[Senate Hearing 111-72]
[From the U.S. Government Publishing Office]
S. Hrg. 111-72
TREASURY SECRETARY TIMOTHY F. GEITHNER
=======================================================================
HEARING
before the
CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
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APRIL 21, 2009
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Printed for the use of the Congressional Oversight Panel
TREASURY SECRETARY TIMOTHY F. GEITHNER
S. Hrg. 111-72
TREASURY SECRETARY TIMOTHY F. GEITHNER
=======================================================================
HEARING
before the
CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
APRIL 21, 2009
__________
Printed for the use of the Congressional Oversight Panel
----------
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Washington, DC 20402-0001
CONGRESSIONAL OVERSIGHT PANEL
Panel Members
Elizabeth Warren, Chair
Sen. John Sununu
Rep. Jeb Hensarling
Richard H. Neiman
Damon Silvers
C O N T E N T S
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Page
Opening Statement of Elizabeth Warren, Chair, Congressional
Oversight Panel................................................ 1
Statement of Hon. Jeb Hensarling, Member, Congressional Oversight
Panel.......................................................... 5
Statement of Damon Silvers, Deputy Chair, Congressional Oversight
Panel.......................................................... 6
Statement of Hon. John E. Sununu, Member, Congressional Oversight
Panel.......................................................... 11
Statement of Richard H. Neiman, Member, Congressional Oversight
Panel.......................................................... 12
Statement of Hon. Timothy F. Geithner, U.S. Secretary of the
Treasury....................................................... 16
TREASURY SECRETARY TIMOTHY F. GEITHNER
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TUESDAY, APRIL 21, 2009
U.S. Congress,
Congressional Oversight Panel,
Washington, DC.
The Panel met, pursuant to notice, at 10:05 a.m. in Room
SD-628, Dirksen Senate Office Building, Elizabeth Warren,
Chairman of the Panel, presiding.
Attendance: Elizabeth Warren [presiding], Timothy F.
Geithner, Jeb Hensarling, Richard H. Neiman, Damon Silvers, and
John E. Sununu.
OPENING STATEMENT OF ELIZABETH WARREN, CHAIR, CONGRESSIONAL
OVERSIGHT PANEL
The Chair: This hearing is now called to order.
Mr. Secretary, thank you for coming. We know your time is
valuable. And with the hope of setting an example, I am going
to be brief, short on formalities here.
I also will begin by apologizing for my voice and my
hacking. I am afraid I am not at the top of my game right now.
We have spent nearly six months, both at the direction of
Congress and by our appointments, reviewing the response of two
administrations to an unprecedented financial crisis. Today, we
have an opportunity to speak directly to the American people
about how their $590 billion has been invested in a financial
system, an investment that eventually must profit them and not
just people on Wall Street.
When the financial meltdown began, there was a strong sense
of fear and uncertainty among the American people, and who can
blame them? Every month since October more than half a million
jobs have been lost. The net worth of American families has
plummeted more than 20 percent in 18 months.
The sense of fear and uncertainty has not gone away, but it
has been joined by a new sense of anger and frustration. People
are angry that even if they have consistently paid their bills
on time and never missed a payment, their TARP-assisted banks
are unilaterally raising their interest rates or slashing their
credit lines.
People are angry that small businesses are threatened with
closure because they can't get financing from their TARP-
assisted banks. People are angry that when they read the
headlines of record foreclosures, even if they aren't
personally affected, they see their own property worth less,
and they see their communities declining as a result of the
foreclosures around them.
People are angry because they are paying for programs that
haven't been fully explained and have no apparent benefit for
their families or for the economy as a whole, but that seem to
leave enough cash in the system for lavish bonuses or golf
outings. None of this seems fair.
I appreciate your repeated statements about your commitment
to transparency and to accountability, and I appreciate the
important steps that you have taken in this direction, Mr.
Secretary. But we both know that more needs to be done. People
need to understand why you are making the choices that you are
making.
People want to see action described in terms that makes
sense to them. They want to see that taxpayer funds aren't
being used to shield financial institutions from the
consequences of their own behavior. They want to see that
money, taxpayer money, is used to advance the public interest
and not just the interests of Wall Street.
They also want to see that their Government is moving to
reform the regulatory system so that the economy will not veer
into the ditch again, to see reforms that will prevent the
financial system from taking huge and reckless risks with other
people's money in the quest for short-term profits.
In measuring progress, as well as in assessing the current
state of the economy and institutions, we shouldn't be afraid
of facts. There may be initial pain as the market reacts and
reprices, but the short-term pain is better than the problems
we face with ongoing uncertainty and mistrust.
In a crisis, transparency, accountability, and a coherent
plan with clear goals are essential to maintain the confidence
of the public and capital markets. Sophisticated metrics to
measure the success and failure of program initiatives is also
crucial.
One final note--Congress formed this panel in large part to
ask difficult questions and to provide an outside perspective.
We all share a strong desire to help the economy recover and to
protect taxpayers. I hope that the reports from this panel have
been useful to you and to your team at Treasury, and I
appreciate your offer to have your staff meet with our staff on
a weekly basis. I hope this is the beginning of an ongoing
dialogue between the two of us.
With trillions of dollars of taxpayer money at stake and
the fate of the American economy in the balance, we need to
work together to find the most effective strategies for
restoring confidence, stabilizing our economy, and restoring
prosperity for all Americans.
[The prepared statement of Ms. Warren follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Thank you for coming here today.
Congressman Hensarling.
STATEMENT OF HON. JEB HENSARLING, MEMBER, CONGRESSIONAL OVERSIGHT PANEL
Mr. Hensarling. Thank you, Madam Chair.
Mr. Secretary, welcome. We are very happy to see you here.
We note that this is the first appearance, I believe, of any
Treasury personnel, much less the Secretary, before the
Congressional Oversight Panel. We certainly hope it is not your
last.
I believe that this panel cannot effectively fulfill its
congressional role without having unfettered access to Treasury
personnel, having the receipt of prompt and accurate answers to
our queries, and ultimately to have yourself and senior members
of your team appear in public hearings as this.
And I hope, Mr. Secretary, that you feel that it is
commensurate with your duties under Section 2--Subsection 2(d)
of the act that provides for public accountability of your
actions under the TARP program. I fear that without this level
of access that the Congressional Oversight Panel could
potentially evolve into yet another congressional advisory
committee, unfortunately leaving the task of effective
oversight perhaps to others.
Now, as a member of Congress, I voted against the original
EESA, or as it has become known, the TARP bill. I respect those
who voted for it. I understand their reasons. I personally,
though, had a fear that we were looking at $700 billion in
search of a program. I was concerned that once bailouts began,
I am not sure how one bails out on the bailout program.
I was concerned that the program eventually may lead to the
Federal Government being able to control the behavior of those
who received the money and lead us to a partial nationalization
of key sectors of our financial services industry.
Finally, I was concerned that the program might create a
level of moral hazard that could create even greater economic
turmoil down the road. I fear that many of my fears may
actually prove well founded.
Nevertheless, TARP is the law of the land. And as a member
of Congress and as a member of this Congressional Oversight
Panel, I plan to do everything in my power to ensure that the
program meets its intended goals and that it has proper
oversight.
I look forward to your testimony in which I hope several
key areas will be touched upon. Number one is a greater
understanding by this panel and the general public of what the
overarching strategy is for the program.
The public and this panel have a right to know how Treasury
defines success and what the measurements of the success of the
various initiatives that you are undertaking under EESA are.
For many, it is difficult to discern success. For many, it is
difficult to discern cause and effect.
Next, the public has a right to know what is the approach
of Treasury with regard to assisting failing companies and
firms. Is there any firm that is beyond the reach for taxpayer
bailout assistance?
What started out as a program to shore up the financial
system has now been used to aid automakers, which leads to the
question ``who is next?'' The airline industry? The trucking
industry? At what point does Starbucks get in line for some
type of bailout?
Now besides being on the hook for $700 billion under EESA,
the taxpayer is facing an incredible amount of increased
liability, much of it outside of EESA. We have had a $1.13
trillion stimulus plan, costing the average American household
$9,810; a $410 billion omnibus plan, costing the average
American household $3,534.
Bloomberg has recently stated that the actions of Treasury,
combined with those of the Federal Reserve--I am sure you have
seen the reports, Mr. Secretary--that the total taxpayer
liability under various bailout, economic recovery initiatives
now totals $12.8 trillion, or over $110,000 per American
household.
Now I, for one, don't believe that the ultimate exposure
will be anywhere near that figure. But for those who maintain
that the taxpayer will actually make money on this deal, number
one, I hope you are right. And number two, as history is my
guide, I severely doubt it.
I believe that also, given that taxpayer protection is the
number-one item that you are to consider under your programs,
there are legitimate questions to be asked about press reports
that say a number of the TARP recipients are interested in
repaying the taxpayer, but apparently Treasury is not
interested in receiving that money.
In addition, there are serious concerns on whether or not
the funding is being used as, again, a road to partial
nationalization as preferred stock is converted to common
stock. And I hope, Mr. Secretary, that you will address these
issues in your testimony, since many people have not been
overly impressed with the management of AIG, much less Fannie
and Freddie.
Again, Mr. Secretary, we appreciate you being here. We know
these are tough times. We know that you are doing what you
think is best in the Nation's interest, and I look forward to
hearing your testimony.
And I yield back, Madam Chair.
The Chair. Thank you, Congressman.
Mr. Silvers.
STATEMENT OF DAMON SILVERS, DEPUTY CHAIR, CONGRESSIONAL
OVERSIGHT PANEL
Mr. Silvers. Thank you, Madam Chair.
Good morning, Mr. Secretary, and welcome. Like my fellow
panelists, I am very pleased that you are able to join us here
at the Congressional Oversight Panel. And as my colleague Jeb
Hensarling notes, this hearing does mark the first public
appearance of a Treasury official before our panel, and we are
honored by your presence.
