six audits
pending, as was mentioned. Not only is it on use of funds but
on executive compensation, AIG counterparties, the recent bonus
and retention payments made by AIG, a case study into Bank of
America and Merrill Lynch and how Bank of America was the
beneficiary of, in four different transactions, three different
TARP programs, $45 billion in cash and more than $100 billion
of toxic asset guarantees, as well as several other issues that
we are looking into.
And, of course, also part of our oversight function is
making recommendations; and, as I noted before, we don't do
these in a vacuum. For example, in our report, we consulted
with the mortgage fraud experts at the FBI. We sat down with
them before even any of the details of the mortgage
modification program were rolled out because we thought it was
so important.
In drawing on my own experience as a mortgage fraud
prosecutor, we were concerned that some of those same concerns
that I saw in prosecuting those cases would be funneled in and
try to victimize this program. So not only the recommendations
reflect my own experiences but also those of mortgage fraud
experts at the FBI.
Similarly, our recommendations concerning the Private-
Public Investment Program. And, as noted, we have some grave
concerns about the structure of these programs if certain very
serious steps are not taken to address the high potential for
fraud, whether it is conflicts of interest, price collusion,
price fixing, money laundering, and other dangers that are
potentially present in these programs.
I was happy to see, though, that last night Treasury did
announce adoption of one of our recommendations involving asset
management. We have long been pushing for Treasury to take
steps to value this vast portfolio of assets that they manage
on behalf of the taxpayers, who, of course, are the investors
in this program; and yesterday they did adopt that
recommendation by hiring three asset managers. We were
encouraged to see that.
And, obviously, it is so important now that Treasury is
going to be actually liquidating some of the assets, including
the warrants that were required in the capital purchase
program.
As I noted before, it is an honor and privilege to appear
before you today to deliver my quarterly report to this
committee; and I look forward to answering any questions that
you may have. Thank you.
Chair Maloney. Thank you very much for your testimony.
[The statement of Neil Barofsky appears in the Submissions
for the Record on page 42.]
Chair Maloney. In your report, you express concern that the
new PPIP is, and I quote, ``inherently vulnerable to fraud,
waste, and abuse due to conflicts of interest among fund
managers, the opportunities for collusion in the procedures,
and money laundering opportunities.'' The report proposes a
series of conflict of interest rules and disclosures and
investor screening comparable to ``Know Your Customer''
requirements to guard against these risks.
Can you explain the dangers you envision in more detail?
Mr. Barofsky. If I may, if I can give you an example, I
think it might be the best way to provide some detail to this.
For conflicts of interest, for example, basically--I am going
to use the legacy securities program as an example. This is
where--the program where $1 of private investment is going to
be raised by a fund manager, and it is going to be matched with
a dollar from Treasury of equity and then $2 of lending. So the
$1 is going to turn into $4 of buying power. And of course it
is not going to be $1. It is going to be $1 billion or $2
billion. But it is going to be 75 percent taxpayer money at
risk.
And the way the conflict of interest could work is that the
funds that are going to qualify for this by their very
definition, by the nature of the prerequisites, will likely
either have for themselves or be managing vast portfolio of the
same very toxic assets they are going to go out and be out and
purchasing. And the design of the program is that the fund
managers in essence set the new price for these securities.
The theory behind the PPIP is that these markets are broken
and that the prices that currently exist in the market are
depressed, are much lower than they would be if the market was
functioning and normal. And the idea behind the PPIP is that
putting government money to help restart the market and help
price it at what would be more accurate. So a lot of discretion
and, frankly, economic power is going to be given to this small
number of fund managers.
Now, the conflict of interest comes into play. What if that
fund manager has on its books or managing for other clients
from which it derives fees the exact same mortgage-backed
security that it is going to go out and buy at a higher price?
An example we use in the report, if--let's say there is one
that is currently at 20 because the market is depressed, and
the fund manager thinks, well, it is probably worth about 30.
Normally, without a conflict of interest, it would go out and
buy that security from others up to the price of 30. But if the
fund manager realizes that it could set the price and set that
price at what it feels or wants to do, it could set that price
at 50 and start buying at 50. Obviously, the sellers would be
more than willing to take 50 for an asset that is only worth
30.
Now, at the same time, the asset manager then can sell off
what he or she has on their books and records that they value
at 20, think it could be worth up to 30. They can unload it at
50, making a huge profit.
So what happens at the end of this scenario? The fund
manager makes a huge profit, the seller of the toxic asset
makes a huge profit, but eventually that price drops down to
what its market level would be, to 30. And who is left holding
the bag? The taxpayer.
So that is a really simplified example of how conflict of
interest could come into play and hurt the taxpayer without the
right types of protections.
Chair Maloney. Could you elaborate more on steps that we
could take to prevent these type of risks to taxpayer dollars?
Mr. Barofsky. I think the two areas that are going to be
essential is, one, we have to have very, very strict conflict-
of-interest rules. Now, there is a wide array of possible
solutions. One is that the entity not be able to enter into
transactions for securities that it has on its own books and
records. Now, this may be inherently very, very difficult, if
not impossible, the way the program is currently structured,
but that would be a way of limiting this conflict of interest.
Alternatively, there has to be very, very strict walls, we
believe, so that whoever is making these decisions for the fund
manager isn't providing information to other parts of the
company and isn't receiving information from other parts of the
company. So in a way to put that manager in a black box so that
their decisions are independent of what impact those decisions
may have for the benefit of the rest of the company.
Another key area is, obviously, transparency; and our
recommendations continue to push for more and more transparency
throughout the TARP. But in this area we think it is crucial.
Again, not just for the point of transparency, for the sake
that, obviously, this Congress and the American people need to
know what is going on with their investments, but as a fraud
protection. We need to know every detail of every transaction
that is going on in these funds the taxpayers are a part of,
and that should be publicly reported so all the investors can
see. And by investors I mean taxpayers can see what is going
on.
But we also need to access and be able to see what else is
going on in the company. So my office and Treasury, as part of
its compliance function, has to be provided all information
about transactions managed or for that fund manager's books in
the securities and similar securities so that we can track and
see if that fund manager is making decisions not for the
benefit of the taxpayer but the benefit of itself or other
clients that it has.
Those are some of the types of recommendations we include
in our report.
Chair Maloney. Thank you.
My time is expired. Mr. Brady for 5 minutes.
Representative Brady. Thank you.
I applaud your approach on being proactive on the fraud
area and prevention and also on focus on transparency within
the program. Both are clearly needed.
On page 147 of the report, you talk about the areas of
vulnerability under the new Public-Private Investment Program;
and you talk about, as the chairman said, conflicts of
interest, collusion, and the potential for money laundering,
which our U.S. leaders have rightly focused in the G-20 and in
the OECD on trying to stop these activities around the world.
So my question is: Has the Treasury adopted all of your
recommendations to protect taxpayer interest related to the new
Public-Private Investment Program?
Mr. Barofsky. They have not yet. We had a meeting with them
earlier this week where we discussed in detail a lot of our
recommendations. They have indicated that a lot of them are
under consideration, but they have not yet adopted them.
Representative Brady. Have they given you a time line for
adopting them or indicated that they will adopt some, many,
most, all?
Mr. Barofsky. They have not. The people that we were
speaking to were sort of the engineers and mechanics of the
program, and they were extremely receptive of our
recommendations. They thought that they made sense. They raised
significant concerns. But, ultimately, those are decisions that
are made by the policymakers. And they have not communicated to
us, one, where they are leaning as far as our recommendations
or, two, providing us with a time line.
Representative Brady. So Secretary Geithner has not
announced publicly or privately whether he is going to adopt
these recommendations.
Mr. Barofsky. No, he has not.
Representative Brady. You make the same, commonsense
recommendations in dealing with the TARP, simply asking that
the recipients account for the use of the money and set up
internal controls so we can continue to track it. I think that
is a desire of every Member of Congress and the public as well.
Has Treasury adopted these recommendations? And, if not, why?
Representative Barofsky. They have not, other than in the
last administration when the--in the targeted investment
program investments of Citi and B of A. That is the only time
it was adopted.
As to the why not, it is really for Treasury to answer.
What I have been told on various times by Mr. Kashkari is that
they believe that, because of the inherent fungibility of
money, that it is not a positive use of resources, that it
would be a waste of time possibly, that it is very difficult to
track and other explanations.
I believe the results of our survey disprove those
suggestions. But as I spoke to Mr. Kashkari I think last week
or the week before, he told me that he has raised our concerns
to the Secretary as well as to Chairman Bernanke and that they
continue to agree that this requirement not be imposed.
Representative Brady. I just think stonewalling on this
issue of transparency really undermines public support and
confidence in the program. One of the goals of it is to restore
public investor confidence in the system.
Can I ask a final question? But in your report you raise
issues about using the dollars that have been set aside for the
Term Asset-Backed Securities Loan Facility, TALF, basically
focused at consumer loans and using that to finance the Public-
Private Investment Program. You suggest it really undermines
TALF's stated purpose of trying to deal with creditworthy
consumers and small business. Can you elaborate on that?
Mr. Barofsky. There are a number of concerns that we had in
the expansion of the TALF. The program was designed for a
certain purpose, as you noted; and that purpose was inherent in
the fraud and credit loss protections of the program.
Applying that to legacy assets, these toxic mortgage-backed
securities, those protections don't really work. That is why we
previously made the recommendation to tread very carefully, and
what we are encouraging Congress to do is really rethink those
protections.
We have had discussions with the Federal Reserve as well as
with Treasury; and they have indicated that they are going to
be adopting our recommendations, at least to the extent that
they are not going to at least be dropping the legacy mortgage-
backed securities right into the program. They are going to
do--in response to our recommendations, they have indicated
that they are going to do security-by-security analysis and
also indicated that they may adopt our recommendation that
certain types of mortgage-backed securities are just off the
table. And those would be things--these securities that we know
have been just riddled with fraud, the liar loans, the stated
loans with no underwriting whatsoever, those types of things.
So we are going to continue to push for those
recommendations to be adopted.
Representative Brady. Well, I just hope that Treasury
understands that if they don't adopt your recommendations this
Congress may well direct them to do.
So, Madam Chairman, thank you.
Chair Maloney. Thank you so much.
The gentleman's time is expired.
Congresswoman Sanchez for 5 minutes.
Representative Sanchez. Thank you, Madam Chair; and thank
you, Mr. Barofsky, for being before us.
