[Senate Hearing 111-219]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 111-219
 
                 NOMINATION OF HERBERT M. ALLISON, JR. 

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

   THE NOMINATION OF HERBERT M. ALLISON, JR., OF CONNECTICUT, TO BE 
          ASSISTANT SECRETARY FOR FINANCIAL STABILITY (TARP),
                       DEPARTMENT OF THE TREASURY

                               __________

                              JUNE 4, 2009

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate/
                            senate05sh.html

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          MEL MARTINEZ, Florida
DANIEL K. AKAKA, Hawaii              BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  JIM DeMINT, South Carolina
JON TESTER, Montana                  DAVID VITTER, Louisiana
HERB KOHL, Wisconsin                 MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             KAY BAILEY HUTCHISON, Texas
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado

                    Edward Silverman, Staff Director

              William D. Duhnke, Republican Staff Director

                       Amy Friend, Chief Counsel

                   Julie Chon, Senior Policy Advisor

                   Dean V. Shahinian, Senior Counsel

                  Joe Hepp, Professional Staff Member

                       Deborah Katz, OCC Detailee

                Mark Oesterle, Republican Chief Counsel

                       Dawn Ratliff, Chief Clerk

                      Devin Hartley, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)
















                            C O N T E N T S

                              ----------                              

                         THURSDAY, JUNE 4, 2009

                                                                   Page

Opening statement of Chairman Dodd...............................     1

Opening statements, comments, or prepared statements of:
    Senator Shelby
        Prepared statement.......................................    29
    Senator Tester...............................................     4
    Senator Bennet...............................................     5

                                NOMINEE

Herbert M. Allison, Jr., of Connecticut, to be Assistant 
  Secretary for Financial Stability (TARP), Department of the 
  Treasury.......................................................     5
    Prepared statement...........................................    29
    Biographical sketch of nominee...............................    32
    Response to written questions of:
        Senator Dodd.............................................    39
        Senator Reed.............................................    39
        Senator Bennet...........................................    40
        Senator Bunning..........................................    41
        Senator Crapo............................................    42
        Senator Martinez.........................................    42
        Senator Vitter...........................................    43

                                 (iii)


                 NOMINATION OF HERBERT M. ALLISON, JR.,
                    OF CONNECTICUT, TO BE ASSISTANT
               SECRETARY FOR FINANCIAL STABILITY (TARP),
                       DEPARTMENT OF THE TREASURY