I think every member of the panel recognizes the gigantic
task that faced the new team at Treasury upon their arrival in
January and the challenges that the transition represented to
you, Mr. Secretary, in terms of staffing changes, policy review
and formulation.
In that context, this hearing seems to come at the right
time. Our task this morning is to learn where Treasury thinks
we stand as a Nation in addressing the financial crisis and, in
particular, what Treasury's strategy is in relation to the job
of stabilizing our financial system and reviving the underlying
economy.
The Obama administration inherited from the Bush
administration a number of programs under the Emergency
Economic Stabilization Act of 2008, the EESA that Jeb referred
to, and you have announced a number of initiatives of your own.
We may not be able to cover every aspect of this effort today,
and we may also not have the opportunity to fully address the
administration's plans in the area of regulatory reform.
So let me just commend the administration's announced plans
for regulatory reform for their general direction and urge the
Treasury Department to make a close study of this panel's
regulatory reform report.
I would like to use what remains of my time to address
those areas where I think, Mr. Secretary, that your team and
the Obama administration has made significant progress and then
to summarize what I see as the fundamental strategic issue
facing the administration and the Nation. Then I hope to return
to this set of--the strategic issue in the question period.
First, the Treasury Department's commitment to address the
roots of the financial crisis and the fate of American families
facing home foreclosure is an extremely positive step. The
program could be more robust, particularly around principal
reduction. But the basic design is thoughtful. The commitment
to getting lender and servicer involvement is real, and the
percentage of income targets--the key number in any such
program--those targets are the right ones.
Mr. Secretary, you deserve real credit for your leadership
in this area, and I am happy to extend it, at least on my own
behalf, this morning.
Second, when you came into office, you told our panel you
were committed to greater transparency. I have been very
pleased to see that the Treasury Department has turned a corner
under your guidance. I understand that Treasury has produced
10,000 documents to the panel staff yesterday in response to a
letter sent to you on March 24, 2009, asking for materials
related to AIG.
This progress is certainly encouraging, and I hope it is
indicative of a change in the way that the Treasury Department
plans to handle future requests. In the past, our document
requests have sadly been answered by prolonged silence.
Hopefully, you can provide some reassurance today that those
days are over.
Third and finally, I view the stress tests and a variety of
the statements you and your colleagues have made as
acknowledgments that not all large banks are equally healthy.
This is a departure from the approach of the prior
administration, which tried to treat all large banks as though
they were in the same financial condition, resulting, according
to our February report, in a $78 billion taxpayer subsidy to
the banks in the course of the Capital Purchase Program and
SSFI transactions.
I commend you on that change. Candor is a good thing, and I
hope that the stress tests are conducted and the results made
public in a continuing spirit of candor.
However, now you and your team face a fundamental strategic
choice as to how to manage the problem of undercapitalized
large banks, the so-called ``zombie banks.'' I note that the
four largest banks in our system control more than 50 percent
of bank assets.
In our April report, we looked at the history of bank
crises in the United States and abroad. We found a pattern that
started with President Roosevelt and President Hoover's
Reconstruction Finance Corporation. Successful policy
approaches to bank crises across time and place seem to all
have three steps, and the order in which those steps are taken
is important.
Step one is to have bank management that can be trusted to
give an honest accounting of the state of bank balance sheets.
In this regard, it can be a problem to ask the people who made
the mess to tell you how big the mess is.
Step two is to get a realistic measure of the whole in bank
balance sheets. This can be done by marking to market, and it
also can be done by a hard valuation of expected cash flows by
experienced and independent financial professionals. It cannot
be done by asking the people who invested in the bad assets in
the first place to tell the Government what those assets are
worth.
Step three is to restructure bank finances--and
``restructure'' is the key word here--in the first instance, by
requiring investors, particularly stockholders, to bear the
losses. That is what capitalism is about.
Exactly who bears the losses and in what proportion must be
determined carefully, balancing systemic risk considerations
with taxpayer protection. Only then and only if necessary
should public funds be involved.
And finally, with public money has to come a proportionate
upside for the public. It is the only way to keep the cost to
the taxpayer my colleague Congressman Hensarling was talking
about--it is the only way to keep that cost at the end of the
day at a bearable level.
I hope in this hearing we can compare this how-to manual
that history provides us with the Treasury Department's
thinking and its announced programs. And in conclusion, let me
express my gratitude to you, Mr. Secretary, for joining us and
my sympathy to you for taking on, on all of our behalf, the
giant challenge of repairing the damage a mistaken deregulatory
philosophy has done to our financial system, our economy, and,
most of all, to America's working families.
[The prepared statement of Mr. Silvers follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Thank you, Mr. Silvers.
Senator Sununu.
STATEMENT OF HON. JOHN E. SUNUNU, MEMBER, CONGRESSIONAL
OVERSIGHT PANEL
Senator Sununu. Thank you, Madam Chair.
Thank you, Secretary Geithner, for being here today.
And without question, your attendance here is extremely
important, but it is also extremely valuable. I think you
understand that, but it is worth emphasizing because it is fair
to say there has been some reluctance on the part of the
Treasury staff to appear or to schedule a hearing in public
with the oversight panel.
I think the value is that this is the best possible forum
for you to describe the characteristics, the proposals, the
ideas behind each of the different programs created under the
TARP. And of course, it is the best possible way for the
oversight panel to get clear and accurate information that we
will act on in preparing our monthly oversight reports.
I view our role as looking carefully at the structure of
the different TARP programs, their operation, and their
performance. Some of these programs are relatively
straightforward. Some of them are very complex. But our job is
to look hard at those details, present them clearly to Congress
and to the public, and the importance of that role is twofold.
First, we want good information in the hands of the public
because their confidence in the operation of the programs,
their confidence in Treasury and in the Government and being
able to deal with the current financial crisis is going to
depend on the clarity of that information and, of course, the
way they interpret that information.
And then, second, the information that is provided by the
panel and that is provided by the Treasury with regard to the
structure and performance and operation of these programs is
going to affect the way markets behave. Markets will react and
respond based on whether they think these programs are well
designed, effective, and whether they think the burden and the
cost of the program is being shared fairly, as Damon Silvers
just described.
And unless that information is provided to the public, our
markets won't strengthen. They won't operate efficiently.
Credit won't be available to the families and small businesses
that we want to see it made available.
So I think that is a central role of the panel. I think it
serves the interest of Treasury, and I think it should be
easier to establish this kind of a forum.
It is also particularly important because, in my opinion,
over the last few weeks, as Treasury has put out various
statements regarding the different programs, you have left more
questions unanswered than answered. On the stress tests, it is
unclear what the motivation is behind making information
public, what information is going to be made public, and how
does Treasury expect both the general public and the markets to
react to that.
On the TALF program, why is it that participation in the
TALF wasn't as great as Treasury expected? On the new capital
access program, under what conditions is Treasury and the
Government going to ask for conversion into common stock? What
would be the criteria? Will there be objective criteria, or
will they be subjective criteria?
And along that same vein, on the prepayment issue that
Congressman Hensarling brought up, are we going to operate
under the existing term sheets and conditions under which banks
originally received funding through the CPP, or is Treasury now
going to come up with a new list of subjective criteria that
banks have to meet in order to be allowed to repay taxpayer
funds?
Those are significant questions in that they create
uncertainty in the mind of the public, and they also create a
good deal of uncertainty in the marketplace. And the
marketplace won't operate efficiently, the financial markets
won't operate effectively for consumers or small businesses and
the other credit services we need unless they feel they are
getting good, clear, consistent information not just from
Treasury, but from Congress as well.
We need more of this interaction, not less. I think it is
in your interest. I think it will help the panel to do a better
job, and I look forward to both your testimony and the
questions today.
Thank you, Madam Chair.
The Chair. Thank you, Senator.
Mr. Neiman.
STATEMENT OF RICHARD H. NEIMAN, MEMBER, CONGRESSIONAL OVERSIGHT
PANEL
Mr. Neiman. Thank you.
Good morning, Mr. Secretary. And I am also very pleased
that you are here today with us to share your perspective.
This is a unique opportunity not just for our panel, but
for the American people watching us today. I believe it is
critically important for us to have this dialogue now, early in
your term, to facilitate our working relationship going forward
and to inform the American public about your efforts.
Speaker Nancy Pelosi asked me to serve on this panel in
part to be a voice for the States and their residents. I am
also, as you know, the New York State superintendent of banks,
and in that capacity, I feel my job is about more than just
overseeing banks. It is also about helping people in financial
distress.
Under New York Governor David Patterson, we have taken
aggressive actions at the State level in response to the
crisis, from borrower outreach and increased enforcement to one
of the most comprehensive legislative actions regarding
mortgage reform in the country. But the fact is that States
cannot bring an end to the foreclosure crisis or get us out of
this recession without a Federal partner.
However, people across the country aren't sure if the
Treasury efforts are working, which makes your job even harder
at the Federal level. I hope to use this hearing to ask you
some tough questions, but to also give you a chance to
demonstrate that Treasury's plan can work.
You may be aware that I placed a blog post on a prominent
Web site yesterday that asked people to submit questions to
you. I placed it on the Huffington Post because that blog
reaches over 10 million readers per month, thus representing a
good, but imperfect cross-section of American opinion.
Literally, within hours of the posting, there were hundreds
of responses that expressed deep concerns and even skepticism
about the program, many accompanied by deeply personal stories.
I read these questions on the train ride down to Washington
last night, and it made me think a lot. It gave me a better
sense of people's views, but it also made me really wonder why
aren't people seeing progress in the Treasury's plan?
Perhaps it is because it is hard to see results in 1, 2, or
3 months. But perhaps it is because things are not working out
as well as we would like.