I used to work in the securities industry. I used to be one
of those people that put together financial deals. So my
question goes to something that you were talking about earlier,
that conflict of interest that is occuring.
Now, at least when I used to work in the investment banking
industry, when we would sell securities, whatever type they
were, we would make a syndicated group, spreading the risk over
everybody on the street, including people who had desks like
Bank of America and your typical commercial banks. So my
question is, doesn't everybody have some part of these assets,
and it would be very--for anybody to think that they don't have
any of these funds within their portfolio?
Mr. Barofsky. That is one of the problems with the conflict
of interest; and that is one of the problems ultimately in the
design of the program unless very, very strict conflict of
interest rules are put into place and the right types of walls.
Because, unlike most times when a deal is being syndicated
here, by design the fund manager who is going to be using the
government assets is going to be setting a brand new price.
Representative Sanchez. He is setting a price on what he
has got already in his portfolio. I mean, it would be highly
unlikely, in particular with these large mortgage-backed loans
which include so many different pieces of mortgages, that he
wouldn't have something in his portfolio with respect to that.
Mr. Barofsky. That is a huge danger in the program. It is
unlike anything we have seen.
I mean, if this program didn't exist with the government
sanction and one party was--a private party in normal
circumstances was setting the price for an asset that was on
its books and records, one might suggest that that would be
manipulation. Here, this is what the whole point of the program
is to get these prices up. So it is why we really strongly
believe these protections must be in place.
Representative Sanchez. I basically see the taxpayers
paying going in and the taxpayers paying coming out, too. I
mean, it is a very difficult thing to adjust to.
I have a question about what Secretary Geithner said
yesterday in his testimony. He talked about there being an
availability of about $135 billion left in the TARP funds. It
showed your figure of $109.5 billion, but he also said that $25
billion of that would be from the monies that the banks are
paying back by the end of the year.
Now, when we did this TARP program--by the way, I didn't
vote for it, because I saw a lot of these problems inherent in
it--we said that we wanted the taxpayers to be paid back. So
now we have Secretary Geithner saying, well, when these monies
are paid back it is like a revolving fund, and we are going to
be putting them back out again. Is that your interpretation of
the program or do you think it was a one-time appropriation?
Mr. Barofsky. I think the legal analysis that I have seen--
and I have seen it from Treasury as well as--from what has been
described to me by Treasury as well as by GAO--is that for the
principal amounts, if those come back, the Treasury has the
ability to keep $700 billion out up and through the end of this
year. That is when, under the legislation, when that authority
sunsets unless it is expanded. For any of the interest
payments, the profits, any of those types of things, that
doesn't go back into the kitty. That actually goes directly to
pay down the debt.
But that is my understanding of the legal construct, that
money that is paid back of principal can be reused by Treasury
as part of the TARP, at least until the end of the year.
Representative Sanchez. Now, I have been reading in the
paper about how some of these banks want to pay back the money;
and the insinuation has been that they want to be able to pay
their directors and their executives at compensation levels
above the amounts that congress passed recently. Why do you
think that some of these banks are so anxious to pay back those
monies?
Mr. Barofsky. I have been reading the same articles as you
have; and I think that is certainly one of the concerns, I
think, for a lot of financial institutions, increased
oversight. I think from what I read there is a fear that terms
and conditions may change on them.
I don't want to presume to get inside the mind of the chief
executives of these financial institutions, but I certainly
think that executive compensation restrictions must weigh on
their decision making.
Representative Sanchez. And, lastly, I have some people who
have said that the next problem with respect to mortgages will
come in the commercial mortgage industry and that one of the
reasons the banks are holding onto these monies is that they
want to be able to have the reserves in place for some of the
losses that they expect in the commercial field. Do you have
any comment on that?
Mr. Barofsky. Well, I think we have seen--and, again, our
ultimate--or I should say our initial report on the use of
funds survey that we had is going to come out now within the
next 2 months. But I obviously have looked through about
probably about 100 of the responses; and one of the things that
we do see is that financial institutions are preserving the
TARP money as a cushion for future losses. Whether it is
commercial mortgage-backed security or the residential
mortgage-backed security or just further deepening of the
recession, that is something that we have seen.
Representative Sanchez. Thank you.
Thank you, Madam Chair.
Chair Maloney. The gentlelady's time has expired.
Congressman Burgess for 5 minutes.
Representative Burgess. Thank you, Madam Chair; and thank
you for being here today.
Madam Chair, I might ask unanimous consent that my opening
statement be inserted into the record.
[The prepared statement of Representative Burgess appears
in the Submissions for the Record on page 55.]
Representative Burgess. Now, the report that we have,
almost 20 criminal investigations under way in connection with
the TARP facility for the financial sector; and the report said
these investigations involve possible public corruption,
corporate stock and tax fraud, insider trading and mortgage
fraud. To the extent that you can do so in front of the
committee today, can you provide us more background information
in some specific detail surrounding those criminal
investigations and what we might expect to see going forward?
Mr. Barofsky. Well, as I noted before, one of them was
Gordon Grigg, who was formally charged in an information in the
Middle District of Tennessee yesterday on eight counts of mail
fraud and wire fraud involving defrauding individual investors
by lying and saying that he had connections with the TARP
program, was selling TARP-backed securities. That is an example
of one of the smaller investigations we have ongoing.
We have previously discussed that we have an ongoing
inquiry into Bank of America and Merrill Lynch and the
circumstances that surrounded its end-of-the-year bonus
payments.
Although I can't comment on any detail of our other pending
investigations, they do include the categories of cases that
you have.
And just by way of an example of a type of potential
investigation, in the securities fraud let's say a financial
institution applied for TARP funds but was cooking its books.
In other words, its financial statements were off. They were
manipulated or its ratios were distorted, and they did so to
get TARP money or to get more TARP money. That would be a very
good example of the type of investigation that we are going to
be conducting.
Representative Burgess. Let me--and as a consequence of
your quarterly report to this committee, we will be informed of
those investigations as they come to conclusions and the
results of those?
Mr. Barofsky. Absolutely.
Representative Burgess. Let me ask you--and I hate it when
people do this to me--but you gave an example, so can I walk
through a hypothetical example with you of the public-private
investment partnership that we are hearing so much about? And I
think you stated in your testimony that part of the oversight
function is making recommendations. So I will offer this as
something you might consider for a recommendation.
You also made the point that collusion and money
laundering, and it was important to know your customer. So
perhaps we ought to choose our customers more wisely. And much
of this debt we are passing off to our children and
grandchildren, so actually not original with me.
American solutions, the American Enterprise Institute have
suggested that perhaps we make a TARP fund for students, if you
will. So that the FDIC providing the debt-to-equity funding at
a ratio 6 to 1, Treasury providing 50 percent of the equity
financing, and the investor is left with 7 percent of the
initial cost.
An example has been given if two students near graduation
have $70,000 in loans to pay off that they sell their loans to
each other. And each could then put down a down payment of
$10,000, which will be borne half by the student and half by
the TARP funding, and the remaining $60,000 will be guaranteed
by the Federal Deposit Insurance Corporation. The result would
be that they would have their student loans reduced
significantly to a liability of $5,000; and in the end they
could walk away from the $70,000 debt with that $5,000, leaving
the government, or the taxpayer, on the hook for covering it.
I will admit that is a novel approach. What would you think
of such a scenario?
Mr. Barofsky. I think I may have a conflict of interest
since I am still carrying law school debt, and I would like to
participate in that program, so it might be unfair for me to
comment on that.
Representative Burgess. And this is tongue in cheek, but
this is what our constituents are telling us. This is what they
are feeling. This program, it almost defies gravity the way it
is being approached. You have people back home asking where is
my bailout or where is my Treasury-backed security or where is
my funding or where is my bailout on my student loan? It just
underscores the enormity of the task that is in front of us and
certainly in front of you.
I think we are very fortunate to have someone of your
caliber who is on top of this and certainly am grateful for the
time that you have given us this morning. I wish you every
success in bringing these cases forward and bringing them to
light and then successful prosecutions where those are
necessary.
I thank you, Madam Chair. I yield back the balance of my
time.
Chair Maloney. I thank the gentleman.
And in order of appearance to the committee the Chair now
yields 5 minutes to Representative Snyder.
Representative Snyder. Thank you, Madam Chair.
Good morning. I wanted to ask, in terms of your approach,
should there be a different approach in terms of some of the
requirements you have talked about--I don't remember the
details of some of your suggestions--between those institutions
that clearly at the beginning of this 6, 8, 10 months ago were
institutions in trouble versus those banks--90 percent or so of
banks or other financial institutions that are not in trouble,
that are still making a living, versus those that are clearly
somewhat of a criminal enterprise, should your approach, should
the approach of the Treasury Department be different as we
approach those three different entities?
Mr. Barofsky. Well, I think it depends on the program. I
think within any particular program all institutions should be
treated fairly and equally. Obviously, anything that approaches
a criminal enterprise should be treated very differently. We
will seek to have those individuals responsible for that put in
jail, which will be a much different approach. But I think
that----
Representative Snyder. How about with regard to your
requirement of how--the specific transparency with regard to
the use of TARP funds? Should it be the same whether an
institution has been in trouble, or it is one that we are
actually encouraging to take money in order to improve the
credit market?
Mr. Barofsky. Our recommendation is across the board on
that. We think that any TARP recipient should be required to
report on its use of funds.
Representative Snyder. I interrupted you. So, basically, it
will take out the criminal enterprise there. In fact, those
institutions that were not in trouble at the beginning of this
program and still aren't, ones that we have been somewhat
encouraged to take funds and participate because we want these
funds to get out to the American public as part of the credit
market, you are saying in another program they should be
treated differently than those institutions that were in
trouble.
Mr. Barofsky. I think that, with respect to use of funds,
certainly any institution, regardless of its health, if they
are taking 10, 15, 20, $25 billion of taxpayer funds and
getting the benefit of those funds, they should be required to
let us know how they are using it.
I think as far as other conditions or more stringent
conditions that are put on the terms of the funds, I think the
Treasury has adopted different approaches for those financial
institutions. The terms and conditions for Citi and Bank of
America are more stringent than that on Goldman Sachs; and I
think that that is reflective of the different types of
investment, the higher risks of those investments.
Representative Snyder. You mentioned specific dollar
amounts. Is your recommendation that beyond a certain level--
you said $10 billion, $20 billion. I thought your
recommendation was any level of TARP funds should be declared,
the use of the funds should be declared. Am I wrong on that?
Mr. Barofsky. No, no. Absolutely, that is the case.