                              ----------                              


                         THURSDAY, JUNE 4, 2009

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 9:38 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Christopher J. Dodd (Chairman 
of the Committee) presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. Good morning. The Committee will come to 
order. Let me welcome all of you here this morning, and let me 
say that my friend and colleague, Senator Shelby, the former 
Chairman of the Committee, will be with us shortly this 
morning. We have been joined, I see, by Senator Schumer, 
Senator Tester, who are here, and others.
    Let me welcome our nominee this morning, Mr. Herb Allison, 
who is our nominee to be Assistant Secretary for Financial 
Stability at the Department of the Treasury. We welcome you as 
well, Mr. Allison, and let me begin by thanking you for your 
willingness to serve during these times.
    I am going to take a couple of minutes for some opening 
comments, and I will ask my colleagues whether or not they 
would like to share any opening thoughts on this matter, and 
then we will turn to you for some opening statements. As soon 
as Senator Shelby comes in, I will also interrupt wherever we 
are and give him a chance to make any opening comments, and 
then we will get to some questions for you, if we can.
    So let me begin by welcoming everyone here. It is no 
overstatement to suggest that this position for which you have 
been nominated, that of Assistant Secretary for the Office of 
Financial Stability within the Treasury Department, is among 
the most important this Committee will consider in this term of 
Congress. You have inherited a giant task, none bigger than 
overseeing the Troubled Assets Relief Program.
    The Office of Financial Stability was created as part of 
the Emergency Economic Stabilization Act. Congress believed 
that the size of the program, $700 billion at the time last 
fall, required the full-time attention of skilled professionals 
to oversee and manage purchases made under the program.
    At first, some resisted the call to establish such an 
office, arguing that it would create a layer of bureaucracy 
within the Treasury. But I and many of our colleagues, 
including Senator Schumer and Senator Tester, who were deeply 
involved in the formation of the Emergency Economic 
Stabilization program last fall, believed it was a very 
important mechanism to provide accountability and transparency 
so that the public could understand the Government's decisions.
    Now, with 12 TARP initiatives announced by Treasury, the 
need for a dedicated office to ensure the proper management of 
their money, the public money, taxpayer money, is obviously 
clear. And proper competent management is what the TARP program 
desperately needs.
    We need strong, steady management to ensure that the core 
purposes that Congress outlined with the Emergency Economic 
Stabilization Act--protecting homeownership, college funds, 
retirement accounts, life savings, and jobs--are fulfilled by 
the TARP. TARP funds must be used to get credit flowing again 
to families, pay for homes, a car, or college tuition, and to 
small businesses to stock inventory and to meet payrolls, 
because with 10,000 foreclosures every day being filed and 
20,000 layoffs occurring every day, families and small 
businesses still need our help desperately in this country.
    Thankfully, we have begun to see a sharp change in 
direction for the TARP program, from the Homeownership 
Preservation Program, which draws upon the $75 billion in TARP 
funds, to more accountability from firms which receive taxpayer 
assistance.
    But as the news this week that General Motors was filing 
for bankruptcy reminds us, we are hardly out of the woods, and 
I would add that this Committee intends to hold another hearing 
next Wednesday to examine the administration's plans to 
restructure GM and Chrysler.
    There are also real questions about the future of the 
Public-Private Partnership Investment Program to purchase so-
called legacy assets from banks and other institutions which 
have put an enormous strain on our financial system. When the 
Treasury Secretary was here a few weeks ago, I asked him if 
this program would work and if he believed banks would still be 
willing to sell these so-called toxic assets at discounted 
prices given the better-than-expected stress results that were 
completed about 2 weeks ago. He said that he expected those 
programs to begin operating over the next 6 weeks, but now some 
are arguing that the program may no longer be necessary because 
of the unanticipated strength of these financial institutions.
    And so, Mr. Allison, the responsibility falls to you to 
provide the kind of steady leadership our country needs to 
navigate through the complexities of this economic crisis. With 
America's financial system continuing to hang in the balance, 
this office that you will be heading needs a strong and 
vigilant manager, someone who can follow through on commitments 
made and maximize the return to taxpayers, as well as keeping 
them well informed in understandable language as to what is 
occurring, why it is occurring, what our plans are, and where 
we are headed, where the shortfalls are, the pitfalls, what is 
not working, as well as what is working, in clear, clear 
language.
    There is a tremendous difficulty for the public, as well as 
many members up here, to understand on a daily basis how this 
all is unfolding, how it is working. We need someone who will 
listen, who is responsive to legitimate concerns raised by the 
TARP oversight bodies, makes course corrections when necessary, 
keeps a watchful eye to prevent any conflicts of interest that 
might arise, and keeps this Committee very well informed. We 
will have to determine some way to do this, but almost on a 
regular basis so that we are knowledgeable about any things you 
see that we ought to be aware of rather than just waiting for a 
hearing process to occur before we discover it or read about it 
in the newspapers.
    We will need someone who is judicious when it comes to 
committing the remaining TARP funds as well, estimated at some 
$109 billion, someone who can ascertain which areas of our 
financial system require assistance and which do not. Above 
all, we need someone who can inspire confident, who can 
articulate a clear vision to the public and policymakers 
regarding the role the TARP program and must play in helping 
our economy recover.
    Mr. Allison, you know as well as I that you face a 
difficult road ahead. As I am sure you have discovered during 
the last several months overseeing Fannie Mae, there will be no 
parades in the National Mall should you succeed, in my view. 
But I hope you will use your diverse professional background in 
the fields of finance, retirement services, and education to 
fulfill the core purposes that Congress outlined with the 
Emergency Economic Stabilization Act.
    You have an incredible background. It really is remarkable. 
When I looked over the experiences you have had in these areas 
of finance, of retirement issues, of education, you are 
tremendously well suited to do this, in my view. You have had a 
distinguished academic career. You served our country with 
great distinction--in the Navy during the Vietnam Conflict, a 
graduate of Stanford as well as a Yale undergraduate degree.
    So you really have the tools and the experience and the 
background, I think, to make a significant difference, and I 
personally want to say I am excited about your nomination. I 
think this is going to be a great opportunity for us to get 
this right and to give the country that renewed sense of 
confidence about how this program is working and why it is in 
their interest that we succeed with it.
    You and your family have epitomized the importance of 
public service. You know you now have a unique opportunity to 
affect the role that our financial markets and institutions 
play in the lives of literally virtually every American 
citizen. In many ways, you will hold the keys to the future of 
the housing, financial, and economic crises that we are 
currently encountering. And you have a remarkable opportunity 
to make a difference for millions of Americans, as I know you 
are aware.
    I know you have some family members here as well this 
morning. Why don't you take a minute and let us introduce them 
as well? Can we do that before you start?
    Mr. Allison. Thank you very much, Chairman Dodd. I would 
like to introduce my wife, Simin, and my sons, John and Andrew.
    Chairman Dodd. Welcome.
    Mr. Allison. As well as my brother, George Allison, a 
retired captain in the U.S. Navy.
    Chairman Dodd. What was that?
    Mr. Allison. Retired captain in the U.S. Navy.
    Chairman Dodd. Welcome. Nice to have you.
    Mr. Allison. Thank you.
    Chairman Dodd. Surface ships or submarines?
    Mr. George Allison. Surface.
    Chairman Dodd. Ah, well. I thought you might have had some 
experience in Groton, Connecticut, along the way.
    Let me turn to Senator Tester.