So it seems to me that what is needed is a better system
for measuring success that Treasury could provide to inform the
American taxpayer. For instance, how should we measure whether
the financial system is stabilizing? Should we be looking at
credit default spreads or tangible capital ratios or some other
metrics? How will we know that we are making progress?
How do we measure if the program has increased the amount
of bank lending to consumers, to small businesses, to
corporations? What is the impact of the decline in borrower
demand versus a tightening of underwriting standards by banks?
Mr. Secretary, does Treasury have its own metrics for
determining success in reaching its goals? And if so, can they
be shared with the American public and be posted on your Web
site so that all citizens can see how your plan is measuring
up?
My worry is that if you do not, one of the most common
questions I encounter when I hear from people about your plan
will remain unanswered. One person put it quite bluntly on the
blog, stating, ``When are those banks going to stop sitting on
all that money and start lending again?''
That question is undoubtedly a common question. And yet the
recent snapshots from Treasury shows banks are making progress
and attempting to be responsive in meeting credit needs.
However, additional information is clearly needed to get to the
bottom of this.
Metrics would help, and our panel will be issuing a report
on this question in May that will specifically look at credit
availability and small business and consumer lending, including
your programs to restart the securitization market.
It is my personal view that although disagreement exists
among some very smart people in this country, including Nobel
Prize winners on both sides of the issues, you have a plan that
can work. But it can only work with the support of the American
people. And to support it, people need to understand it, and
they need to feel that they can adequately judge it.
So I see this hearing as an important contribution to an
inclusive process, and my questions today will reflect comments
and concerns that I have received from a broad range of
Americans. I hope today is only the beginning of a more
collaborative relationship, and I look forward to your remarks.
Thank you very much.
[The prepared statement of Mr. Neiman follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Thank you, Mr. Neiman.
Secretary Geithner, we will enter your formal testimony in
the record, of course, but we encourage or welcome your oral
remarks. If you could hold them to 5 minutes so that we could
go to the questioning, I would appreciate it.
STATEMENT OF HON. TIMOTHY F. GEITHNER, U.S. SECRETARY OF THE
TREASURY
Secretary Geithner. Thank you, Chairwoman Warren,
Representative Hensarling, members Neiman and Silvers, and
Senator Sununu, for the chance to come before you today.
Those were very thoughtful opening statements, very
sensible questions and concerns, and I look forward to the
chance to begin to address those as we continue a process of
dialogue and engagement.
And I want to start by applauding the work of the panel to
date. These are very complicated questions. You have done a
very nice job in helping to frame the most important questions
for the American people. I respect and admire what you have
done, what you are trying to do, and it is a very important
part of the framework of oversight that Congress set up to
monitor use of these programs.
The United States and the world economy are still in the
midst of a very severe financial crisis, the worst in
generations. And as you know, no crisis like this has a single
or simple cause. But to state it simply, countries around the
world borrowed too much, and allowed the financial system to
take on irresponsible levels of risk.
And as in any crisis, the damage has been brutally
indiscriminate, causing damage on Main Streets across the
Nation. Ordinary Americans and small businesses who did the
right thing, who played by the rules, who were prudent and
careful in their financial decisions, are suffering from the
actions of those who took on too much debt, took on too much
risk.
I want to outline today the steps taken by this
administration to restore the flow of credit, to help get our
economy back on track. And I want to start by just saying at
the time the administration took office, there had already been
very substantial actions by the Government, using the authority
provided by the Congress, to help stabilize the financial
system.
And those actions were critical, and they were very
effective in helping avert a systemic financial crisis. But the
very sharp decline in growth, both here and around the world,
that continued over the fourth quarter of last year was placing
additional pressure, acute pressure on the financial system, on
banks in this country and countries around the world.
Issuance of securities, which had been a principal source
of credit to the economy as a whole, had fallen to virtually
nothing. Lending terms and conditions were tightening. The cost
of many forms of credit remained extremely high. Banks were
unable to raise equity.
Now that was the situation when we came into office. And
leaving that situation, that challenge, unaddressed would have
risked, in our judgment, a deeper recession, more damage to the
productive capacity of the American economy. It would have
resulted in higher unemployment, more business failures,
greater damage to our future growth and productivity, and, as a
result, higher long-term budget deficits.
Without action to strengthen the capacity of the financial
system to provide credit, the substantial spending and tax
incentives in the American Reinvestment and Recovery Act would
have been less effective, far less effective.
Now, in response to these challenges, we outlined a broad
new strategy to repair the financial system and strengthen its
capacity to support recovery. We started with a series of
reforms to improve transparency, accountability, and oversight.
We published the detailed terms of financial assistance
provided to individual banks. We put in place new protections
for determining eligibility for assistance. We required
financial institutions to report monthly on details about what
is happening to lending activity.
We outlined new conditions on assistance to protect the
taxpayer, and the President outlined a set of broad reforms to
compensation practices to help ensure that taxpayer assistance
was used to support lending rather than excessive compensation
for executives.
Alongside these reforms, we launched a program of
initiatives to address four challenges that were at the heart
of this financial crisis, and I want to review briefly each of
those challenges and our response to those challenges.
First, falling home prices and rising unemployment were
making it difficult--are still making it difficult for many
responsible borrowers to meet their mortgage payments and stay
in their homes. Rising foreclosures risk contributing to
further declines in house prices, a further pullback in credit,
and further job losses.
So, in response, this administration established a program
we call the Making Home Affordable Program to help keep
mortgage interest rates low, to help responsible homeowners
refinance into affordable mortgages, and to modify at-risk
loans in order to help millions of Americans lower their
monthly mortgage payments and stay in their homes.
Second, concern about future losses has led many banks to
pull back on lending. So, in response, we outlined a new
program to ensure that the Nation's major banks have a
sufficient buffer of capital to provide credit for recovery.
As part of this effort, the Federal banking agencies, led
by the Fed, are completing a forward-looking assessment of the
capital needs of the 19 largest banks in the country to
determine which banks may need to raise additional capital.
Those banks that need more capital will have an opportunity
to raise that capital from the private markets or to request
capital from the Treasury in the form of a convertible
preferred security. It is important to recognize a dollar of
capital generates between $8 and $12 of lending capacity.
Third, the breakdown of key markets for new securities has
constrained the ability of even credit-worthy small borrowers--
businesses, families--to get the loans they need. Securities
markets in our financial system typically account for 40 to 50
percent of the credit provided to the economy, and the crisis
caused issuance of new securities to grind to a halt.
So, as a complement to our program to bring more capital
into banks, we launched the Consumer and Business Lending
Initiative, which expanded dramatically a program with the
Federal Reserve called the Term Asset-Backed Securities Loan
Facility. And these programs, as you know, provide financing to
help catalyze issuance of securities backed by student loans,
credit cards, small business loans, auto loans, corporate and
commercial real estate loans.
Treasury has also put in place a program to provide direct
support to small business loans through SBA supported programs.
And these programs have had some effect--I will come to this at
the end--in helping to promote new flows of credit through the
issuance of securities and to help reduce rates in those
markets.
The Chair. Mr. Secretary, could I ask you just to wrap up?
Secretary Geithner. Yes, but this is very important for me
to do.
The Chair. Of course, it is.
Secretary Geithner. Because you have asked me to lay out
our broad strategy and progress, and this is my first chance to
do it. I will take just a few more minutes, but I will leave
time for questions.
The fourth key challenge we addressed in our program was
the challenge reflected in the fact that a range of legacy
assets--these are mostly real estate-related loans made during
the height of the boom--remain on the books of major banks,
limiting their ability to extend credit and to raise new
equity.
So, in response, the administration created an innovative
new program to provide a market for those assets. Under this
program, private investors, such as pension fund managers, will
compete for the right to access capital from the Treasury and
financing from the Federal Reserve and the FDIC to purchase
these real estate-related loans and securities.
Private investors will set the purchase price, protecting
the Government from the risk of paying too much. The Government
will share in the returns on those investments. Professionals
will manage the assets, and together, this will help reduce the
risk of loss to the taxpayer over time.
Now these four programs are critical. They are designed to
work together. Each will reinforce the effectiveness of the
other. We may have to adapt and expand them over time, but they
represent the foundation of any credible strategy to help
ensure that this financial system is working for rather than
against recovery.
Now, Chairman, I was going to summarize briefly our
priorities on regulatory reform. I am going to leave that for a
subsequent discussion. But I want to conclude by talking about
some of the measurements of effectiveness of these programs.
The Chair. Mr. Secretary, I appreciate how many pages you
are turning there. But if we could wrap up, I know we want some
questions, too?
Secretary Geithner. So let me just conclude with a few
observations on the impact of these programs on the
availability and cost of credit. These are the most important
measures of the state of the system, and to date, frankly, the
evidence is mixed.
Now it is important to note that evaluating the impact of
these programs is difficult because it is impossible to judge
how the financial markets, how banks would have operated in the
absence of these actions. In normal recessions, demand for
credit falls. In recessions that follow long periods of
substantial borrowing, demand for credit falls more sharply.
This is such a moment.
There is no past experience that provides a good guide as
to what one could have expected to have occurred in our
financial markets absent the policy actions that have taken
place already. Indicators on interbank lending, on corporate
issuance, and credit spreads suggest some improvement in
confidence in both the stability of the system and some thawing
in credit markets over the last several weeks and months.
Just to cite a few examples. The 3-month LIBOR-OIS spread,
which is an indicator of the cost of unsecured lending or
borrowing among banks, has fallen to about 90 basis points from
a peak of about 365 in October. Nonfinancial corporate bond
issuance was up sharply in the first quarter of 2009 after
falling sharply at the end--in the second half of 2008.
Issuance of asset-backed securities rose in March after
grinding to a halt in October and November, but it still
remains at about half the level that occurred in the first half
of 2008.