I was just using that as an example, that whether they are
healthy or not healthy, because of the volume of money, and
some of the banks that received the most have been most public
about their intention to pay back the funds. That is why I was
using those numbers. But I think in those cases it is all the
more important. We believe that every financial institution--it
should just be a basic condition of taking government
assistance.
Representative Snyder. We use the phrase ``bailout funds''
a lot, and then you just used the phrase ``government
assistance''. I am trying to put myself in the position of the
community bankers out there--we all have some of these in our
district--that they are actually doing well. At least they are
in Arkansas. They are trying to weather this thing reasonably
well. They are not in trouble.
I think their view is that they thought they were--
initially, early on--kind of helping things out. It was a
chance for them to make some money. It was a chance for them to
make some more loans, at the same time expand the credit
market. And yet we kind of come back to them. I think they feel
like they are being treated as something different than what
they initially thought.
So--I don't know--is it fair to call it assistance? They
probably would look on it as a chance to try to help to get the
American economy moving again.
I want to ask, you were dismissing, though, the fungibility
argument. If I was somebody who was going to declare how I was
going to use these funds and money is fungible, I would take
that money in. And you have given some examples. I think you
think most folks can say exactly how they use that money, but
if I am a banker that has got 10 projects and I think if I
bring in this sum of money that will enable me to do 8 or 9 of
those projects versus 6 or 7, wouldn't I just cherry-pick and
pick the nicest looking one to declare that is how I am using
my TARP funds? How do you get around that?
Mr. Barofsky. Well, to be clear, there is no question that
money is fungible. We are not suggesting otherwise. I think
when--we heard this in similar arguments when we were first
announcing our survey. When we did our survey, we asked the
banks not just the blanket question of how did you use the
money. We asked them to make specific reference to issues like
how do you plan to use the money. Our belief is that most
financial institutions, responsible financial institutions,
have budgets and plans; and when they are acquiring a large and
significant amount of capital they make a plan.
So in your example you may say, okay, we have these nine
projects on the shelf. We are going to do these six. And then
there is going to be some internal planning--e-mails internal
memoranda, formal budgets--that it is going to say, well, if we
get this money, we are going to also be able to do these other
three that have been sitting on the shelf.
If they then, in fact, do those other three,
notwithstanding the unarguable fungibility of money, you can
track that use of funds because those are three projects that
wouldn't have gotten done other than the infusion of government
capital.
And I do agree with your comment before. Assistance is
another word. It is one of the words that is used in the
statute, which is probably why I use it, but for a lot of these
it is just an investment from the government. So I don't in any
way argue with your other characterization.
Representative Snyder. One final comment, please. Of eight
or nine projects there and you are going to have them declare
the one that you say this is the TARP funds. Now that we are an
investor in that bank, the taxpayer investment, we want all
six, eight, nine, ten of those projects to work well, do we
not?
Mr. Barofsky. We certainly are hopeful that the banks
perform well so they can repay the money.
Representative Snyder. Thank you.
Chair Maloney. Thank you.
Senator Casey for 5 minutes.
Senator Casey. Thank you very much, Madam Chair; and I want
to thank you for inviting the Senators to come over to this
side of the Capitol. We are grateful to be here. We don't get
over here enough.
Sir, thank you for your service to the country and for your
prior service as a prosecutor. I think it is important to
reiterate the real cornerstone or foundation of your work in
this capacity.
I was an elected state auditor, and in that capacity the
foundation of the work that I was charged with doing--and I
think it is very similar to what you are doing and what you
have worked hard at doing--is that you have to be independent.
No matter who the President is, no matter who is in Congress,
no matter who is in the administration, you have to maintain
that independence; and I appreciate and commend the work that
you have done already. You need to have that kind of
independence and objectivity as you pursue these difficult
issues.
Our job here is not just to talk about or react to your
reports. Our job is to make sure that you have all the
resources that you need. Whether it is money or personnel,
whatever it takes, we have to make sure that you have those
resources.
So the first question I have is in terms of personnel. I
know in the midst of a tough economy, people don't like to talk
about hiring more people but I am a great believer that the
human resources you have is commensurate with the result you
get, especially as a prosecutor or an investor or an auditor.
So the first question I have is, do you have the resources you
need in terms of personnel, in terms of technology and other
resources to do the job you have to do?
Mr. Barofsky. We currently have 37 people on staff. We are
building to 150 is what our target is for us to be efficient,
not too big, not too small, to be able to do this task that is
assigned to us.
This Congress unanimously passed, both Houses, a bill that
is going to give us some enhanced hiring flexibility. I look
forward to that hopefully being signed this week, and that is
going to help us as we build towards that goal.
We have a pending request to OPM, the Office of Personnel
Management at the White House, to give us some other
flexibilities, some direct hire flexibilities; and I am
confident if we get those flexibilities we are going to be able
to build and get the right people to make sure that we can
carry out this task.
As far as resources is concerned, the original bill
provided us with $50 million. We think that is certainly going
to get us through this year and through a good chunk of next
year. We are, obviously, since we are going to be around for
more than 2 years--I think that is inevitable--we are going to
need additional resources. I know that there is a pending
amendment in the Senate on a bill that I think Senator Boxer is
going to introduce this morning which would give us some
additional funding which I think would certainly take us
through fiscal year 2010; and when we run short we will be back
and let you know for sure.
Senator Casey. Great. One last question. When I look at
what was set forth in the Emergency Economic Stabilization
Act--an act that I voted for, because I thought it was the
right thing to do, but we have to make sure that act works--the
underlying purpose, as set forth there, talks about protecting
home values and college funds and retirement accounts and life
savings. That is number one. Number two is preserving
homeownership and promoting jobs. Number three, promoting
overall returns to the taxpayers. Finally, provides public
accountability.
We all understand from our States and districts across the
country, when people call in, they are frustrated on two
levels. First, they see layer upon layer of legislation and
public initiative, and they don't see the results. They don't
think that credit is flowing, and they don't see any
significant positive effect on their lives. That is one area of
frustration.
The other area is lack of accountability. I know that you
talked at length before and I don't want to reiterate it, but I
want to get your sense of why this is happening. When you said
to Treasury that you thought there should be some--with regard
to the 364 institutions--that there should be some
accountability as to how they are spending the dollars, which
you continue to reassert or reiterate that recommendation to
Treasury, that they should require all TARP recipients to
report on the use of the funds. Please tell us again and
articulate for us, what argument does Treasury use pursuant to
your recommendation or in response to your recommendation as to
why they should not do that?
Mr. Barofsky. Although I am reluctant to speak for
Treasury, what I have heard is arguments because of the
fungibility of money, that it is impractical or impossible to
require banks to report on the use of funds. It could be a
waste of time or resources, and just a fundamental disagreement
with why it would be important for us to do so.
Senator Casey. That makes no sense to me and I know it
makes no sense to you. So I am glad you pursued this
information on your own and got the information on your own
initiative.
I am over my time. Thank you very much.
Chair Maloney. Thank you. Congressman Hinchey has yielded
his time to Senator Klobuchar due to her time constraints. The
Chair recognizes the good Senator for 5 minutes.
Senator Klobuchar. Thank you very much. Thank you,
Congressman Hinchey. Who says that the House and Senate can't
work together?
It is good to see you again, Mr. Barofsky. We had a hearing
in front of the Judiciary and I thought that I learned
everything that I needed to know about you. Now I know you
still have student loans. I will tell you, when I met my
husband, he had $50,000 in student loans but I married him
anyway. Hopefully you are doing fine.
I have to get back to the Senate on the Fraud Enforcement
Recovery Act which I know you support. It is very important to
add some funds to help you out. You talked to Senator Casey
about your goal of reaching that 150 employees. When do you
think you will reach that goal?
Mr. Barofsky. A lot of that depends on once we have all of
our hiring authority and we get this direct hire authority from
OPM. We are building to that. I would love to have it by the
end of this year. That is our goal.
Senator Klobuchar. Because you and I discussed the kind of
perfect storm that the Justice Department is facing, and you
are facing. With more money going out there, it means more
potential for fraud and corruption. We also have the issue of
more white collar crime that is either starting up, or actually
has been going on, as in the case of Bernie Madoff for years,
that it is being discovered because of the tough economic
times.
Along the line of Bernie Madoff, which I know we talked
about in the Judiciary Committee, how that tip had come in and
was disregarded from a whistle-blower. And I know that you and
the Justice Department are very focused on doing a better job
of handling these whistle-blower tips. I will give you a little
pitch here, 877-SIG-2009; is that correct?
Mr. Barofsky. Thank you. That is correct.
Senator Klobuchar. I have read since the Judiciary
Committee hearing, you have had hundreds of tips come in. The
argument before was it is just too hard. There are too many
tips; we can't figure them out. What triage process are you
going through, and how is that working?
Mr. Barofsky. From day one--and I have to credit my chief
of investigations--from the day I hired him, he was pushing the
importance of a hotline. He always thought it was going to be
one of the most important functions of his investigative
division.
One of the things we did is we hired a very capable
attorney from another IG's office, attorney investigator, and
someone fairly senior. We put her in charge of the hotline. So
we put one of our best people that we have, and we gave this
important responsibility to her. And we are supplying her with
the right support.
We are not a large office yet. We are not even close to our
capacity, but we made sure that we have the necessary resources
and support so that she can follow up and the people working
under her can follow up on every single inquiry. We take
everyone seriously.
As I noted before, a third of our current criminal
investigations are resulting from that hotline.
Senator Klobuchar. Unbelievable.
Mr. Barofsky. It is a wonderful source.
I also think for victims as well as whistle-blowers, as
sort of another benefit, it gives people an opportunity to vent
sometimes.
Senator Klobuchar. I wouldn't advertise it that way. We
know what it is like when people call to vent. It is a way for
people to talk to you and get their ideas known.
Mr. Barofsky. Sometimes we get good ideas. For example, the
hotline number was my office number. I would just pick it up.
Senator Klobuchar. I like that hands-on approach.
Mr. Barofsky. But one of the calls that I received was from
a gentleman who was very upset who lived up in Massachusetts.
It was the time Citi had announced that they were going to be
paying $50 million for a new plane. One of the things he said
was, I am so tired, how come these banks are saying that they
can't account for how they are using the money, but they can
say with 100 percent certainty that $50 million did not come
from TARP funds?
It is a good argument. It helped inspire us to move towards
our use of funds survey.