                STATEMENT OF SENATOR JON TESTER

    Senator Tester. Thank you, Mr. Chairman, and those 
introductions cleared up a lot, because when I came in, I met 
Mr. Allison in the back room, and I walked out here, and I saw 
his brother George, and I thought, ``Wow, how did he get out 
here so quickly?''
    [Laughter.]
    Chairman Dodd. He is going to be good.
    Senator Tester. Exactly. He is going to be very, very good.
    Thank you, Chairman Dodd, and I want to thank you for 
calling this hearing, and, of course, welcome, Mr. Allison. I 
want to echo the Chairman's comments on thanking you for your 
willingness to serve and your willingness to appear before the 
Committee today.
    It was Milton Friedman who said that nothing is so 
permanent as a temporary Government program. We need to make 
sure that TARP does what it needs to do and then wind it down 
and get the taxpayers' money back as soon as possible. And I 
know you feel that way.
    I want to commend you, Mr. Allison, for your willingness to 
serve and your efforts at Fannie Mae. I also want to urge you 
to be mindful of what I think we are going to need to do to get 
out of this economic recovery. We need to be mindful that the 
successes of this economic turnaround will be driven by small 
business and middle-class families. It is important, as I said 
earlier, to repay the taxpayers as quickly a possible and not 
to just reinvest the funds because we have them. I think this 
money was specifically put out for a specific reason, and we 
need to keep that in mind as we move forward.
    We also need to understand that community banks play a 
critical role in the lifebloods of our small rural communities 
across this country, and they really were not the cause of the 
economic problem, at least from my perspective. And maybe most 
difficult is we need to deal with the ``too big to fail'' 
problem that comes out. And if you can help us in that, I think 
that the sooner we can deal with that, the better off this 
country is going to be in general.
    With that, Mr. Chairman, I look forward to the testimony of 
Herb Allison, and I look forward to a quick confirmation.
    Mr. Allison. Thank you.
    Chairman Dodd. Thank you.
    I just noticed the arrival of our colleague from Colorado, 
Senator Bennet, I am saying with some deliberation, and I will 
give you a chance to get seated over there. Would you care to 
make any opening comments at all on the case of our nominee?

             STATEMENT OF SENATOR MICHAEL F. BENNET

    Senator Bennet. Thank you, Mr. Chairman.
    I would just like to thank you, Mr. Allison, for being 
here. Thank you for your willingness to serve. I unfortunately 
have an Agriculture Committee hearing that I have to go to, but 
I just want to stress--as I was coming in, I heard Senator 
Tester say this--how important small business and community 
banks are to this recovery effort. We have had a number of 
conversations here with the Treasury Secretary on that subject. 
We have a case of our own in Colorado relating to a bank 
failure of one of our agricultural banks that is under review 
by the Treasury Department. My perspective is the same as 
Senator Tester's, which is that until we begin to see this 
involvement beginning to take place at the local level, our 
public is still going to wonder how we are sending our 
taxpayers' money.
    So I want to just underscore that for you. I am sure you 
know that. I look forward to hearing your thoughts about that 
and to working with you as a member of this Committee. Thank 
you for being here.
    Mr. Allison. Thank you.
    Senator Bennet. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator, very much.
    Mr. Allison, welcome again to the Committee. We are happy 
to hear your opening comments.