Despite these improvements, and these are material
improvements, the cost of credit is still very high. Reports on
bank lending show significant declines in lendings for consumer
loans, for commercial and industrial loans, although mortgage
refinancings have picked up considerably.
Now we are looking carefully at how to improve measurement,
as you are, of what is happening in credit markets and tie
those directly to the impact of these programs, and we look
forward to working with you on how to do that.
And I just want to end by saying that our central
objective, our obligation, is to ensure that the financial
system is stable and it is able to provide the credit necessary
for economic recovery. But stability itself is not enough. We
need a financial system that is not deepening or lengthening
the recession. And once the conditions for recovery are in
place, we need a financial system that is able to provide
credit on a scale that a growing economy requires.
Meeting this obligation requires actions by the Government.
It requires the Government to take risks. The lesson of
financial crises throughout history is that early action,
forceful action, sustained action to repair financial systems
to promote the flow of credit is essential to limit the damage
recessions cause and to make it possible to bring recovery
about at least cost to the taxpayer over time.
Now we need a financial system to support sustainable
economic growth, and we need to put in place a comprehensive
set of regulatory reforms to deter fraud and abuse, to protect
American families when they buy a home or get a credit card, to
reward innovation and tie pay to performance, and to end these
past cycles of boom and bust. This is our commitment, and we
have a lot to do.
Thank you for having me here, and I look forward to our
conversation this morning.
[The prepared statement of Secretary Geithner follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Good. Thank you, Mr. Secretary.
Mr. Secretary, I am going to start the questions this
morning with accountability, a theme that this panel has talked
about repeatedly, and clarity in government policy. So here is
the question I want to start with.
The auto industry has received taxpayer money, but it has
been linked to changes in management, changes in business
practices, breaking labor contracts, and causing bondholders to
take losses at a minimum. The banks have received 10 times more
money than the auto industry, and yet they seem to be receiving
very different treatment.
So the question I have is why the different treatment, and
in particular, do you think that the banks are better managed
than the auto companies were?
Secretary Geithner. A very important question and
reasonable question. Let me say a few things in response.
First of all, everything we are trying to do to get the
financial system working again is important to the success of
the restructuring and rehabilitation of our automobile
industry. It is true for the economy as a whole and the
industry of the United States, without a financial system that
is working to provide credit, you are going to see much more
damage, much more challenge, much greater head winds for
businesses across the country.
Second basic point: If you step back, you know, we are five
quarters into this recession, and we are at least that long
into a very substantial, dramatic adjustment we saw following
this unprecedented financial boom. So there has been very, very
dramatic restructuring already across the financial system.
If you just look at the largest institutions in the world
that existed 2 years ago and look at how many exist today,
there has been a very dramatic restructuring.
Third point, as your colleague said at the beginning, in
assessing what was necessary going forward to solve the
problems that we inherited, we made it clear that where we are
going to provide capital in the future, we want to target it to
where it is necessary. We want to do it on a differentiated
basis. We want to do it with conditions--not unconditionally,
but with conditions not just to help protect the taxpayer, but
to try to help ensure that the system emerges stronger, not
weaker.
That is a very important principle. And we have said, the
President has said publicly, that where we provide exceptional
assistance, because that is necessary to make sure there is
capital in the system, it will come with conditions to make
sure there is restructuring, accountability, to make sure these
firms emerge stronger in the future.
Now----
The Chair. So let me just make sure I am understanding you
to this point. I just want to be sure that I am following here.
Secretary Geithner. Sure.
The Chair. Are you saying that the difference in treatment
between how the banks were treated and how the auto industry
has been treated is effectively one of timing and that, going
forward, the banks will be treated with the same kind of
accountability at a minimum that has been demanded from the
auto industry?
Secretary Geithner. Well, I am trying to be candid. They
are different challenges. They require different solutions. But
there is less difference than your question suggests.
Just to cite a couple of examples, if you look at where the
Government had to act early in substantial force, in some of
the largest and weakest parts of the system, in that context--
both in the context of Fannie and Freddie and in the context of
AIG--we were very clear that the conditions in that context
came with changes in board and management for exactly the
reasons you said.
Now there has also been----
The Chair. I am sorry. I just want to make sure I am
following. You are saying that there have been changes in
management at financial institutions----
Secretary Geithner. Where the Government acted--absolutely.
The Chair [continuing]. That have received TARP funds?
Secretary Geithner. Well, as I said, in the context of the
interventions taken in Fannie and Freddie and AIG, just to cite
three examples----
The Chair. I am asking about the financial institutions.
Secretary Geithner. Well, those are financial institutions.
The Chair. I am asking about the banks.
Secretary Geithner. But the principle is important in this
case. And as I said, the President has said this publicly. I
have said it publicly. Going forward, where institutions need
exceptional levels of assistance, we will make sure that
assistance comes with conditions that provide for the necessary
degree of accountability to help ensure these firms emerge
stronger rather than weaker. And that is an important
principle. We are committed to do it.
Now what is necessary in each specific case is a judgment
we are going to have to make, but I think that is a very
important principle. It is at the core of our program.
The Chair. Good. Thank you, Mr. Secretary.
I have a second question on accountability. In the last few
weeks, banks have been announcing--a few banks--that they have
quarterly profits. But there has also been a renewed
acceleration of home mortgage foreclosures and new examples of
raising fees on customers who have met all of their contract
terms and raising interest rates, even for consumers paying on
time.
So I want to ask, do you think that banks receiving TARP
funds should be engaging in these practices?
Secretary Geithner. I just wanted to underscore our
commitment, the administration's commitment to doing everything
we can to help mitigate the damage homeowners are facing across
the country.
The Chair. I understand.
Secretary Geithner. Now if you look at the programs we have
put in place, they are very comprehensive, very aggressive,
very dramatic programs to make sure that people are getting
relief where they need it. And just to point out how powerful
these are already, if you look at the programs we have put in
place they have made it possible for already hundreds of
thousands of Americans to refinance and take advantage of lower
interest rates. That is a core part of our program now.
And you are right that we are also moving quickly to put in
place these programs to help prevent foreclosures, and allow
modifications. And we are making a lot of progress in that
area.
As a condition for Government assistance, banks have to
agree to participate in these loan modification programs, and
we are going to make sure that they are doing so and that the
American people are going to see data on performance, on
modifications, and have a better chance to judge for themselves
what is happening on the modification front.
The Chair. Good. I will return to the question about
changing interest rates, but my time is up.
Congressman Hensarling.
Mr. Hensarling. Thank you, Madam Chair.
Mr. Secretary, as you can tell, all members of this panel
very much welcome your appearance here today. So let me ask you
first a process question since, again, this is the first time
we have had a member of Treasury appear before us in almost six
months of existence.
If this panel chose to have a monthly oversight hearing,
would you make either yourself available or I believe Mr.
Allison is up for confirmation to head, I believe, the Office
of Financial Stability? Would either--assuming he is confirmed,
would you make yourself or him available for such?
Secretary Geithner. Congressman, I want to--let me say it
this way, okay, and you can hold me to this. I believe in the
importance of transparency, accountability, oversight. I think
it is critical to our credibility, I respect what you are doing
in this context.
I will commit to make sure that we have as effective a
working relationship as possible so that you have the
information you need and an intensity of interaction with us to
help you do your jobs. That is in our interest because if you
can't understand what we are trying to do and have a chance to
assess it, then it is going to be harder for us to do what we
want to do, just as you said at the beginning.
Now we have made it clear we are willing to meet weekly
with the panel and the panel's staff, and I am prepared to
examine any proposal, consider any proposal to have more formal
meetings like this on a more frequent basis. But what I would
like to do is when I have a confirmed team in place of senior
officials at the Treasury, come back and we can work out
something we can commit to, and adhere to.
What I don't want to do is commit to a frequency of
interaction at the senior level that I am not going to be able
to live up to because, as you know, we are doing a lot of
things, have a lot to do. But if you give me a chance, once we
have a confirmed team in place, I will----
Mr. Hensarling. I appreciate that, Mr. Secretary. Do we at
least have a commitment that this will not be your last
appearance before this panel?
Secretary Geithner. Yes.
Mr. Hensarling. Thank you. Thank you, Mr. Secretary.
In today's Wall Street Journal--you frequently appear in
the Wall Street Journal--it doesn't have a quote from you, but
it characterizes something you said as ``Treasury Secretary
Timothy Geithner indicated that the health of individual banks
won't be the sole criterion for whether financial firms will be
allowed to repay bailout funds.''
Again, if there are firms that wish to repay taxpayers
their money, if the taxpayer money is at risk, if their
relevant regulator certifies that commensurate with safety and
soundness of the financial institution, they can return that
capital, if this is an accurate assessment of your position,
why wouldn't you take the money back?
Secretary Geithner. In those conditions, we would welcome
it. It would be very helpful, help differentiate, help show
progress. It helps underscore the basic point that the
institutions of our financial system are in very different
circumstances.
But I just want to underscore what is really important. And
I said this at the end of my testimony, but I want to
underscore it again. My basic obligation and our responsibility
is to make sure that the system as a whole, as a whole, has the
ability to provide the credit that recovery requires. And so,
we need to make a careful judgment about what policies are
going to best promote that objective.
Under the laws and conditions established in the Recovery
Act, the judgment about when institutions can repay is a
judgment that the Federal banking agencies have to make, and
they are in the process of looking now at what set of standards
and principles should guide repayment.
Ultimately, though, we have to look at two things. One is
do the institutions themselves have enough capital to be able
to lend, and does the system as a whole, is it working for the
American people for recovery? And that is the standard we are
going to look at.