Senator Klobuchar. To end with that, the use of the funds,
and you talked about how it is on the Web site now and people
can trace it. And for people who don't have the time to go on,
what is your Web site?
Mr. Barofsky. www.SIGTARP.gov.
Senator Klobuchar. That is for the tips.
And then www.financialstability.gov.
Mr. Barofsky. That is not ours. That is Treasury's Web
site.
Senator Klobuchar. So for people who don't have the time to
wade through all of that, what is your summary of where this
money is being spent, so the American people know it is not all
of these bonuses and the scandals. Where is the money being
spent?
Mr. Barofsky. It is a little early for us to be able to
report on our survey results. We expect to have something out
there in hopefully early to middle June, which will give that
information.
The Treasury Web site, as you noted, does track what the
banks are reporting on their lending activities, as their
lending goes up and down, sort of the impact of the TARP funds.
And, of course, if anyone wants to learn more about our
problems, going to our Web site and pulling down the reports
page brings up a copy of our reports. One of the things we try
to do with these reports, the taxpayers, who are the investors
in all these programs, we try to write them in Main Street
terms so they can understand and see what is going on with
their money.
Senator Klobuchar. Will it show a specific project that the
money is being lended to and things like that?
Mr. Barofsky. Not on our Web site, no.
Senator Klobuchar. Where will they be able to find that
out? Is that on the Treasury Web site? Or does it just show
that it is going to lending?
Mr. Barofsky. The only monitoring that Treasury is doing is
requiring them to report on what their lending levels are at
certain categories and whether they go up or down from month to
month. But it doesn't have anything to do with tracking the use
of TARP funds.
Senator Klobuchar. But it shows lending versus, say,
bonuses?
Mr. Barofsky. It just says lending.
Senator Klobuchar. Thank you.
Chair Maloney. Congressman Hinchey is recognized for 5
minutes.
Representative Hinchey. Thank you, Madam Chairman, for
doing this hearing.
Mr. Barofsky, I want to express to you my deep
appreciation. I think it was a very wise move to bring you into
this area of responsibility. I think you are doing a very good
job, and I think all of us who focus on this really appreciate
what you are doing.
At the same time that we appreciate what you are doing, we
recognize the complexity of the job that you have and how
complex and how difficult it can be, particularly when you are
not getting the cooperation of people that you really have to
work with in order to come up with the recommendations and the
facts that you have the responsibility to deliver.
Your use of the word ``fraud'' in the context of your
presentation this morning I think was very, very appropriate.
Fraud is just so relevant in this particular set of
circumstances from the very beginning. The situation we are
dealing with is fraudulent investments that were put together
by a number of operations, like AIG, for example, and a whole
host of others. There were fraudulent investments that drew
money out of the people who invested so they could make money
for themselves. They knew what they were doing, and they did it
purposely and intentionally. There is no question about it.
So what you are doing now to look into this situation with
regard to the TARP funding--which was a bailout bill for some
of the institutions that were engaged in that fraudulent
practice from the beginning, and which was presented to us by
former Secretary of the Treasury Paulson in a way that was
guaranteed not to give any real analysis of the situation, any
real facts--and, unfortunately, it was ultimately passed by
this Congress without those kinds of contexts as well.
Subsequently, the House of Representatives passed
legislation which would require the Treasury Department to get
these kinds of facts and put the information out there. But,
unfortunately, that bill was not passed by the Senate. I think
that is just another example of the very effective political
influence that is going on by a lot of these banking
institutions and others, and also the political influence that
is going on by people involved in the political process here in
our government.
So what you are doing is very, very critical and important.
The problem is how are we going to deal with it more
effectively? What are we supposed to be doing? What can we do
to help you? What can we do to strengthen your ability to get
the facts that you want to get and which we need so badly?
Mr. Barofsky. I think right now, particularly with the
recent Special Inspector General Act of 2009, it really gives
us a lot of arrows in our quiver. I think we have the necessary
tools to do our job. Ultimately, of course, our recommendations
are just that; they are recommendations, and Treasury is not
compelled to adopt them.
Representative Hinchey. But that is the problem, isn't it?
You are making recommendations. The recommendations that you
are making are solid, secure, and very, very positive. They
should be followed through. But the problem that we are seeing
is that these recommendations are not being adhered to.
Mr. Barofsky. In some circumstances, that is true. Some are
being followed, which is the good news. But ultimately,
recommendations are just that--recommendations.
I mean, I think in the new act there is a requirement that
the Secretary certify to Congress where he fails to adopt a
recommendation that addresses a deficiency. To that extent once
that act becomes law, there will be some very direct
accountability for those circumstances.
Representative Hinchey. That is right, if that does become
law. That is what has to happen. But in the meantime, we are
struggling to get this situation to be dealt with in a more
effective way, and there is obvious opposition to that.
Can you tell us at this point, what are the positive
aspects that you have seen? What are the things that you have
seen that give you some hope that this is going to develop in a
more positive way?
Mr. Barofsky. First of all, I would say that one of the
things that we are seeing from our initial returns of the use
of funds survey is that this injection of capital for a lot of
banks, particularly the smaller community banks, at least as
they are reporting to us, did go out to increase lending. They
were able to leverage the money and use it to increase lending,
especially the smaller community bank levels.
I think a lot of these programs, although we have some very
large concern about the potential for fraud in them, a lot of
these potentials can be addressed. And if Treasury does adopt
these recommendations, these could very well be very good and
viable and positive programs.
On some of these issues, Treasury has been very receptive
to our recommendations. They have not been implemented yet, but
early indications are strong. I think there is hope. I
certainly don't want to sound an alarm that all is lost. I
think there is opportunity here to protect the taxpayer with
these programs.
Representative Hinchey. We are going to have to be directly
involved with you to make sure that the positive circumstances
that you are talking about actually come into play, actually
become facts. I thank you very much.
Mr. Barofsky. Thank you.
Chair Maloney. Congressman Cummings for 5 minutes.
Representative Cummings. Thank you, Madam Chairlady.
I want to thank you, Mr. Barofsky, for your very quick
response to my letter, along with 20 or so other Members of
Congress, about the counterparties. I really appreciate you
jumping on that so quickly.
I just want to ask you what, if any, requirements has
Treasury imposed upon the TARP recipients with regard to their
need to increase lending to perform other acts in the public
interest?
Mr. Barofsky. None. The requirements in the capital
purchase program--I assume that you are talking about the
capital purchase program.
Representative Cummings. That is right.
Mr. Barofsky. There is no such requirement. The only
requirements or restrictions on the use of funds have to do
with what will be the statutorily enforced restrictions on
executive compensation, as well as some redistributions on
dividends and buying back of shares.
Representative Cummings. Does that make your job more
difficult?
Mr. Barofsky. What makes my job more difficult is the
failure to adopt the recommendations to have the financial
institutions report on their use of funds. As additional
conditions are imposed, it is obviously a lot easier to see how
money is not being used if you are also requiring the
institutions under the pain of a certification for which it
would be a crime to lie on the report to us how they are using
the funds. That would obviously make oversight easier.
Representative Cummings. One of the problems that we face
in this bailout is establishing metrics to measure the success
of the various programs. I would like to ask about President
Obama's Making Homes Affordable program. How much assistance
has flowed to homeowners and servicers to facilitate mortgage
modifications?
Mr. Barofsky. It is just getting underway: $50 billion of
TARP funds has been set aside; an additional $25 billion from
HERA has been set aside. I think they have signed contracts now
with servicers that would be up to about $13 billion. Money has
not flown out yet under the mortgage modification program, but
steps are in place.
I should say, if I can go back to my other answer, our
requirements in the Citi and Bank of America agreements is that
they do implement mortgage modification plans. So that is an
example outside of the capital purchase program where Treasury
is compelling those institutions to do something for public
good.
Representative Cummings. I don't know if you are the
appropriate person to ask this question of. How soon do you see
that happening? One of the things that is happening in my
district, we have a person who actually deals with
foreclosures. That is all she does, trying to prevent
foreclosures. It seems like the President's plan is out there,
but the mortgage companies haven't caught up with it. Do you
follow what I am saying? So in the meantime, people are falling
through the floor. That is, they are being foreclosed upon. Do
you have any idea of when you see that being in full operation?
Mr. Barofsky. It should be going on now. Part of the
mortgage modification plan under this agreement with the
servicers is that before Federal money starts flowing in, they
need to put the struggling homeowner on a 90-day trial period.
During that trial period, the servicer is supposed to not
foreclose on the property. During that trial period, the
individual homeowner should be making payments only at the
level of what the reduced mortgage would be once it is
modified. So that type of relief should be happening now.
One of the things that we are doing as part of our
investigations is to make sure that that is what is happening;
that the servicers are abiding by their rules, that they are
not foreclosing. And we are working, obviously, with Treasury
and their agents to make sure that happens.
Representative Cummings. So if I have folks dealing with my
constituents who are not doing what you just said, how should I
address that? Send that information to you?
Mr. Barofsky. Yes. The first thing they should do is
contact their servicers. If they qualify, the servicers should
be putting them into the modification plan. If they don't
qualify, they should be directed to other forms of Federal
assistance. If they are inside of a servicer, a program
servicer agrees to modify the mortgage pursuant to President
Obama's plan and they are still getting foreclosed upon or they
are being charged a fee in a no-fee program, then they are the
victims of fraud and they should contact our office.
Representative Cummings. Finally, some have argued that
even though the mortgage modifications may reduce interest
rates for homeowners, the outstanding principal remains
unchanged and homeowners tend to remain underwater. Without a
change in refinancing criteria, the interest rate reductions
may only be forestalling rather than preventing default. Do you
think a change in the refinancing criteria is required?
Mr. Barofsky. That is sort of a policy-level opinion. I
would be reluctant to offer an opinion without doing a more
comprehensive study.
Representative Cummings. Thank you, Madam Chair.
Chair Maloney. Thank you for your insightful questions.
Mr. Barofsky, there have been suggestions that a
significant number of CDOs were grounded in fraud or
misrepresentations by the entities that were the sponsors of
these transactions. As a consequence, the investors in the CDOs
and in related credit default swaps have suffered substantial
losses. Now taxpayer money is being used in essence to bail out
the originators, investors, and counterparties to these
transactions.
What programs are being considered by your Department to
recover taxpayer dollars from those persons and entities that
engaged in fraud, misrepresentation, or other wrongdoing which
induced investors and others to participate in fraudulent
transactions for which the taxpayers are now footing the bill?