  STATEMENT OF HERBERT M. ALLISON, JR., OF CONNECTICUT, TO BE 
ASSISTANT SECRETARY FOR FINANCIAL STABILITY (TARP), DEPARTMENT 
                        OF THE TREASURY

    Mr. Allison. Thank you very much, Chairman Dodd and other 
members of the Committee. I am honored to be before you today.
    First, I want to thank President Obama and Secretary 
Geithner for the trust they have shown in asking me to serve. I 
also want to thank you and your staff for the time you have 
spent acquainting me with your perspectives on the financial 
crisis and the measures to address it.
    Before I review my background and my plans for the Office 
of Financial Stability, if confirmed, I want to recognize my 
wife, again, of 35 years, Simin, and my sons, John and Andrew, 
for their steadfast support over those years.
    I began my career, as the Chairman said, as an officer in 
the U.S. Navy, serving 4 years on active duty, including a year 
in Vietnam. After attending business school, I joined Merrill 
Lynch and spent 28 years there, leaving as President in 1999. 
At Merrill, I held many positions in finance, human resources, 
investment banking, capital markets, and general management. In 
1998, I played a central role in unwinding Long Term Capital 
Management--the hedge fund that a decade ago presented a 
systemic risk to our banking system.
    I learned from my experiences at Merrill that the long-term 
success of financial institutions depends on sound corporate 
governance, including independent checks and balances, tight 
control over risk, and executive compensation geared to long-
term performance on behalf of clients as well as shareholders. 
At Merrill Lynch, I contributed to strengthening those 
governance practices in the 1990s.
    Since leaving Merrill Lynch a decade ago, I have led two 
other major financial institutions through transitions 
necessary for their long-term success.
    In 2002, I became Chairman and CEO of TIAA-CREF, the 
leading provider of retirement and asset management services. 
We adapted the company to changing markets, created independent 
risk management, and doubled the company's capital so we could 
withstand a harsh investment climate. As a result, TIAA-CREF is 
now one of very few financial companies that carry AAA ratings. 
And during my tenure, TIAA-CREF became the first company in the 
Fortune 100 to allow its stakeholders an advisory vote on 
executive compensation.
    In September of 2008, I was named CEO of the Federal 
National Mortgage Association as that company was placed into 
Government conservatorship. The crisis that devastated Fannie 
Mae's liquidity and capital base also threatened millions of 
American homeowners with foreclosure. New management had to 
shift the company's focus from maximizing profit and market 
share to helping hard-pressed American families stay in their 
homes. As a result, Fannie Mae is the agent for the President's 
Home Affordable Refinance and Modification programs, which 
offer financial relief to millions of Americans.
    Members of the Committee, the Financial Stability Program 
is essential to President Obama's and Secretary Geithner's 
plans for recovery. Our economy declined sharply last year in 
part because credit stopped flowing. Without access to credit, 
small businesses cannot buy the new equipment, raw materials, 
and inventory that they need to expand. And larger businesses 
need well-functioning credit markets as they adjust to the 
changing nature of the global marketplace.
    If confirmed, I will keep in mind that the financial crisis 
is not mainly about banks. It is about alleviating the real 
hardships Americans are facing every day. I will strive to be a 
prudent investor on behalf of the American people. To protect 
the taxpayers who have entrusted us with so much of their 
money. So let me tell you what my top priorities will be if you 
decide to confirm me.
    First, I will carefully review the controls over managing 
the taxpayers' money, giving special attention to compliance 
with laws and directives, managing risks, and internal audits. 
I will work closely with the Special Inspector General, the 
Government Accountability Office, the Financial Stability 
Oversight Board, the Congressional Oversight Panel, and the 
committees of Congress to assure the accountability and 
oversight that the American people demand.
    Second, under the direction of Secretary Geithner, I will 
continually strive to maximize the effectiveness of financial 
stability programs, restoring soundness to financial 
institutions and liquidity to our markets.
    And, finally, as Secretary Geithner has directed, I will 
emphasize transparency and interaction with Congress so that 
you and the American people will know what we are doing with 
their money, why we are doing it, and how it is making a 
difference to our economy.
    Members of the Committee, let me close by thanking you for 
considering my nomination as Assistant Secretary of the 
Treasury for Financial Stability. I was raised by a family that 
has always valued public service. My family spent much of his 
career as a special agent in the FBI. My Dad's father worked in 
the U.S. Department of Agriculture here in Washington, DC. My 
mother's father was sheriff of Sioux Falls, South Dakota. And 