But, of course, nothing would make me happier than for
that----
Mr. Hensarling. I am sorry, Mr. Secretary. My time is
limited at the moment. But just to understand then, there will
be other considerations besides the individual institution's
financial stability? I am a little confused on what----
Secretary Geithner. Well, I am not sure I would say it that
way, and as I said, this is a judgment that I don't make. It is
a judgment that the Federal banking agencies make under the
conditions that were established in the Recovery Act. And they
are in the process now, the Fed and the other agencies, are in
the process of working through how to make these judgments.
But again, the critical thing we care about is whether the
system as a whole is in a position where it has the capacity to
support the credit the recovery requires. That is the ultimate
test.
Mr. Hensarling. Mr. Secretary, my time is running short
here. One more question, and that is there is great concern
among many on an apparent plan to convert the preferred stock
positions in many of the financial institutions to common
stock, thus having essentially converting Uncle Sam into a
control shareholder of many of our largest financial
institutions.
Is that the plan, and why?
Secretary Geithner. That risk worries me, too. So let me
just say a few things about what our objectives are.
Again, what we want to make sure is that there is the
capital the system requires and that it is targeted to where it
is needed. So the process we put in place that the Fed is
running now to do an assessment of capital needs in a
potentially deeper recession is designed to make sure that
there is more clarity, more transparency on bank balance
sheets, that those institutions that may need additional
capital are identified. They have the opportunity to raise
that.
Now they will have a variety of different ways where they
can raise that capital. They will have the choice to raise it
in the market. They will have the choice to do a range of
conversions, or they will have the choice to take it from the
Government. And they will be examining those options in
cooperation with their Federal regulator over the next few
weeks.
The Chair. Thank you, Mr. Secretary.
Thank you, Congressman.
Mr. Silvers.
Mr. Silvers. Mr. Secretary, we have spent a fair amount of
time this morning on the question of the banks and what happens
after the stress tests and capital. This panel's statutory
mandate, as I think has been referenced by a number of my
fellow panelists, is to oversee the effectiveness of the--in
part is to oversee the effectiveness of the program from the
standpoint of minimizing long-term cost to the taxpayers and
maximizing the benefits for the taxpayers. And I am quoting
from the statute.
Now we have a case study, a precedent under the act for
dealing with a sick bank, and that precedent is Citigroup.
Citigroup has come to the Treasury for additional funding in
circumstances that I think everyone recognized as dire in
November. As a result of that second funding, plus its initial
funding under the Capital Purchase Program, if you look at
Citigroup's capital structure on a mark-to-market basis, the
cash we have put in is the majority of the capital of Citigroup
today.
Some would say that we have crossed the nationalization
line already, and this chart represents that. This chart
underestimates--this puts it nicely. This chart underestimates
the extent of public investment in Citigroup and public funds
at risk because it doesn't account for an asset guarantee of
$300 billion, of which $270 billion is Government money.
If you put that in there--it is hard to price. If you put
that in there, it would shift things very dramatically.
Now in contrast to capital at risk, public money at risk in
Citigroup, the upside that we have today in Citigroup--and this
is all, of course, as a result of transactions before January
20th. The upside in Citigroup is 7.6 percent, according to our
staff.
And again, this underestimates the degree of disparity
because the warrants that we have in Citigroup are not priced
at the current common stock price. So the price of Citigroup
could go up 400 percent, and a lot of our warrants wouldn't
kick in at all yet.
And as it has been mentioned before in this conversation,
we have the downside of ownership. We have a tiny bit of the
upside of ownership, and we have none of the control of
ownership.
Now, obviously, there are going to be some changes here.
They haven't happened today, but there are going to be some
changes. Those changes seem to point in two different
directions at once. They would appear to increase the upside
from the current 7.6 percent, according to Citigroup's Web
site, to about 35 percent. Still not commensurate with the
risk.
But on the other hand, they would give away our senior
position, as we move from preferred to common. Unlike, for
example, Warren Buffett, who holds his senior position as
preferred and takes his upside as warrants.
Now, Mr. Secretary, my question to you about this is do you
believe this is the right way to go? Is this the model for what
we are going to do for the next sick bank? And secondly, what
are we going to do about this, all right? Is this the
appropriate way to treat the taxpayer?
And I recognize that in certain respects you are making
changes, and I would hope you would address those in that
context.
Secretary Geithner. Mr. Silvers, I am not sure this is
going to satisfy you, but I want to just say a couple of
things.
It is very difficult for me to talk about any individual
institution ever, given my responsibilities for the system, and
I think you understand that. And as you said, you are
describing a state of play that existed on January 20th, I
believe.
Mr. Silvers. Well, Mr. Secretary, it exists today as a
legal matter. This is the state of affairs today.
Secretary Geithner. It does. But as you said, it is in the
process of changing. So I guess I want to step back a little
bit and make some broader points. But of course, you will have
a chance to judge us by what we do going forward, and this is
one way to evaluate the tradeoffs and judgments we are making.
But let me just underscore one important point. We are not
a private investor. We are the Government of the United States.
When we act to provide assistance for banks, we don't do it for
the benefit of those banks.
The cost benefit returns to the American economy you cannot
evaluate by looking at the narrow financial terms of that
particular transaction. You have to look at the action through
the prism of what motivates it, which is how to make sure we
have a financial system that is stable, able to lend, and
support recovery.
And that is important because, as you know and as you said
nicely in your opening statement, that is sort of an essential
precondition for limiting damage for recession and recovery.
Now, just because you can't look at the economic case for
how taxpayer dollars are being used and structure the
conditions through the narrow prism in which the transaction
itself occupies. You have to look at the transaction in the
context of the broader benefit it creates relative to the
alternatives. And this is true for any action we take.
Mr. Silvers. Mr. Secretary, I have 10 seconds. How does
protecting Citi's common shareholders at the expense of
taxpayers benefit our economy?
Secretary Geithner. Well, let me do it in a slightly
different way again. But it requires us to go back a little
bit. If you look at the last 4 months of 2008, you can see
catastrophic damage caused by judgments about the level of
failure you can tolerate throughout a financial system. And as
I said, the damage caused by those actions and judgments were
brutal, indiscriminate, and catastrophic.
They affected--as you said, Chair Warren, at the beginning
of the hearing--they affected the fortunes and lives of
millions of Americans here and around the world. They helped
precipitate the deepest loss in economic activity that the
world has seen in a generation.
Now, so you have to think about these choices through that
broader prism, not through the narrow confines of the specific
investment.
The Chair. Okay. Thank you.
Thank you, Mr. Silvers.
Senator Sununu.
Senator Sununu. Mr. Secretary, explain the process that
will be used to determine whether or not Treasury requests the
conversion of preferred shares under the CPP into common.
Secretary Geithner. Again, this is something that the
primary supervisor is in the process of thinking through and
designing strategy on, but I want to say it simply again. This
capital assessment they are undertaking will reach a judgment
about whether and to what extent individual banks could use an
additional buffer of capital to make sure they can withstand
deeper losses----
Senator Sununu. Let me stop you there. You are using
phrases like ``could use.'' I am sure every bank could use a
little bit better capital buffer.
Secretary Geithner. All right. Let me say----
Senator Sununu. So we need to be specific about whether or
not it is required and whether there is an objective
measurement of the requirement.
Secretary Geithner. Right. So the measurement--and again,
you are going to see the details of the parameters laid out by
the Federal Reserve in the coming days that will help you
decide that. But that will be a defined measure of what
additional capital, I will use your word, should be required.
Now banks will have a range of different options for
meeting that capital requirement. And as the Fed has already
said directly, what is important is not just the overall level
of capital, but the quality of capital, including the amount of
tangible common equity or Tier 1 common equity in the system.
Banks will have a range of different ways to meet those
tests. They will be able to work out with their supervisor how
they are going to meet that test. And as I said, in simple
terms, their ability is to take--raise more capital from the
market or take capital from the Government.
Senator Sununu. So what you describe there is a relatively
objective process with clear criteria where sort of subjective
measurements either don't enter in or enter in to a very
limited degree. In other words, it will be an objective process
that people can easily understand. Fair enough?
Secretary Geithner. Well, I won't say there won't be
judgment in it. But that will be judgment that the supervisors
work out and judgments carefully informed by other independent
measures of risk, losses, earnings potential, those things.
Senator Sununu. I think it is important that it be as
objective as possible.
Secretary Geithner. I agree with you.
Senator Sununu. And I think this also applies to the
question raised by Congressman Hensarling with regard to
repayment. You indicated that there would be a relatively
objective approach based on whether they have met the
requirements under the regulator. But then you alluded to the
question that would be asked of is the credit system working?
Then finally, you said but that is going to be asked at the
regulatory level.
But I would suggest it is not really the job of regulators
at the OCC or OTS or at the State level to make subjective
determinations about whether our credit system is working and
whether a particular institution is playing their role in that
credit system and, therefore, conclude that we are not going to
let them repay, even though they met all of the objective
regulatory criteria.
So I will ask what level of subjectivity is going to come
into play on the repayment question?
Secretary Geithner. I actually wasn't trying to reinforce
your concern or Representative Hensarling's concern. I was just
trying to state it cleanly, which is that they are going to
have to make that judgment. That is the way the law is written.
Senator Sununu. Who is going to have to make it?
Secretary Geithner. The relevant Federal banking agency
will have to make that judgment, and they are going to have to
look at----
Senator Sununu. You are going to expect and ask the
regulators to make a subjective judgment about whether or not
our national system of credit and lending is working?
Secretary Geithner. No, I don't--I didn't mean to imply it
that way. They are going to have to make a judgment of whether
it is tenable, makes sense for that individual institution. I
was just trying to underscore the fact that the basic objective
that is guiding what we do is to make sure the system is
working as a whole.
But I understand your concern, and everybody wants clarity,
objectivity. Because they are working through this now, I can't
tell you today whether they are going to fully meet that test,
but you will know that relatively soon.