Mr. Barofsky. We are going to be working closely with the
Department of Justice. They of course have their civil
enforcement as well as asset forfeiture abilities using the
court system. We are forging a close relationship with the
Department of Justice here in Washington, D.C., as well as in
individual U.S. attorney's offices.
When we find the type of contact that you are describing,
we are going to work with the Department of Justice as our
partner to try to reclaim that money.
Chair Maloney. Have you found any of these cases? Have you
initiated any cases such as this now in your Department as
described?
Mr. Barofsky. I don't want to comment on that too detailed
because I am reluctant to discuss too much of the details of
pending investigations.
Chair Maloney. I think one of the problems is that there is
a statute of limitations running. By the time you get around to
it, the statute of limitations may have expired. Your comment
on that?
Mr. Barofsky. Our focus is going to be on reclaiming
taxpayer funds on these transactions. On those we have 5 years
from the date of investment at least. If there is any ongoing
fraud that is occurring, that would extend that statute of
limitations. So from a TARP perspective and recovering taxpayer
funds, we do have some time to put these investigations
together and to get the Department of Justice on board.
Chair Maloney. I would like to share with you that we have
come forward with legislation that would require the tracking
of where the TARP moneys are going, giving you and government,
the public, and others more information so that we can make
better policy decisions in the future. I would like to give
this legislation to you for your consideration and response
back to the committee, if you have any further programs or
ideas of how we could better track this money so we could have
better policies going forward.
Mr. Barofsky. I look forward to receiving it.
Chair Maloney. My time has expired, and I will call on Mr.
Brady.
Representative Brady. Thank you, Madam Chairman.
On page 148 of the report you focus on the potential for
collusion within the Public-Private Investment Program. The
scenario you lay out is two banks, both of which have a toxic
loan of $100 million value in the marketplace, much less $60
million. So basically they buy each other's toxic loan at a
higher price net, put up a small amount of money, and Treasury
matches that in equity. FDIC gives them a loan for $60 million,
or really the value of itself. In that case, both banks book a
profit on the sales and they have now transferred 92 percent of
the risk to the taxpayer. Yet the toxic loans still stay within
the system, which is great if you are at the bank or a
shareholder, bad if you are the taxpayer who eventually ends up
with the cost.
What changes should be made in this bad loan program to
prevent this type of thing? In your scenario you talk about
kickbacks and more complicated collusion, and I am just using
the simple example you used in your report. What changes need
to be made to prevent things like that from occurring?
Mr. Barofsky. The list is probably a lot longer than I will
go through. Transparency, I keep coming back to that. It is
vital for us to be able to mine the data for these
institutions, to be able to keep track and look not just at the
transactions that apply to that particular transaction, but to
look at other transactions and similar transactions to see what
is going on.
Our ability to seek through some of these, look through
some of the corporate shells to know who the players are so we
can run through them through databases and see if there are bad
players out there, players who have had prior regulatory
problems. Try to identify the bad players, that is very
important.
Making sure that the funds are under strict KYC, and giving
Treasury the ability to look through and run its own tests.
Those are just some of the examples of where we can help
deter as well as detect. And that is really an important part
of it. If you increase transparency, not only does it make it
easier to detect, but if the players know bright sunlight is
shining down on them, it is a lot harder to do this type of
collusion.
And of course we are going to keep pushing our hotline.
Insiders who know about this, who can tip us off, will also
help us being able to detect those committing frauds.
Representative Brady. Having now dug into the use of these
dollars, the complex programs that have been morphed and welded
together, and then your background prosecuting with credit-
debit swaps and complicated financial instruments, given the
complexities, and how deep and wide this financial crisis was
interwoven, do you think lawmakers up here really understand
all of the intricate issues that created the point of our
financial collapse?--I know that Mr. Burgess has introduced
sort of a 9/11 Commission on the financial crisis so that we
can sort of move away from the narrative and the spin and
really go through and identify all of the complex decisions and
financial models and everything that led to a global financial
collapse.
From your background, do you think it would be helpful to
have that type of detail as we move forward on trying to
prevent, as you are trying to from the bailout funds, to
prevent this in the future?
Mr. Barofsky. I think it is vital for us to understand how
we got here. It is absolutely vital; otherwise we will repeat
our prior mistakes. It is inevitable.
One of the things that we try to do in the reports, as I
mentioned before, is to at least unlock the riddle of what is
currently happening with these 12 different programs and try to
explain them in ways that the Members of Congress as well as
the American public and the media can really understand what is
going on now.
But I think looking back and seeing how we got there, it
would be vitally important for policymakers and lawmakers and
the administration to get a good, comprehensive understanding
of why we are here.
Representative Brady. I do, too. I think it is important
that we move away from the spin zone and get into the
intricacies, and I think it would provide an independent view
of how we go here and independent recommendations on how we
stop it from occurring again.
Thank you for the work that you are doing. Please let this
committee and lawmakers know what other resources you need and
how we can help. I think you are on the right track.
Chair Maloney. Thank you. Mr. Hinchey.
Representative Hinchey. There is a very interesting story
in the Wall Street Journal today about how Bank of America
bought Merrill Lynch and how that purchase of Merrill Lynch
triggered the situation where they needed a big bailout and
they needed substantial amounts of money from TARP.
In the context of the examination of that situation
recently, it was revealed that Secretary Paulson and Ben
Bernanke, the head of the Federal Reserve, had pressured the
Bank of America not to reveal what they were doing with regard
to the purchase of Merrill Lynch, why they were doing it and
how they were doing it. Didn't they realize that was going to
cause them some problems and get them into a situation where
they needed a TARP bailout? But they were told not to say
anything, as I have just said, by those two very powerful
individuals.
Have you looked into this situation yet? Have you had an
opportunity to look into it yet? And if so, can you tell us
what you believe the circumstances are?
Mr. Barofsky. Yes, we are looking into that situation. The
article that you are talking about was testimony taken up in
New York of Chairman Ken Lewis. I was actually there during
that testimony. We have our own investigation as well as an
audit into these circumstances.
I would say we are going to be putting out an audit product
that details all of the circumstances. But I would caution
anyone from leaping to too many conclusions about what
Secretary Paulson or Chairman Bernanke said until we have
looked at all of the facts and reported on them.
I think that the conclusion that one may draw that it is
black and white, that there was an order from the United States
Government not to disclose this information, I don't think it
is as crystal clear as may be suggested in that article. But
that is something we are going to do. We are going to present
all of the sides of those conversations in our audit report. It
is a part of an ongoing investigation that we have. We are
aware of the circumstances and the situation that you
described.
Representative Hinchey. I am happy that you are looking
into this, and I hope that you are going to do it in a very
effective and thorough way. I know there are going to be some
restrictions on you and some lack of cooperation with you with
regard to this particular set of circumstances, as there are in
the whole array of circumstances, a lack of providing the
information that you need. Is that going to be a problem for
you as this moves forward?
Mr. Barofsky. I don't think so. We have not encountered any
restrictions. I know that there are certain things that it is
reported in that article that the State attorney general
accessed, certain things that he couldn't get. We can get
access to that because of our situation as the Federal
oversight body overseeing the bailout.
And to date, everyone has been very cooperative in
providing us information and giving us access to necessary
interviews. I assume that is going to continue. As required by
statute, I will certainly let Congress know if there is any
resistance or push back.
Representative Hinchey. I hope you are right. We look
forward to the results of your investigation. We know from the
basis of our own experience here with regard to hearings that
we have had with the Treasury Department and with the Federal
Reserve, how they have been reluctant to be candid about the
economic circumstances that we were facing back in 2008 in the
context of a recession which began, clearly, as early as
December of 2007. Nevertheless, they continued over and over to
say that there were no economic problems that we were facing,
there was nothing big to worry about. And all of that continued
until all of a sudden the TARP bill showed up here in the
Congress with Secretary Paulson saying this was something
absolutely essential that needed to be passed.
There was no preliminary, actual honest analysis of the
economic circumstances that we were facing then. I can't help
but see that some of this is still continuing. We are still not
getting all of the truth about this situation. We are not
getting a clear analysis of it. As a result of that, this
Congress has not been as effective as it should be in moving
forward and dealing with the legislation that is needed to move
us forward on behalf of the people of this country so that
their money is not being wasted the way that as it has been.
Hundreds of billions of dollars wasted in the context of this
set of circumstances. And even now, as you were saying, as much
as $3 trillion, money that has come of the Federal Deposit
Insurance Corporation, the Federal Reserve, and a whole host of
other places, much of that is still on the back of the
taxpayers of America.
All of this information needs to come forward. So if there
is something that you can say about that now and what you think
is going to happen soon, it would be appreciated.
Mr. Barofsky. We are going to continue, through our audit
function and our investigative function, to push and push for
more and more transparency. Our audit reports will be available
to every Member of Congress and eventually to every taxpayer.
We will push for that transparency to bring forward those
answers.
Representative Hinchey. Thank you.
Chair Maloney. Congressman Burgess for 5 minutes.
Representative Burgess. And that transparency, the Federal
Reserve, the FDIC, to some degree Treasury, when you stop and
think how much money--it probably equals all of the
discretionary money that we will appropriate this year--that
those appointed individuals have under their control, it is
absolutely critical that that transparency and that
accountability and that oversight be there. Because I think Mr.
Hinchey is correct; the credibility of the United States
Government has suffered as a consequence of mishandling of this
situation. There is plenty of blame to go around for all
branches of the government and both parties, certainly.
In your report, you point out that many aspects of the
public-private investment partnership could make it inherently
vulnerable to fraud, waste and abuse, and you identified three
major areas.
Let me ask you specifically on the conflict of interest,
first on the conflict of interest, do we need to be a little
concerned, moderately concerned, greatly concerned on the
conflict-of-interest issue?
Mr. Barofsky. If unaddressed, extremely concerned. Too much
power is being granted to these private players, and if the
right protections are not in place, we basically would be
asking I think potentially for catastrophic taxpayer loss
without the right protections.
Representative Burgess. On the issue of collusion,
government leverage presenting a great incentive for collusion,
can you explain how that can expose taxpayers to further loss?
Mr. Barofsky. As a simple example, buyer and seller agree
on a price that is above the price that it should be. The price
should be 50. They agree to pay 80; the buyer agrees to give
80. Therefore, a criminal profit of 30. The reason they can do
that is because the buyer is only on the hook, because of
leverage, 7 percent of that initial investment.
So if the spread on the price fix is greater than the
exposure because of the tremendous amount of government
leverage, it is a simple economic mathematical calculation.