my brother, George Allison, with me today, retired with the 
rank of captain after 28 years in the U.S. Navy. Having started 
my own career in the Navy, I am honored and inspired by the 
opportunity to return to public service.
    Thank you very much.
    Chairman Dodd. Well, thank you very, very much. In our 
conversation, I did not know that your Dad had been in the FBI. 
My father was an FBI agent. In fact, his first post was in 
Sioux Falls, South Dakota.
    [Laughter.]
    Chairman Dodd. Long before I was born, by the way. I might 
have been raised there. Well, thank you.
    We have been joined by Mark Warner, Senator Warner of 
Virginia. Mark, do you have any opening comments you would like 
to make before we----
    Senator Warner. Senator Tester told me since I was late, I 
had to reserve my comments to the questioning time.
    [Laughter.]
    Chairman Dodd. Well, Jon runs the show around here. We 
appreciate it.
    Let me start with some questions, and I am going to leave 
the clock off here. In fact, I am going to invite my 
colleagues, since there are only three or four of us here, to 
have more of an informal conversation with you here. So feel 
free as colleagues, if I start a line of questioning and you 
have a thought along the same line, jump right in here so we 
make this in a way more cohesive in that sense.
    There are so many places to start. Let me start with this: 
SIGTARP noted that since TARP's inception, the program's scope, 
size, and complexity have dramatically increased. I made note 
of this in my opening comments when I mentioned the 12 separate 
initiatives under TARP that are around today. Some of these 
interact with the Federal Reserve, some with the FDIC, some 
with, obviously, private investors, as we have discussed as 
well.
    I wonder if you could begin, and I think some of this you 
mentioned in your initial steps you intend to take, but I would 
like you to expand on this and how you would assure this 
Committee and the public at large of the effective management 
of such a complex program that involves already interaction 
with almost every other Federal agency that is directly or 
indirectly involved with economic recovery in the country. And 
I wonder if you might share those thoughts--and I have been 
joined now by our colleague from Alabama, and so let me 
interrupt myself and ask my friend and colleague if he would 
like to make some opening comments.
    Senator Shelby. Mr. Chairman, I was late. I have been in 
the Appropriations Committee meeting with Senator Mikulski. We 
have the FBI Director there. But I told him we also had a very 
important hearing on this nomination here in the Committee. I 
would ask that my opening statement be made part of the record. 
I might have questions in a few minutes.
    Chairman Dodd. Great, terrific. We just heard, by the way, 
that Herb Allison's father was an FBI agent for many years, so 
it is a timely connection.
    Senator Shelby. It is very good. He has got a presumption 
in his favor right now.
    [Laughter.]
    Mr. Allison. Thank you.
    Chairman Dodd. Why don't you begin with that. Now, you have 
been involved in complex entities in the past, obviously, at 
Merrill and Fannie and TIAA-CREF and so forth. So you have a 
background in this, but give us some sense because it seems to 
us every time we turn around here, there is some new activity 
involved with the TARP program, and I am wondering how we get 
our arms around this. And it is getting more and more complex 
in understanding how these resources are being used. But give 
us some sense of how you would approach this.
    Mr. Allison. Yes, sir. Thank you very much for the 
question. Actually, one of my first steps as I joined the 
Treasury was to contact the Special Inspector General, Neil 
Barofsky, and ask to meet with him. We have been meeting every 
week since. I think he plays a very important role in 
protecting American taxpayers, and I want to do all I can to 
work with him going forward.
    As you well said, this is an extremely complex and very 
large program. It requires vigilant control. One of my first 
acts will be to meet with our people in Compliance as well as 
our own Internal Audit people, people in the legal area, to 
reexamine all of our controls over the financial stability 
programs.
    Second, we are building our information systems even 
further so we can monitor the performance of each of these 
programs, monitor these controls. I am having--will have, when 
I am confirmed, weekly meetings with the management team to go 
over all those metrics. We are going to be inviting in members 
and meeting with the Congressional Oversight Panel and the 
other oversight groups, including the GAO, and seeking their 
guidance as well to make sure that this program is well 
controlled and highly transparent to all who have to oversee 
it.
    Chairman Dodd. Well, let me jump to the issue of 
foreclosures. There was an article in one of the leading 
newspapers in the country yesterday about concerns over whether 
or not the foreclosure mitigation program, which we have been 
so actively involved in on this Committee for the last several 
years, is working very well. The administration has dedicated 
$50 billion of TARP funds for foreclosure prevention and 