Senator Sununu. I simply underscore objectivity in this
regard is absolutely essential. Otherwise, you are going to be
creating more uncertainty than you intend, and you will be
potentially doing more harm than good along these same veins,
agreed?
Secretary Geithner. Can I say that I agree with that? And
as I said, we would welcome, okay, capital coming back to the
Treasury and the taxpayer as a result of the effectiveness of
these programs.
Senator Sununu. Excellent. Ah, releasing stress test
results. You indicated that you were going to release some
results. Then Treasury pulled back in the sense that you
haven't been clear about what information you are going to
release or in what context it will be released.
First question is why release data publicly at all? It
certainly isn't typical for bank examiners to release specific
information about the institutions they examine. So why release
that information? And to the best that you can describe here,
what will be released?
Secretary Geithner. Well, again, it's awkward because of
the timing of this hearing. But those are questions that the
Fed and their counterparts are working through right now. But I
want to underscore again that I do believe it is valuable, and
this is the core of the objective of this process that we
worked out with the Fed, to bring more transparency, more
disclosure to potential losses on bank balance sheets.
Without that, it is harder for banks to raise capital.
Without that, they are going to live with a deeper cloud of
uncertainty over their financial health than they need to.
Transparency will be helpful in resolving that, and they are in
the process of working through now what is going to be
sensible.
But I agree with your concerns. I understand your concerns
about this. But they are careful, thoughtful, pragmatic people,
and they will get it right.
The Chair. Thank you, Mr. Secretary.
Thank you, Senator.
Mr. Neiman.
Mr. Neiman. Thank you.
I would like to come back to the foreclosure efforts and
give you a little more opportunity to expand on those. I agree
and we all have focused on the fact that housing created this
problem and has to be solved if we are going to get out of it.
As you know, our March report focused on foreclosure
efforts. It looked at the drivers to delinquency, the
interaction between affordability and negative equity, and set
out a lot of the impediments to a successful mitigation
program. We also made an initial assessment of your program
that was announced on March 4th and how it addressed many, but
not all of the impediments that we identified.
In my role in leading the State's Foreclosure Prevention
Task Force, in talking to a lot of housing counselors, what we
are hearing back is there is still a sense of uncertainty as to
when and the timing around servicers and lenders signing on to
those programs. Can you give me and the panel a sense of the
degree of industry participation that you expect and a sense of
the timing?
Secretary Geithner. We are moving very quickly. I think
Treasury is now--I think that the majority of servicers in the
country have signed onto the new standards, and we are moving
quickly to put that in place and lay out the additional details
in public.
But I think it is going to take a little time for us to be
able to judge what is actually happening. You know, this
program provides very substantial economic incentives for
participation and for modifications. And that was based on a
set of judgments that we made about what was going to be
necessary. But we won't know really until we see the pattern of
modifications going forward, and until we see how those work
for a time, we won't know how successful they are in helping
economically viable homeowners remain in their home.
But we are moving, and I think reasonably quickly, given
the pressure and challenges we are facing.
Mr. Neiman. Do you see any other potential impediments that
will need to be addressed or the program tweaked or changed?
Secretary Geithner. We can't tell now. But it is a very
complicated program, as you know, and it is a complicated set
of incentives we are trying to change. But we are going to be
pragmatic about this. Where we see problems and opportunities,
we will adapt the program.
It is a challenge because, as many of your colleagues said,
you want clarity quickly. You want people to hold to those
basic lines. But if there are things around design or practical
impediments to better participation, we will try to fix those.
Mr. Neiman. Being last on the questioners, there is never
confidence of whether it will come around to me again. So I do
want to bring us back to regulatory reform, which you did not
get a chance to in your opening, particularly from the role of
the States and the role that States play in consumer
protection.
As you know, Secretary Paulson's blueprint in establishing
a regulatory framework eliminated the role of the States in
consumer protection and safety and sound supervision. I would
like to get your thinking as to where do the drivers for
consumer protection fall out in your regulatory proposal?
Secretary Geithner. We are going to be outlining in the
next couple of weeks a set of detailed proposals for how to
change the basic framework of consumer protection in the credit
area in particular, both on credit cards, on mortgages, and
other credit products. And you will see, following that, we
will lay out the broader changes to the oversight framework
that we think are necessary to make these new rules of the game
work.
I would expect States to have an important role going
forward still, but the precise nature of that role you will see
laid out in the suggestions we make about what should happen at
the Federal level.
I just want to say, though, that I want to just say it
starkly: We had systematic failures in consumer protection.
They caused enormous damage not just to the people who were
taken advantage of, but to the stability of the entire
financial system. And it is going to require very, very
substantial changes to fix that.
Mr. Neiman. Great. All right. Thank you very much. My time
has expired.
The Chair. Actually, it hasn't.
Mr. Neiman. Oh, okay.
The Chair. But you are welcome to----
Mr. Neiman. Fifty seconds left, I think I will pass. Thank
you.
The Chair. Okay, that is fine. Thank you.
Actually, Mr. Secretary, I want to go back to the point
about foreclosures, and I must ask is an amendment to the
bankruptcy laws to deal with underwater mortgages a central
element of your foreclosure mitigation plan?
Secretary Geithner. As you know, the President has
supported and we are supportive of changes, the carefully
designed changes to the bankruptcy plan. We think you can do it
in a way that would help reduce these problems. That process is
now working through the Congress. We are working closely, of
course, as part of that process.
The Chair. If----
Secretary Geithner. It is a difficult balance to get right,
as you know. But the President is supportive of this, and we
are--and we would like to work to see if we can find a good
balance.
The Chair. If those changes are not made, what happens in
States like Nevada, Arizona, California, Florida, Illinois,
where the number of underwater mortgages is high, where we know
that this is related not only to the initial foreclosure but to
redefault when we try to do workouts. Are there any other
proposals for dealing with underwater mortgages when they are a
great deal underwater?
Secretary Geithner. Well, let me just say two things in
that context. One is the President has proposed and there is a
lot of support in Congress for substantial changes to the Hope
for Homeowners Program. And that program is designed to be
somewhat more responsive to that set of specific challenges.
But the President's program also does provide meaningful
payment relief to families that have very high loan-to-value
ratios.
The Chair. Right.
Secretary Geithner. And does provide very substantial
incentives for those payments to come down through reductions
in interest and principal payments.
But our program is not going to solve all of these
problems. It is designed to target those homeowners that were
relatively responsible in the amount of debt they took on, but
you will have to look at them in the context of the full range
of other programs that Congress has authorized and the
President is proposing to help mitigate the damage caused by
the recession across the American economy.
The Chair. Thank you.
I want to ask one other question as long as we are talking
about structure here. In our most recent report, we talked
about three ways to deal with troubled institutions--
liquidation, reorganization, or subsidization. And in the
report, we discussed the fact that Treasury seems mostly
focused on subsidization and that----
Secretary Geithner. Treasury present or Treasury past?
The Chair. Well, I will let you address that question. And
so, the question is, because I think that is the right way to
put it, the extent to which all of the tools in the toolbox are
on the table and the circumstances under which liquidation of
failing financial institutions or reorganization in place of
failing banks would be considered. Could you address that?
Secretary Geithner. That is a very sensitive, very
important question. Again, what we have to do is we have to
balance the critical objective of making sure our system is
working better. That requires that the core institutions in our
country, the largest institutions in our country are able to
fund and meet their commitments. That is a central part of this
process.
It requires that they have enough capital even to withstand
a deeper downturn. And it requires that they have a board and
management and that will earn the confidence of markets, not
just their primary supervisor in the Government.
Now we want to protect the taxpayer. We want to achieve
these things at least cost to taxpayers as a whole. But again,
the system requires, the recovery requires, the economy
requires small businesses, families across the country, they
depend on it and require a better functioning financial system.
And so, we will look at all actions we think are necessary
against those two basic objectives.
One is get the system working better. Protect the taxpayer.
Do that at least cost to the taxpayer. And what will be
necessary will be different in particular cases. It is going to
require adaptation and evolution. But those are the objectives
we are going to balance.
And it is very hard, Chairwoman Warren, to tell you today
what exact mix of conditions will require. What I can tell you
for sure is----
The Chair. Fair enough, Mr. Secretary. I will stop with
``all actions.'' You had me at ``all actions.'' Let me----
Secretary Geithner. I don't want to mislead you, okay?
Because, again, we have got a very careful balance, and I think
anybody who lived through--like we all did, lived through the
second half of last year, particularly the fourth quarter of
last year, should be somewhat chastened and somewhat careful
and cautious in thinking about how we get that balance right.
And our action will be shaped by that experience, not just
by the core of the obligation we have, to try to make sure we
are using the taxpayers' money wisely with appropriate
conditions so that the system emerges stronger.
The Chair. Well, I think the question, though, started with
the focus on are all the tools on the table--liquidation,
reorganization, and subsidization? Am I hearing you say yes?
Secretary Geithner. Well, we will take all sensible actions
that are consistent with those obligations we have to the
American people. And again, the determination about what is
least costly and most effective will require a careful balance
in these areas.
But Chairwoman, we will be careful and pragmatic and as
effective as we can in reducing the ultimate cost to the
taxpayer, trying to get the system back to recovering at least
risk to the overall economy, at greatest benefit to the economy
as a whole.
The Chair. I must set a better example and stop with my
time.
So, Congressman Hensarling.
Mr. Hensarling. Thank you, Madam Chair.
Mr. Secretary, I take some comfort in your testimony that
we share a number of goals. I would take a little less comfort
that there are policies in place to necessarily achieve some of
those goals.
With respect to both taxpayer protection and preventing the
nationalization of key segments of our financial services
industry, let me revisit again the plan of the conversion of
preferred stock to common. At the end of the day, the financial
institution after that conversion has no new capital in a
practical definition. It has no new capital. So it is a
bookkeeping entry.