Both sides can make a lot more money. The only downside is, of
course, detection and prosecution.
Representative Burgess. On the money laundering, the fact
that both the public/private invested partnerships and the term
asset-backed securities loan facility present an opportunity
for money laundering, organized crime, narcotics, and large-
scale fraud operations, do you think that we are doing enough
to forestall those activities, the activities of the money
laundering?
Mr. Barofsky. Not yet; but I am hopeful as these programs
are rolled out they will be.
I think the Federal Reserve has a pretty good anti-money
laundering program on the TALF as it currently exists. For
these other programs which will be run by Treasury and the
FDIC, we are going to have to see. They are still in their
formation stages.
My prior background being a prosecutor of narcotics
traffickers, my chief of staff who is here, headed up the
Southern District's international narcotics trafficking unit
and did massive money laundering cases. We are pretty familiar
with the complexities and the ways that drug trafficking
organizations launder their funds. There needs to be very, very
tight restrictions, and we are going to push for them.
Representative Burgess. And you are making recommendations
to Treasury to protect the taxpayers' interests?
Mr. Barofsky. Absolutely.
Representative Burgess. Have any been adopted by Treasury?
Mr. Barofsky. They are still in the formation stages. They
have indicated early that they have registered our concerns and
they are taking them seriously. But they have not formally
adopted these restrictions yet.
They have required certain know-your-customer standards be
applied in the legacy securities program, and that is certainly
a very, very good first step.
Representative Burgess. Is there anything that we can do to
help?
Mr. Barofsky. I think conducting hearings like this, making
sure that the Members of Congress and members of the public
know what is going on with their money is a tremendous help. If
there is anything specific, I will be sure to let you know.
Representative Burgess. We look forward to that.
Your report documents a potential increase in leverage from
the interaction of the public-private investment partnership
and the term asset-backed security loans facility. You note the
unfairness and the additional risk imposed to the taxpayer. Can
you also explain how this can magnify the dangerous incentives
already in place?
Mr. Barofsky. This really concerns us. When this was rolled
out, it was not part of the initial announcement. It was in one
of the term sheets. When I saw it, it raised my concern.
One of the basic things that was explained to us, because
we made a series of recommendations with respect to the TALF
back in February, and one of the things that the Federal
Reserve kept impressing on us, the Federal Reserve and the
Treasury, is that based on the complicated economic models that
the Federal Reserve conducts, is that this haircut, this skin
in the game, the amount of money that the private investor is
responsible for putting up personally before getting these
nonrecourse loans was crucial from credit loss as well as a
fraud risk.
When you have these programs interact, particularly what
you have in the PPIF program, Treasury lending money to the
fund manager and then taking that already leveraged lent money
and bringing it to the TALF window, you are diluting that
interest, that skin in the game, by at least 50 percent,
thereby undercutting one of the fundamental protections to the
taxpayer. That caused us grave concern.
As you also noted, that leverage on leverage. So that fund
manager has that tremendous ability and power to set the price.
When you are pricing up a security which, in an illiquid
market, you are magnifying that ability by two, three, four, or
five times; thus, increasing the dangers, making it all the
more important that we have the right fraud protection measures
in the original program as well.
So that is why we recommend not to do it, particularly if
there is Treasury leverage, that there shouldn't be this
interaction between the two programs unless they come up with a
way to almost significantly redo and recalculate the way that
they do the TALF.
Representative Burgess. I hope they are listening to you. I
yield back.
Chair Maloney. Congressman Cummings for 5 minutes.
Representative Cummings. Thank you, Madam Chairlady.
You said something that struck my interest, and I hope it
doesn't go by our committee. You said that one of your greatest
concerns is the conflict-of-interest issue; is that right?
Mr. Barofsky. It is a very grave concern of ours.
Representative Cummings. Why is that, Mr. Barofsky? What do
you mean by that?
Let me tell you where I am going with this. A lot of my
constituents when they see who the players are, they feel as if
everybody came off Wall Street. And as they say to me in the
grocery store, these folks may be playing golf together, social
events and those kinds of things. And what is to say that
things are not being done which are not necessarily--and I am
not accusing anybody of anything, I am just telling you what my
constituents feel--in the public interest. That is one type of
conflict.
I think it is very important if the President and the
leadership, this Congress, is going to turn this economic
situation around that the public has a certain level of
confidence that everybody is playing fairly. You just gave some
scenarios that should concern all of us.
I am just wondering with regard to conflict, what kind of
recommendations have you made? And when we spoke to Mr.
Devaney, by the way, with regard to the stimulus package, who
is the watchdog trying to help folks, he said one of his basic
concerns was that he prevent people from doing stuff wrong. I
am wondering, is there any of that here? Are you following me?
Mr. Barofsky. Sure. So much of our recommendations are
geared towards deterrence. The bottom line is that with $3
trillion, we could have a staff of thousands, and if the right
protections are not in place beforehand, we will never catch
up. That is why we pushed so hard with these recommendations,
our law enforcement, and our task force to deter fraud from
occurring beforehand.
That is where transparency becomes so important, as I noted
before. It is hard to execute a conflict of interest if you
know everyone is looking very carefully at what you are doing.
But conflict of interest really, in the terms I am using, is
anytime someone puts their own private interest above that and
to the detriment of the taxpayer. In these programs there is a
real danger of that.
I think what you are referring to are the relationships
between Wall Street and those who may be making policy
decisions. The importance is for the policymakers to have a
sense of detached skepticism of Wall Street. That is what we
bring. It is not that we think that all of Wall Street is
geared and going to do things wrong, but we have to recognize
where the economic incentives are and at times have to assume
the worst in order to build the right protections.
Representative Cummings. One of the arguments we heard on
Tuesday from Dr. Simon Johnson and Dr. Joseph Stiglitz was that
corporate separation of ownership and control have produced
perverse incentives for the officers and directors of these
financial firms such that the interests of the officers were
not necessarily aligned with the interests of the shareholders.
Do you agree with this assessment and, if so, how can
taxpayers' ownership rights be exercised, especially in light
of the recent discussion of a potential plan to convert
preferred stock to common equity shares? Do you have any
concerns there?
Say, for example, with AIG, we own 79 percent, and
decisions are being made every day of something that we own. I
guess you end up investigating us. But the question is, do we
have sufficient control there to actually carry out the wishes
of the public? The things that are in the best interests of the
public?
Mr. Barofsky. I think of the benefits of the audits of AIG,
the one that obviously we have initiated at your request, as
well as the audit of the executive compensation issues at AIG,
will bring attention to this issue. Right now, AIG--basically
the Federal interest is being run by a number of trustees who
have been assigned to look out for the government's interest.
Under the conversion that you are describing, under the
capital assistance program, again the concept is there is going
to be a private trust that is independently going to manage the
government's voting interests. So, in a way, separating the
voting and control from the actual policymakers, and the goal
there is to separate from political influences decisions to run
the corporations.
One of the things that we are going to see in the AIG audit
is how much of that is actually happening. What is the impact
and influence on a day-to-day basis of the Federal Reserve and
of the Treasury in decision-making?
But these are very complex and very real concerns, and we
are hoping that this audit will help shed some light on it.
Representative Cummings. Thank you very much.
Chair Maloney. Thank you.
I would like to go back to your comments, Mr. Barofsky, on
the use of TALF to buy toxic assets with taxpayer funds, to
better understand it.
The SIGTARP expresses in your report serious concerns that
Treasury's proposed expansion of TALF to allow the use of
legacy residential mortgaged-backed securities as collateral
poses a significant risk of fraud. And to mitigate these, the
report recommends that Treasury require individual review of
the securities involved and reject those that do not meet sound
underwriting standards. Has Treasury agreed to do that, to do
an individual review?
Mr. Barofsky. They have to a certain extent. Always when
dealing with Treasury and our interactions with them, until
something is formally announced, we are going to keep pushing
and pushing. They have indicated in their response to our
recommendations, basically the way it works before we put these
recommendations in the report, we share them with Treasury and
give them an opportunity to respond.
In response to this particular recommendation, they did
note that they are going to be considering, in their language,
CUSIP by CUSIP, and that is the individual number that is
assigned to each type of bond review, and that they are going
to consider individual underwriting standards. We think this is
vitally important.
Under the original version of the TALF, there is a reliance
on credit rating agencies. And with these toxic--particularly
these residential mortgaged-backed securities, those are
useless. They shouldn't be paid any attention. We need to
protect the taxpayer, to look behind those ratings at the
actual loans that backed these securities in order to protect
the taxpayer.
Chair Maloney. And the so-called liar loans, you also
recommended that Treasury impose significant higher haircuts on
all MBSs, and especially the legacy RMBs. Are they going to do
that? Have they indicated their reaction to that?
Mr. Barofsky. They are going to impose higher haircuts for
those. We will have to see what the percentage is. Just to be
clear, on the liar loans, our recommendation for that is we
don't touch them, that they be thrown out of the program. We
can't have any degree of certainty that these loans with
virtually no underwriting, the very worst of what got us into
the current crisis, and there can really be no taxpayer
protection.
Chair Maloney. In your first report, you recommended
against the expansion of TALF to this category, correct?
Mr. Barofsky. Yes.
Chair Maloney. And obviously Treasury has not responded or
reacted to that.
Can you explain your reasoning and comments? Why does
Treasury believe that it should be expanded to TALF? Have you
had any conversations? Can you shed some light on that
reasoning?
Mr. Barofsky. Our recommendation was that it not be
expanded unless it significantly reworked the program. And the
type of recommendations that we are making are a significant
reworking of the program. So if these recommendations are
adopted, we think that the taxpayer can be protected.
Chair Maloney. Can you elaborate just to clarify for our
colleagues and the public, TALF was not designated for this
purpose. Is this going to weaken the ability of TALF to fulfill
the purpose that it was put in place for? If this program needs
more subsidy, maybe it is better to give the subsidy instead of
endangering another program? Can you elaborate on that.
Mr. Barofsky. TALF, as originally envisioned, was a $200
billion facility to deal with certain classes of asset-backed
securities, including student loans. That hasn't changed. That
$200 billion as far as we have been informed by the Federal
Reserve and Treasury, this is in addition to. So it is not
pushing out the original intent of TALF. It is adding to it.
Chair Maloney. Will it hinder its ability to meet its
original purpose?
Mr. Barofsky. It shouldn't. As described, if that money is
still in place, it should exist alongside the expansion of the
program.