mitigation through a loan modification program. I and most 
members of this Committee strongly support that effort. We have 
tried various ideas as to how this would work, and, obviously, 
when there are 23 of us up here trying to craft something, you 
get a lot of different ideas that can make up that decision. 
And all of us I think understand as well that while we may 
debate about how many causes contributed to this crisis, I 
think all agree that a major cause was, of course, the 
residential mortgage market, the subprime lending, the 
predatory lending that went on. And so any effort to address 
all of this absolutely demands, insists that we do everything 
we can to try and keep as many people in their homes, the 
10,000 people a day with the foreclosure filings every single 
day in this country, and the numbers may increase in the coming 
weeks and months.
    So the concern about whether or not this program is going 
to work very well raises two issues, in my mind, given the 
apparent resistance on the part of servicers to participate in 
this program. First, we need good data on how many loans are 
being modified or refinanced in the Hope for Homeowners 
Program, how many are being rejected for assistance in order to 
hold servicers accountable for their promises, and we need that 
data made public on a servicer-by-servicer basis. I wonder if 
you might commit to doing that very quickly.
    And, second, there needs to be some process by which 
homeowners or consumers can raise concerns about the way the 
process is working. I have two thoughts on this: either 
creating an ombudsman in a sense that gives people an 
opportunity to understand all of this, dedicated loan 
modification; or perhaps we ought to ask the Special Inspector 
General to oversee compliance with foreclosure prevention 
programs.
    I wonder if you might share some thoughts. This goes to the 
heart of this in so many ways. If this fails and we are not 
making the kind of--not that we are not making the effort, but 
if the effort is not succeeding in this area and we end up with 
a new wave of foreclosures coming in, as we could, swamping the 
kind of efforts that are being made, this thing is beginning to 
gain traction. Things are beginning to improve. Confidence and 
optimism clearly seem to be getting better. And what none of us 
wants to see is this all of a sudden stalling out and falling 
back. If it does, to regain that momentum again I think will be 
a lot harder than it was in the initial effort.
    So this is a critical moment, it seems to me, not to lose 
that momentum, however slight it may be, but certainly momentum 
heading in the right direction for the first time in months, in 
my view. But failure in this area I think would throw us back 
in ways that would make it very difficult to recover. So I 
would be very interested in the ideas and how you can--I do not 
think we want to wait weeks or months to find out whether or 
not this was working. The concern is that it is not working as 
well as all of us up here would like it to work, and we need to 
know whether or not we need to do something, what can you do, 
what can the administration do to get this back on track again.
    Mr. Allison. Yes, thank you for your question and your 
thoughts, Mr. Chairman. I fully share your concerns about this 
crisis of foreclosures and defaults in mortgages across the 
country. Millions of Americans have been affected by this. 
There are many desperate households today anxious to hold on to 
their homes, and that is why the President and the Treasury 
Secretary have made this one of their top priorities, and the 
Home Affordable program I think is an extremely effective tool. 
It is going to take time to really ramp up and reach full 
scale, and as you well said, it is important that the Congress 
and the public are informed about the performance of these 
programs. And I would pledge to you that if I am confirmed, one 
of my first acts will be to reexamine our information systems 
and our reporting. And I know that the Treasury is pulling 
together more information, as we speak, about this program.
    I think we have to be agile as we look at this program as 
well. Let us see how it is working. If it is not working as 
effectively as it needs to, we will make every effort to make 
it more efficient and more effective and to reach more people.
    What is extremely important in dealing with the mortgage 
crisis is to reach out to as many people as possible. People 
are fearful about losing their homes. They are fearful of 
contacting their bank or their servicer to describe their 
problem for fear that that could cause itself a foreclosure on 
their house.
    We have to reach out and tell people that programs are 
available, banks are willing to work with you, Fannie Mae and 
Freddie Mac are willing to work with you. You can go to the 
Financialstability.gov Web site if you are a homeowner who is 
concerned and get more information and contacts, people who can 
counsel homeowners about how best to hold on to their homes.
    Chairman Dodd. But the servicers need to do this as well. 
You know, we carved out that safe harbor provision, which was 
controversial, to insulate them against lawsuits from 