And yet, what has happened, is the taxpayer clearly is at
greater risk, and I would assume you would agree with the
position of common stock, than the taxpayer was with the
preferred stock.
And then, in addition, you have got a much stronger
mechanism for Government control of that institution when we
are already seeing the prospect of essentially the President of
the United States hiring and firing CEOs of Fortune 500
companies, determining compensation levels, the prospect of
some of my colleagues in Congress telling Detroit what kind of
automobiles they need to produce to become profitable.
Many of us don't want to go down that road, and I am having
a lot of trouble here seeing the upside to any strategy for the
conversion. So could you further elaborate on what you would be
trying to achieve? And again, going to Senator Sununu's point,
what is the most objective criteria that can be applied to that
decision-making process?
Secretary Geithner. Congressman, they are thoughtful
questions. And as you can see from the diversity of views on
your panel, there are very different views about how we balance
these different objectives and constraints.
I am concerned about the potential damage you do to
franchise value and expectations across the financial system.
If you have this expectation of creeping, long-term Government
involvement, Government ownership, I agree with you that can
cause damage. We have seen one compelling example of that
today, and that is something that troubles me.
On the other hand, it is important that we get a better
capitalized financial system. And you are right that a
conversion itself doesn't add to the overall level of
regulatory capital. It does change the composition in ways that
actually could be helpful to a bunch of the objectives that
firms face.
So let me just underscore this basic principle. At the
conclusion of this process that the Fed is undertaking to
assess the potential, the capital needs of banks going forward,
where there is a need for additional capital, total capital and
common capital, then those banks will have a series of options
for how they meet that need. And they will work out with their
primary supervisors what is the best mix of those options.
And they will be balancing lots of different
considerations, including the ones you described in that
context, but I can't tell you today exactly where they are
going to come in that context. That is a process they are going
to have to undertake, and it is going to require a fair amount
of care and effort.
And they will make different choices, I suspect. Different
firms will make different choices, and they will have different
judgments about what they want to do to the composition of
capital.
Mr. Hensarling. Related to that, Mr. Secretary, let me
segue into AIG since, clearly, it is easier to invest in these
companies than it is to divest. We have now had, I believe,
four different infusions of taxpayer capital--two by the Fed,
two by Treasury under TARP. I believe we are at roughly $180
billion of taxpayer liability exposure and counting.
I believe the Federal Reserve Chairman recently testified
before the House Financial Services Committee that had he had
the ability to place AIG into receivership late last year, he
would have done it. One can question whether or not he had the
ability to do that, as Chairman of the Federal Reserve. But I
assume either you or he, as the taxpayer representative, owning
80 percent of AIG, certainly you have the ability to do that
today.
What is the exit strategy from AIG?
Secretary Geithner. The United States Government came into
this financial crisis without a legal framework that allowed it
to intervene and manage more effectively the risk posed by
institutions like AIG. It was a tragic failure of the country.
A lot of the trauma we faced in the course of the fall was
the result of that basic failure. We still do not have that
authority today.
Mr. Hensarling. Not as majority shareholder?
Secretary Geithner. No. We do not now have the ability nor
the tools that were designed in the wake of the financial
crises of the last decades that were given to the FDIC for
individual banks and thrifts to allow the Government to
intervene more quickly, earlier and more effectively to protect
against the damage posed by weakness of these institutions.
And we would like to work with Congress to legislate
authority over the coming weeks and months. But even with that
authority, we would face very difficult judgments again,
because in that context you are dealing with the potential
risks to financial stability more generally, to other
institutions, to insurance companies around the United States
from the potential failure of a large firm like that.
But that imperative of getting better authority in place is
a centerpiece of what the President is trying to work with
Congress to achieve now.
The Chair. Thank you.
Thank you, Congressman.
Mr. Silvers.
Mr. Silvers. Mr. Secretary, before I come to my question,
let me just say that I very much welcome and appreciate your
comments about the value of transparency earlier in response to
Senator Sununu's question. I appreciate your comments about the
centrality of consumer protection, and I very much support and
agree with the notion that there needs to be a broader
resolution authority.
Now I want to return to the theme of my first questions,
but now turning to the public-private investment partnerships.
I take at face value the representation that these partnerships
are not designed to be a covert method of subsidizing the
banks, that they are designed to get fair prices for the assets
that are being purchased.
My concern, which I wish you to address, is that again, as
in the case of Citigroup, there seems to be a profound and
inexplicable imbalance between public risk and public capital,
taxpayer money, and private capital and private gain. And it
ranges from--in the investment partnerships from the legacy
securities program option one, where we have the fantastic
amount of 33 percent of the capital coming from the private
sector and 50 percent of the gain going to the private sector.
To add its far extreme, option two is only 25 percent
private capital. And over in the legacy loans program, where
there may be the greatest risk because loans have been less
marked down than securities, the amount of private capital is 7
percent, but the gain to the private sector is 50 percent. And
even that 7 percent of private capital could be obtained
through the TALF at taxpayer risk.
Now I just don't get it, Mr. Secretary, how this represents
protecting the taxpayer. And I would like you to explain why it
does.
Secretary Geithner. Mr. Silvers, this is an important
question, and the virtue of these programs is they are going to
come with a level of transparency to allow everybody to
evaluate what the economics are for the investor in the
Government. And as you see the terms of these things refined in
public, you will have a better basis for making that
assessment.
Now, very important to underscore again, you can't measure
the returns to the taxpayer through this narrow prism. It
doesn't provide a full measure of it. And you are counting as
capital--I haven't had a chance to look at these carefully. You
were counting as capital in the left-hand panels of your
charts, the financing the Government is providing at a price
against a bunch of collateral with haircuts against that
collateral.
And that is not capital in the same sense that you are
looking at----
Mr. Silvers. Can I just stop you there?
Secretary Geithner. That is financing against collateral at
a price.
Mr. Silvers. But can I stop you there?
Secretary Geithner. Yes.
Mr. Silvers. What I am measuring here is money at risk,
right? If it turns out----
Secretary Geithner. But the----
Mr. Silvers. Mr. Secretary, if it turns out that the assets
that these partnerships buy are not worth the price paid--not
because of anything terrible, but because of just risk, all
right? And if we eat through the equity in those partnerships,
is it not the case that the FDIC and the Fed are on the hook?
Secretary Geithner. Absolutely. This is secured lending
against collateral at an interest rate with pricing designed to
help protect the Fed and the FDIC from that risk. But what I am
saying is you are equating capital, which is fully at risk,
with financing against collateral.
Now really the critical thing, as you know from our
previous conversations, is compared to what? And the
alternative programs that many have advocated for dealing with
these legacy assets----
Mr. Silvers. Well----
Secretary Geithner. It is important to let me finish this.
The alternative programs have the Government taking on all the
risk, taking on all the risk and mispricing the assets, taking
all the downside risk and having all that protection.
Now they would get in return all the potential upside in
this case. But that tradeoff is a bad tradeoff for the
Government because the Government is highly unlikely to be in a
position to be able to get the valuation right and will be at
great risk for overpaying for those assets and having a much
worse risk reward.
Mr. Silvers. All right. Let me stop you right there. What I
don't get--and I practice law, and you have been in banking--is
a deal where----
Secretary Geithner. Actually--I have never actually been in
banking. I have only been in public service.
Mr. Silvers. Well, a long time ago. A long time.
Secretary Geithner. Actually never.
Mr. Silvers. Investment banking I meant.
Secretary Geithner. Never investment banking. Spent my
entire life in public service in the Treasury and at the
Federal Reserve.
Mr. Silvers. Well, all right. Very well then.
Secretary Geithner. But I would be happy to----
Mr. Silvers. But 7 percent on the one hand, 50 percent on
the other. What prevents us from hiring the very same bond
managers that we are going to hire, work for the public, and
get 100 percent of the gain for the public? I don't understand
what the 7 percent--what is so important about the 7 percent--
--
Secretary Geithner. Let me try----
Mr. Silvers [continuing]. That we give them 50 percent of
the upside.
Secretary Geithner. Let me try and do it simply again. The
left panels of your chart are not an accurate description of
the risks to the taxpayer in the financing they have at risk. I
would be happy to try and give you a better alternative measure
of it, but it will require that you do a full assessment----
Mr. Silvers. Is it mistaken in the legacy loan program that
the private capital is 7 percent max?
Secretary Geithner. It is--just to say you are mixing
capital with financing in a way that doesn't do justice to the
economics of it. But the critical thing again is----
Mr. Silvers. Mr. Secretary, I asked you a different
question. Is it not 7 percent?
Secretary Geithner. It is not the right--you are mixing two
different types of economic risk.
Mr. Silvers. I think I understand 7 percent and 50 percent,
and I don't----
Secretary Geithner. Again, I am not trying to be--it is
just a----
Mr. Silvers. My time has expired.
The Chair. Gentlemen?
Secretary Geithner. It is not an accurate representation.
But can I answer this one question about the----
The Chair. Ten seconds.
Secretary Geithner. Okay. Mr. Silvers, in the alternative
model where the Government sets the price for the assets,
regardless of who manages, who it hires to manage, the
Government will be at acute risk of overpaying, providing the
subsidy you want to avoid, and having a tradeoff where the
taxpayer is taking on at the outset a much greater share of the
losses across the financial system.
That is what we are trying to avoid because we don't
believe that is in the best interest of the taxpayer.
The Chair. All right. Mr. Silvers, will you continue?
Mr. Silvers. No, we are done.
The Chair. Senator Sununu.
Senator Sununu. Thank you, Madam Chair.
Mr. Secretary, just for the record, I would never mistake
you for an investment banker. [Laughter.]
Secretary Geithner. I don't think he meant that as a
compliment, but I will take that as a compliment.