Chair Maloney. Do you believe the measures that you have
suggested to mitigate the risk will make this expansion an
effective and sound use of taxpayer money? Or do you think the
risk is too high and the benefit does not correspond to the
risk?
Mr. Barofsky. Whenever we make our recommendations, we
recognize the reality. The only way to ensure there is no fraud
in a government program is to not have a government program. We
deal with the hand that we are dealt. We try to make our
recommendations to protect these programs from fraud, waste and
abuse to the greatest degree we can, given what the programs
are.
It would be a very rare circumstance where we would come
out and say, ``You cannot do this program, it is too vulnerable
to fraud.'' I think with the right protections, we can be okay.
Chair Maloney. Thank you, and I yield 5 minutes to Mr.
Burgess.
Representative Burgess. Thank you. I appreciate the
recognition. Let me ask you a question, Mr. Barofsky. The
Secretary of the Treasury, Henry Paulson, and Federal Reserve
Chairman Ben Bernanke pressed some major banks to accepted the
TARP funds in October, 2008, even though these large banks,
neither wanted the TARP funds. Now some of the banks, notably
Goldman Sachs and J.P. Morgan Chase, want to return the funds
immediately, but the administration has talked about imposing a
national interest test to block well-capitalized banks from
returning TARP funds. In a fiscal year where Federal deficits
will exceed $1.8 trillion or 13 percent of the GDP, does
blocking well-capitalized banks from repaying the taxpayer
serve the public interest?
Mr. Barofsky. That is a policy based question that is
better asked to the Secretary of Treasury.
I will note that in the stimulus act, which changed the
rules regarding the ability of banks to repay or redeem their
preferred shares, it is in consultation with the regulators.
Ultimately, it is the regulators' decision as to whether to
approve or not approve, or at least it should be the
regulators' decision to approve or not approve the repayment of
funds.
But your more fundamental question is one that I am not
really qualified to answer.
Representative Burgess. I appreciate that, and I appreciate
your honesty.
Just intellectually, it seems as if the banks no longer
need the money, it would make sense to give it back or it would
make sense to allow them to do so. Can you speculate as to what
would be the moral hazard for not allowing them to repay the
money that they felt they no longer needed or didn't need in
the first place?
Mr. Barofsky. I think a lot of this gets--to use a phrase
that was used earlier during this hearing--a lot of spin. From
our perspective, we don't like to get into speculation and
addressing the motives without a full-fledged audit. We are
doing an audit. Part of our audit into Bank of America includes
looking at that fateful day in October when the nine financial
institutions were called to the Treasury and, as you say, that
they were basically told that they were going to be accepting
these infusions of capital. We will be able to provide more
detail through that audit.
Representative Burgess. Very well. Can we talk AIG for just
a minute?
Mr. Barofsky. Sure.
Representative Burgess. What can you share with us about
your findings so far through the audit as you have been through
it concerning potential overpayments made by AIG to its
counterparties?
Mr. Barofsky. Generally, I can share with you very little.
One of the tenets of an ongoing audit is that we, as a matter
of policy, we don't share information until the audit is
complete.
There are a number of reasons for this. One of the most
significant is we want to encourage an atmosphere of free
flowing of information with AIG and with the Federal Reserve
and with Treasury. If we start disclosing information as we go,
it can impact the actual audit itself. It is a long-standing
audit principle.
The one exception I have drawn on that is in the use of
funds, where we will be doing preliminary results even before
our audit is concluded. I have given some anecdotal answers
because it is such a vital and important issue to get that
information out because of its impact on our other
recommendations. But I have to ask for your indulgence to allow
us to finish that audit before we start giving results and
observations.
Representative Burgess. When can we expect to see the
completed results?
Mr. Barofsky. My current plan is that all of audits, our
six pending audits, will be completed by the summer. I am
hoping that it will be earlier in the summer than later. But
that is our goal for each of the audits, including the two AIG
audits.
Representative Burgess. So late June or early July when we
have this quarterly visit again?
Mr. Barofsky. I would say within the next 3 months. I am
hopeful to have some of these audits completed, if not all of
them.
Representative Burgess. Very well.
On the issue that the Senator from Minnesota brought up
about having the hotline and how critical that was. Last fall,
when we did not have any sort of infrastructure at all and we
would get those venting calls--I mean a lot of venting calls,
thousands of venting calls--it would have been great to have a
1-800-go-ask-Neil number to triage those. With your permission,
I may link to your Web site or put your number up on our Web
site as well, because I think you bring up a point that is so
critical.
A lot of that information is out there, and I was astounded
by the amount of information that came to me last October. And
not feeling I was the correct one for that information or
qualified to act on it, it was sometimes difficult for me to
find where that information should go. So I am very grateful
that you are on the job and doing what you are doing. Thank
you.
I yield back the balance of my time.
Chair Maloney. Mr. Hinchey is recognized for 5 minutes.
Representative Hinchey. I once again want to express my
appreciation to you. What you are doing is critically important
for the economic circumstances that this country is
confronting. We are very grateful for the competent way in
which you are doing this.
One of the things that you have done is to highlight the
lack of financial disclosure, the lack of information coming
out of this whole financial situation. As I was reading your
SIGTARP report that came out just recently, one of the things
that you talked about was the fact that you had checked in with
I think it was 364 recipients of the TARP funding and that you
had contact with them and you were asking questions and trying
to get information from them. And you were pressing for the
facts: How much money did you get? What did you do with it?
What were the effects of what you were doing?
I mean, this is public money, money owned by the people of
this country. And so that should be known. What you were doing
obviously is so important and you were doing it in such a
significant way.
But the Treasury comes back and says, no, it is not going
to be possible. We can't do that. That information cannot be
delivered.
But then, in the context of those 364 operations that you
looked into, you made a very interesting statement which is
that some banks were able to provide detailed, at times even
granular descriptions of how they used taxpayer money.
So if some banks can do it, why can't all of the banks do
it? I know that they all can, but I know also that they don't
want to for their own particular reasons, whatever they may be.
We can speculate what those reasons might be, and it would be
interesting to do so. But that is the situation that we are
confronting.
What do you think is going to happen as this moves forward?
Do you think you will be more successful to get that
information out through the Treasury and through the banks? Or
what is it that we should be doing to make sure that actually
happens?
Mr. Barofsky. We are going to keep trying and pressing. I
believe that logic for our arguments ultimately should win the
day.
Obviously, Congress has the ability and power to
statutorily requirement of this kind of information. You have
required me through the Special Inspector General Act, once it
is signed, required me to do this report. We got out in front
of it back in January, but part of that requires us to report
to you by September 1 on how the financial institutions have
used those funds. A similar type of requirement could be
imposed on Treasury.
Representative Hinchey. Good. I hope there is more success
as time moves on and there is much more openness.
Your report notes that since the SIGTARP's office has only
preliminary information, the recommendations are not
necessarily at a very high level. A few of the recommendations
you put forward are interesting and very important. I would
just like to mention them.
Here is what you are recommending: Treasury should place
strict conflict of interest rules upon the Public-Private
Investment Program and the managers of that program so that
investors in this program would not have the potential to
artificially inflate prices of the assets; Treasury should
mandate transparency which would ensure that taxpayers know how
their funds are being used and that such transparency would
identify conflicts of interest; stringent investor screening
procedures should be in place to prevent money laundering. All
of these things are so solid that you are recommending and so
critically important and so obvious that they should be done.
So you've noted that this program is particularly
vulnerable to fraud at many levels. Given the Treasury's track
record on instituting accountability provisions in its
contracts, what do you think the strategy should be to
encourage the Treasury to employ the recommendations listed in
the report in this program?
Mr. Barofsky. I am going to remain optimistic. I am an
optimist by nature, and I am going to remain optimistic.
Putting aside even my optimism, I think the consequences of
failing to adopt these recommendations are so great. I
communicated this to Treasury earlier this week.
We want these programs to work. As Special Inspector
General, it is vital to us that these programs work. The
dangers here are so bad, in our view, that if they are not
addressed it is not just a question of a little bit of fraud
here or there but it is putting into question the American
people's confidence in their government and the ability to get
us out of this financial situation. It puts into danger the
very recovery.
We think it is so fundamentally important that we are
optimistic that Treasury is going to recognize these dangers
and the potential consequences of failure to protect the
taxpayer money. We are hopeful that they will be implemented
and implemented in full.
Representative Hinchey. Mr. Barofsky, I thank you very much
for everything you are doing and for everything that you have
said and for the answers you have given to the questions here
today. Thank you.
Chair Maloney. Mr. Cummings for 5 minutes.
Representative Cummings. What do you see as the
consequences that you just talked about?
Mr. Barofsky. In the first place, we could be looking at
literally hundreds of billions of dollars lost to fraud of
taxpayer money. To me, as part of my mandate, that is front and
foremost.
But the danger of loss of confidence--if the American
people lose all confidence in their government and the ability
of the Treasury to engineer this bailout, so much of economic
recovery is based on confidence. When people start feeling good
about spending money, going out, and purchasing--it is a very
psychological concept, of course, a recession. If there is a
perception out there that all this program is is picking
winners and losers and rewarding at taxpayer expense and loss
of hundreds of billions of dollars to fraud, it is going to
have an impact beyond just the money that is lost. I think it
could damage the psyche of the American people. I think it is
critical that we make sure that the American people know that
we are protecting their investment, and that ultimately that is
going to lead to recovery.
Representative Cummings. First of all, I agree with every
syllable that you just said. Without going into the AIG
situation, you said everybody is cooperating with you, and I
assume that includes AIG?
Mr. Barofsky. Yes. I would say initially there was a little
bit of back and forth. But, as of this week, information is
flowing.
Representative Cummings. How long have you been looking
into them?
Mr. Barofsky. It has been a couple of weeks.
Representative Cummings. Okay. We have heard a lot of
discussion about the stress test for certain TARP recipients.
These tests are nearly completed. Do you think the results
should be made public and do you think the tests are
considering the right scenarios and asking the right questions?
Mr. Barofsky. I don't feel qualified to answer that
question because I haven't seen the results of the stress test.
We have many areas of expertise, but that type of regulatory
detail is not something that we have looked at. I think it is
something that we are going to look at. I think that is the
subject of a future audit once we have the right staff and
personnel in place to answer that question. But, at this time,
I think it is too early for us to be able to do so.
Representative Cummings. Quite a few institutions are
trying to pay money back, small and a few large. I know that a
lot of it, according to reports in the paper, it had to do with
compensation issues, but do you think any of it has to do with
you and your office? I'm just curious. I mean, looking into
things?