investors. And, frankly, the investor community spoke up and 
said, ``You know, you are breaking contracts here.'' And they 
were right. But we understood if we did not do that the 
argument would be, look, we would like to help out these 
homeowners, but we cannot face the possibility of an 
overwhelming number of lawsuits by investors who will sue us 
for engaging in modifications. So we insulated them from that 
problem.
    What are the servicers doing? Servicer by servicer, I want 
to know what they are doing out there. I mean, the homeowner is 
reluctant, you are right. The servicer should not be reluctant.
    Mr. Allison. Yes.
    Chairman Dodd. In light of what we have done here for them 
to create that safe harbor and other provisions. So I would 
like to know what they are doing and whether or not we are 
probing those servicers to find out why they are not stepping 
up, if, in fact, they are not doing that.
    Mr. Allison. Mr. Chairman, thank you for your question, and 
at least 14 of the top servicers in the country have already 
signed up, and they are already active in this program, and 
they account--including Fannie Mae and Freddie Mac--for over 
three-fourths of the mortgages in America. So this is moving 
ahead.
    I will say that this is an extremely complex, large-scale 
program. It takes time to fully get to speed. It is moving 
ahead rapidly. I think we are going to see over the next few 
months it reaching out to even more people. It is encouraging 
that already over 100,000 offers for mortgage modifications 
have been sent out to people. We have received millions of 
contacts on the Web site, people wanting more information.
    So, again, this is a matter of outreach. It is a matter of 
taking some time so these banks can reconfigure some of their 
systems and their capability to be able to handle the large 
volumes that we expect. But it is moving forward, and I will be 
happy to report to you often on the progress of that program.
    Chairman Dodd. I appreciate it.
    Senator Warner wanted to make a comment.
    Senator Warner. Thank you, Mr. Chairman, and thank you for 
opening up this line of questioning. Mr. Allison, good to see 
you this morning, and I am glad you raised that issue of the 
100,000. That is what I have heard as well. I have to tell you, 
folks in my State--I remember when Secretary Donovan was here, 
and I understand this is a Treasury program and also has, 
obviously, a great deal of collaboration with HUD. You know, we 
told folks, ``Call after March 4th,'' and at least the folks in 
my State would call, and they would then get a basic response 
that said, ``Well, thanks, but we do not have any of the 
details ready.'' And I understand the complexity. I think the 
Chairman has raised a good point about perhaps an ombudsman, 
some kind of appeals or process so that if you cannot get 
answers, a Web site alone may not be enough.
    I guess one of the things I think would be helpful from an 
information standpoint--and this just may be one-off examples, 
but what I am hearing in my State is that there are a number of 
banks that basically have stopped processing foreclosures, 
waiting for this loan modification program to be fully in 
place; and that while the wave of foreclosures has slowed, it 
has not slowed because necessarily economic conditions have 
dramatically improved, but everybody is just kind of taking a 
time-out until the loan modification program is fully put in 
place. And while it is great that 100,000 offers have been 
made, one, I would love to know how many of those offers have 
been accepted. And, two, if all of these servicers do not get 
fully engaged, do we have this enormous potentially multi-
million backlog of foreclosures waiting to flood the system if 
these initiatives are not successful? And do you have any sense 
on whether there is this backlog that has been created? Is this 
just kind of a one-off example or--my sense is this is probably 
going on around the country.
    Mr. Allison. Yes, sir. Thank you, Senator, for your 
question and for your concerns about this. It certainly is true 
that the program had to be organized, and during the 
organization period, anxious homeowners were calling in trying 
to find out when they could get assistance. I think we see a 
much fuller response today than just a couple of months ago.
    As to the foreclosure crisis, there were moratoriums. Many 
of those have been lifted now, but recently, the Government has 
instituted a couple of new programs that can ease the situation 
for homeowners. One is called Deed in Lieu. And, also, there 
are efforts to get out to as many people right now as possible 
to engage in mortgage modifications. And I think it is 
extremely important--I want to say this again--that we all 
reach out to as many people as possible to alert them to these 
programs, that help is available for them. And I think as we do 
that, we can help prevent many, many foreclosures.
    One of the prime objectives of this administration is to do 
all possible to keep people in their homes, and we need 
feedback. We need information systems. And if I am confirmed, I 
will come back to you and other members of the Committee with 
fulsome reporting about the progress of carrying out mortgage 