The Chair. I am not sure that makes me feel better.
Senator Sununu. In the first 3 weeks of April, there were
two TALF auctions. The first one I would describe as modestly
successful, the second one as marginally successful. I think I
am being very generous in using that description. The first one
yielded, I think, $4.7 billion in financing, the second one
$1.7 billion in financing.
To what do you attribute the relative lack of interest, and
has Treasury, in working with the Federal Reserve Bank of New
York that is, I think, managing these auctions, recommended or
undertaken any changes in their structure?
Secretary Geithner. Let me just say one thing about the
facts. Actually, my sense is that it was relatively good for an
early program. The amount of issuance of securities that came
in those first two auctions is about five times the level,
substantially above the level in the previous 5 months, and you
have already seen a material reduction in the price of credit
raised in auto receivables, et cetera. So I actually think that
it is pretty good in terms of impact initially, but it is early
days.
The principal explanation that people say in the markets
about why participation was lower than expected is concern
about the conditions that come with the assistance in the
program, the range of different conditions, uncertainty about
whether they may change in the future, and that underscores an
important point.
If we are going to get out of this crisis at less cost,
ultimate risk to the taxpayer, we need the markets to be taking
risk again. We went for a long period where they took too much
risk. The risk now is they take too little. For them to be
willing to take risk alongside the Government, they need to
have some confidence in the rules of the game going forward,
and that is going to be an important challenge we face together
working with the Congress as we clarify these conditions.
Senator Sununu. Well, let us try to clarify because there
are members of Congress now talking about applying the
executive compensation limits to the public-private investment
partnerships. Damon Silvers raises some concerns about the
structure of those, but this is separate from that.
This is an issue of changing the rules after the fact or
changing the rules in a way that would discourage
participation. What is the administration and the Treasury
Department's position on applying rules for compensation or
other rules to the public-private investment partnerships?
Secretary Geithner. We are in the process now of
concluding, completing a draft of a rule for applying those
conditions. We are going to apply the law. We are going to put
out in the public domain for comment a draft rule. That will
give everyone the chance you here on the Hill are----
Senator Sununu. When will that be put out?
Secretary Geithner. It will hopefully be written in the
next couple of weeks, relatively quickly. We are moving----
Senator Sununu. You are soliciting people to request
participation as one of the lead partners or investors at the
same time. Correct?
Secretary Geithner. Yes. You can't feel more strongly than
me about the need for clarity early. But we need to go through
a process to put out a draft rule for comments, solicit
comment. But our obligation is to apply the law, and we are
going to do so in a way that is consistent with the
requirements of the law and does as good a job as we can at
making these programs work.
Senator Sununu. So there will be a rule forthcoming, and
what is the Treasury's position on application of the executive
compensation limits that are in law today to those
partnerships?
Secretary Geithner. Well, you will see in the rule how we
propose to strike that balance. But it is my judgment that
those compensation restrictions do not need to apply to the
programs you referred to.
Senator Sununu. The insurance guarantee programs. The
insurance guarantees have been provided or portfolio insurance
has been provided to Citigroup and to Bank of America. I
believe at the end of March, there was an assessment done--the
value of the portfolio, losses incurred in the portfolio.
Will there be a public disclosure of that assessment, and
what can you tell us about the relative value of those
portfolios relative to the book values that were insured?
Secretary Geithner. Senator, I am not sure I know the
answer to that, but let me--I would be happy to talk to my
colleagues at the Fed and have them report separately on that
question.
My sense is, though, that the results of the stress test
will give you some indication, give the market some indication
about that question. But I should talk to my colleagues at the
Fed and the banking supervisors and ask them to respond to your
question directly.
Senator Sununu. Thank you, Madam Chair.
Thank you, Mr. Secretary.
The Chair. Thank you.
And our last round of questions here, Mr. Neiman.
Mr. Neiman. Thank you.
The greatest criticism that we read about and where there
seems to be the greatest debate is over the viability of the
Treasury's plan, particularly the program to purchase troubled
assets. And it is around the assumption in the plan that the
critics would assert that the values of those assets do
represent the fundamental values. And the underlying assumption
in your plan is that they do reflect a significant liquidity
discount.
My question really goes around to understanding the
interplay between the credit and the liquidity as the drivers
of those asset prices because this really does underline the
assumptions and the viability of that plan.
Secretary Geithner. That's an extraordinarily difficult,
complicated question. Hard to know. You are right that the
price of any security in the markets reflects not just a view
of credit losses over time, but it reflects a judgment of
illiquidity and a whole set of other risk premia that are about
uncertainty.
It is very hard to decompose those things. But the markets
where you can tell--where you can say with complete confidence
today that these markets are not working in part because of the
absence of financing available to those markets.
So just to use the simple example, if you had to sell your
house tomorrow in a market where no one could get a mortgage,
and you had to sell tomorrow or the next week or 2 weeks, the
value of your house would be substantially less than what you
think it might be worth if you were able to hold it over time
or choose the timing, and there was a market for mortgages
available.
So to help get these markets started again, it is necessary
for there to be an alternative source of financing
appropriately priced from the Government for a temporary period
of time. And that will help establish a market and help
separate out what is about credit losses, what is about
liquidity risk premia.
And underlying your question is a thing that is uncertain,
which is, is this going to prove attractive enough for it to
actually work? Or is it going to be less valuable to potential
investors and banks on both sides of the equation?
And as Mr. Silvers's charts indicate, there is a wide
divergence of views at the moment about whether the financing
is going to be provided in a way that is too attractive or not
attractive enough.
Mr. Neiman. And the private-public partnership, what is the
basis for why you think that is the mechanism to identify the
appropriate pricing?
Secretary Geithner. Again, it is better than the
alternatives. In that context, people with money at risk will
make the judgments about what the risk is and what the values
are. And they have to compete for the right to put up that
capital. They are going to hire professional asset managers to
do it. In our judgment, that is a better model than having the
Government itself come in and independently try to value these
things.
This is an, as you know, enormously complicated set of
problems. The assets are enormously complicated. There is no
precedent for what we are going through in this context, and
the amount of uncertainty that you see in markets today is a
reflection of that. So we just made the judgment that it is
better for the taxpayer to use the incentive of an investor
that is going to put capital at risk to help solve that
valuation pricing problem.
Mr. Neiman. I would like to come back to your opening
remarks where you talked about recognizing that 40 percent of
consumer lending has historically come from the secondary
markets and securitization. And this is the key point for us
all to remember, how so much of consumer and small business
lending is supported by the capital markets, and the TALF is
designed to unfreeze those markets.
How should we be evaluating bank lending levels in light of
the role of the security market and securitization,
particularly in recycling capital?
Secretary Geithner. Very hard to do. You know, you can't
expect banks to be able to fully compensate for the reduction
in securitization activity, it is not tenable in a short period
of time. That is why we are trying to move on both those
channels of credit flows, make sure banks are able to provide
enough credit and try to get these markets for securities
working again.
But it is hard to know what the new system is going to look
like in that context. And what we are trying to do is, again,
make sure that the assistance we provide is priced so that as
conditions normalize, demand for Government financing, for
exceptional support will fade and--as you already see happening
across some of the Fed's facilities.
Mr. Neiman. So in terms of my original questioning around
metrics and even on the front page of the Wall Street Journal
yesterday in terms of the diversity in interpreting this data,
have you given more thought as to more appropriate metrics or
greater clarity?
Secretary Geithner. I think the best thing is to be simple
about it, and the best thing to do is to ask what is happening
to bank lending by category of type of credit exposure like our
new reports require? What is happening to the issuance of
securities, asset-backed securities and other securities, and
what is happening to the price of both bank lending and
securities issuance?
Those three things capture what you need to do to measure
it. Now it still doesn't tell you fully what is happening to
demand for credit from economically viable borrowers, but that
is a good place to start.
One more thing, the Fed's senior loan officer lending
survey is another good qualitative measure of terms and
conditions and that, if you look at it, showed it rising to
very, very adverse peaks and starting to gradually improve.
Those are four examples of things you can look at.
Mr. Neiman. And even though my time is out, I would like to
reclaim my 40 seconds that I had put away in my first round.
The Chair. Forty seconds, you are using it up. Go.
Mr. Neiman. What I would like to do is in recognition of
the fact that I have received hundreds of emails, both to my
personal email and to the COP Web site as well as to the
posting, I would like to categorize them, provide them to your
staff----
Secretary Geithner. Send them to us.
Mr. Neiman [continuing]. And work on answers that we can
respond and post publicly. So I appreciate that.
The Chair. Thank you.
Thank you, Mr. Secretary. I understand that you need to
leave to meet with the President and that we are going to end
now.
We are going to hold the record open for 1 week so that
panelists may submit additional questions in writing so that
you will have the opportunity to respond on the record.
I just want to say that I am very sorry that you had to
turn through the pages on regulatory reform. It is a critically
important issue, and I am sorry that our time is so constrained
that we couldn't spend more time on it, particularly both the
long time and the nearer term on regulatory reform, which I
hope is going to address the consumer issues and in particular
the question about repricing interest rates for small
businesses and consumers who are paying their bills on time.
Also to address the systemic issues, very important. I
think it is clear we have lots of questions. So I hope we will
make this a regular meeting.
Thank you.
Secretary Geithner. Thank you for having me. A pleasure
talking to you all. Excellent questions, as I said. Very
thoughtful concerns. And we are trying to balance a lot of
different considerations, and I know you will do what we do,
which is look at these programs against the alternatives.
The Chair. Yes. Thank you.
Secretary Geithner. You can't judge anything except against
the alternatives, and I know you will help us do that.
The Chair. Thank you, Mr. Secretary.
This hearing is adjourned.
[Whereupon, at 11:37 a.m., the hearing was adjourned.]
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