Mr. Barofsky. I think if there are financial institutions
that are out there that are afraid of us and worried about the
oversight that we are providing, I think that is a positive
development.
Any financial institution that is playing by the rules and
doing what they are supposed to do has absolutely nothing to
fear from our office. We are not on a witch hunt or looking to
make anybody look bad. But if they are not playing by the
rules, if they are stealing and committing fraud, and we are
inspiring them to get out of the program or not to get into the
program in the first place, I think that is why you created me,
to provide that level of deterrence.
Representative Cummings. Mr. Barofsky, you have the
American people looking in on this right now, and the people in
my district, many of them have lost their savings which they
are never going to get back. Never. They have lost their homes.
They have lost their jobs. They have lost all kinds of
opportunities, and I think that they are just looking for
somebody, just trying to make sure that somebody is watching
over all of this. Like you said, this public confidence thing
is major. I mean, what can you tell them with regard to your
office and how do you plan to deal with all of this?
It seems like you have a lot on your plate, a lot. They are
just looking for--as all of the polling shows, they trust the
President and they trust that he is going in the right
direction. But they also realize that trying to straighten out
this mess is like pushing a heavy boulder up a hill. And when
these kinds of things happen, that is some of the things you
most fear. It is like putting ice on that hill. So what can you
tell them now? And I only have 3 seconds left.
Mr. Barofsky. I hope I have more than 3 seconds.
Congressman I have spent the last 8 or 9 years of my life
as a Federal prosecutor before I came on board. Some of the
most heartbreaking work I ever did was when I was heading up
the mortgage fraud unit and seeing some of the pain that you
are describing of your constituents and what happens when
people are taken advantage of and they lose their homes, their
life savings.
I bring all those experiences to this job; and I have
assembled a staff that is just remarkably talented individuals.
From my chief of staff here, who was a former prosecutor, my
investigations division, my audit division, we have some of the
best and brightest and most talented people you can imagine. So
many of them making personal sacrifices, financial and
otherwise, just to join my office, the amount of money that
people have walked away from because they believe in this
mission of our office.
And what I can say to your constituents is that we are
here. The staff that I have together, my office, myself, we
take this role, we view it in an historical context. $3
trillion, never has so much money been pushed out in such a
short period of time.
And you, the Congress, have given us an enormous
responsibility; and it is one that we bear every single day.
And we are going to be looking out for the taxpayers without
regard to any political concern, economic concern for
ourselves. We have an important role, and we are going to
fulfill that role.
Representative Cummings. Thank you.
Chair Maloney. I want to thank my colleagues and
particularly want to thank you, Mr. Barofsky, for your public
service and for your testimony today. We certainly do
appreciate your very hard work in tracking the TARP program and
identifying waste, fraud, and abuse.
Clearly, we have a tremendous obligation to protect
taxpayers' funds. I appreciate your efforts in this area, and I
hope you will come back and speak to us again when your next
report comes out.
Thank you very much, and this meeting is adjourned.
[Whereupon, at 11:35 a.m., the committee was adjourned.]
Submissions for the Record
Prepared Statement of Representative Carolyn B. Maloney, Chair
Good morning. I want to welcome Mr. Barofsky, the Special Inspector
General for the Troubled Asset Relief Program, and to thank him and his
staff for his testimony today on the SIGTARP's new report to Congress,
just released Tuesday.
The SIGTARP reports to Congress quarterly, and this is its second
report. Like the first report, issued February 6, this report takes a
strong but clear position against the aspects of the TARP program that
the SIGTARP believes risk promoting fraud, waste and abuse. Mr.
Barofsky is a former prosecutor who does not shrink from telling it
like it is, so the interests of the SIGTARP's mission is to make the
best use possible of the taxpayers' money.
The SIGTARP's reports distinguish themselves by thorough but very
clear explanation of the TARP programs and the SIGTARP's audit and
investigations strategy, as well as specific recommendations on steps
Treasury should take to prevent waste, fraud and abuse in the program.
Regrettably, some of the key recommendations in this report
reiterate critical recommendations in the first report--recommendations
that would promote transparency and accountability and reduce the
potential for fraud and misappropriation, but which Treasury has yet to
adopt.
This second report is even more critical to our understanding than
the first, in part because the TARP has become such a complex series of
programs and in part because the dialogue between the SIGTARP and
Treasury on key issues is more advanced and is getting into some
specific issues that are of great interest to policy makers and to this
Committee.
As a proponent of greater transparency of the program, I requested
that the Federal Reserve release AIG counterparty information and the
disclosures were made last month. The SIGTARP is set to audit the
payments to the AIG counterparties and investigate why it was deemed
necessary to redeem those securities at full value. This is a key issue
that lies at the heart of the AIG rescue: why were the counterparties
made whole at the expense of the taxpayer? Shouldn't they have had to
share in the loss?
Similarly, the report repeats the recommendation of the first
report that Treasury must require TARP recipients to report the use to
which they put the TARP funds. This recommendation echoes the concerns
of legislation I have introduced that would require Treasury to track
the TARP funds, even using presently reported or public information.
Treasury has not adopted this very important recommendation, but the
work of the SIGTARP, including a survey they conducted of some 364 TARP
recipients, shows that additional information can be provided.
On a basic level, it's absolutely critical that we know where the
money has gone and how it's been used. Reports that banks getting TARP
money have used it to buy banks in China, highways in Spain, or even to
short the stock of their competitors to bring them down and gobble them
up--these emphasize the need for us to know where the money has gone.
Beyond that, we should be able to assess--looking at available data and
performance measurements--whether or not these funds have been used
effectively.
However, these lessons are not always reflected in the new proposed
programs. As this report notes, the PPIP has some inherent features
that make it vulnerable to conflicts of interest. The government would
be remiss in its duty if it were not to impose rigorous reporting and
disclosure requirements on those managers and investors. I am concerned
that Secretary Geithner, in testimony Tuesday, headed in the opposite
direction, saying that Treasury would exempt the PPIP participants from
the executive compensation requirements of the TARP statute.
The goals of transparency and accountability that guide the SIGTARP
inform this new report and its recommendations. It is crucial not only
to the success of the TARP but to the recovery of our financial system
and our economy that we pay close attention.
I look forward to the testimony.
__________
Prepared Statement of Kevin Brady, Senior House Republican
I am pleased to join in welcoming Inspector General Barofsky before
the committee this morning. His office is one of the most important and
effective guardians of the trillions of dollars taxpayers have at risk
in the massive bailouts of large financial institutions.
Unfortunately, as Kansas City Federal Reserve President Thomas
Hoenig testified earlier this week, these bailouts ``risk prolonging
the crisis, while increasing the cost.'' In this context, I found
Inspector General Barofsky's most recent report quite disturbing. Mr.
Barofsky, your report contains very troubling information that has not
been previously disclosed.
This report identifies many key weaknesses in the design and
implementation of the government bailouts that could greatly increase
their cost. For example, according to the report, the Treasury
Department has ``indicated that it will not adopt SIGTARP's
recommendations that all TARP recipients account for the use of TARP
funds; set up internal controls to comply with such accounting; and
report periodically to Treasury on the results, with appropriate sworn
certifications.'' The complexity and lack of transparency in TARP
programs is further reason for concern. The key question before the
committee this morning is why the Treasury Department continues to
resist adopting many of the safeguards recommended in your report.
Regarding the Public-Private Investment Program (PPIP) unveiled by
Secretary Geithner, your report notes, ``Many aspects of PPIP could
make it inherently vulnerable to fraud, waste, and abuse.''
Vulnerabilities include the huge size of the program along with
conflicts of interest, collusion, and money laundering. With regard to
money laundering, your report notes that it would be unacceptable if
TARP or related funds ``were used to leverage the profits of drug
cartels or organized crime groups.'' Unlike banks and retail brokers,
these partnerships are not currently subject to comparable disclosure
rules to prevent money-laundering and abuse. Furthermore, the report
demonstrates how interactions between two different bailout programs
could encourage excessive leverage and greatly magnify taxpayer losses.
With regard to another component of the bailouts administered by
the Fed, the report said, ``Treasury should require additional anti-
fraud and credit protection provisions specific to all MBS, before
participating in an expanded TALF, including minimum underwriting
standards and other fraud prevention measures.''
According to the latest estimates, the amount of losses from toxic
assets in the U.S. alone may be as high as $2.7 trillion. This clearly
is a huge potential liability for American taxpayers. Unfortunately,
the Treasury's financial rescue plan seems designed to marginalize
Congress and avoid the appropriations process. Nonetheless, Congress
should not finalize the 2009 budget resolution without considering the
tremendous costs of the ongoing bailouts.
Economic research shows that the national debt following this
financial crisis may increase by as much as $8.5 trillion in as little
as 3 years. This grim fiscal prospect should be an overriding
consideration as we consider budget priorities and proposals for yet
more spending. Congress should not go on an irresponsible spending
spree with trillions of dollars of bailouts already threatening the
taxpayers.
'
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Prepared Statement of Representative Michael Burgess
Thank you Madam Chairwoman,
I would like to thank Mr. Barofsky for his testimony here today and
for his important work as the Special Inspector General for the
Troubled Asset Relief Program. The role of oversight and investigation
may not be as glamorous as program implementation or funds management
but to the people I represent, it is probably more important than any
other aspect of the TARP. Your work is worth every penny that you
recover through your criminal investigations or deter through the
presence of your office. Not to mention, the prosecution of the
individuals or group who seek to corrupt the public trust.
The report your team compiled is a compelling argument to provide
you with more resources. Your recommendations to Treasury to require
all TARP recipients to report on their actual use of every dollar, and
auditing for verification, is an important first step in keeping the
TARP out of trouble.
There is no doubt that the economic downturn we are experiencing
makes government assistance programs like TARP susceptible to criminal
elements, but, based upon my reading of this report, the TARP program
has design flaws that make it an especially prime target. In your
report you say ``the character of the program makes it inherently
vulnerable to fraud, waste and abuse,'' including collusion and money
laundering. Taking advantage of any government program is despicable
but TARP abuse has the potential to send Americans reeling from a lack
of confidence in basic governmental protections.
Some of the weaknesses you expose in this report are certainly
shocking. It makes me wonder if the ``Troubled'' part of the Troubled
Asset Relief Program refers to the ``Program'' itself instead of the
``Assets.''
I look forward to hearing your testimony and your recommendations
for Congress. With that I yield back.