modifications, the pace at which we are doing it, whether we 
are on track, and what more we can do going forward.
    Senator Warner. Thank you, and that will obviously include 
what percentage of the take-up of that 100,000 offers made, 
what kind of backlog we are looking at, because I am just 
afraid that we may have, in a sense, a false sense of progress 
because there are people in arrears, people about to be 
foreclosed upon. The actions haven't been taken, but my gosh, 
if the bullets we fired haven't worked, we have got to be 
prepared for what is next.
    Mr. Allison. I fully share your concern about that, 
Senator, and we will provide you with that information. Thank 
you.
    Senator Warner. Thank you.
    Chairman Dodd. Senator Schumer wanted to make a comment on 
this, as well.
    Senator Schumer. I just have a quick question. I apologize 
for having to go. I just am curious, how much of the capital 
program funds do you anticipate will be repaid next week, in 
the next 6 months, next year? How much are we going to get 
back, which gives you money to play with, I guess, or not play 
with, but have in need of an emergency?
    Mr. Allison. Senator, I will have to await the final 
results on that. That will be communicated as soon as possible, 
as the Treasury has been communicating repayments over time, 
and----
    Senator Schumer. Don't we expect a bump next week?
    Mr. Allison. I think that is quite likely, that there will 
be a bump next week, and that is----
    Senator Schumer. Do you have a ballpark estimate?
    Mr. Allison. I wouldn't want to make an estimate, Senator, 
as to what it will be. I would wait for the Federal Reserve and 
the Treasury to complete that process.
    Senator Schumer. OK, and just one more quickie.
    Mr. Allison. Yes, sir.
    Senator Schumer. Several firms feel they are going to be at 
a disadvantage if their competitors are approved for repayment 
before they are. You know, there is always competition, of 
course.
    Mr. Allison. Yes.
    Senator Schumer. Have you heard that concern? How are you 
going to address it?
    Mr. Allison. Senator, I have heard that concern and I am 
sure that the administration is well aware of that and it will 
be taken into account as the announcements are made.
    Chairman Dodd. Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    Mr. Allison, thank you for taking on this responsibility. I 
wish you well. What assurances have you been given from 
Secretary Geithner and the White House that you will have 
sufficient autonomy in your decision making, in other words, 
the management of this program?
    Mr. Allison. Senator, first of all, I understand my 
responsibilities if I am confirmed for this position, and my 
role is to carry out the Treasury Secretary's directives, as 
well, on this program. He and I will be consulting frequently. 
I know how concerned he is about making sure that these 
programs are successful. I see him daily about these issues. 
And those contacts will probably grow even closer if I am 
confirmed.
    Senator Shelby. What is your view, if you have one at the 
moment, of how the Treasury, which you will be right in the 
central role there, should manage its investments in GM and 
Chrysler, and how long do you believe Treasury will be a 
shareholder of GM and Chrysler, if you want to?
    Mr. Allison. Thank you for the question, Senator. I must 
say to you that I have not been involved directly in the auto 
initiative, and at this point, that would have been 
presumptuous of me to get involved before I am confirmed, so I 
can't give you details on the auto program.
    Senator Shelby. But you plan to get involved, don't you?
    Mr. Allison. Yes, sir, very much involved.
    Senator Shelby. With both elbows?
    Mr. Allison. Yes, sir. Absolutely. I can assure you that I 
will get involved in all of the initiatives under the Financial 
Stability Program.
    Senator Shelby. Sure. Well, your No. 1 goal right now is to 
get confirmed. We all here understand that.
    AIG, the management of AIG, what steps do you believe need 
to be taken--have you thought about this--for the Federal 
Government's oversight of AIG? In other words, you have got a 
big bear and you can't turn it loose. I hope we won't have to 
put more money into it. I don't know. But it seems--I don't 
know how you discard it.
    Mr. Allison. Well, Senator, certainly I understand the 
importance of the AIG situation. Again, I have to tell you that 
I have not been involved in AIG because, again, that would have 
been presumptuous if I started getting into it. But I will 
certainly, if I am confirmed, immediately turn my attention to 
that issue, as well, and I will be happy to come back and 
discuss it with you.
    Senator Shelby. Just a generic thing. What do you believe 
is the best way for the Federal Government to manage its equity 
investments in the TARP recipients to, one, ensure that the 
management of these firms have the proper incentives in running 
their companies and hopefully paying back the money?
    Mr. Allison. Senator----
    Senator Shelby. You would have an interest in that, would 
you not?
    Mr. Allison. Yes, sir. I think that is a very important 
question that you are asking and very shortly, the 
administration will be announcing its policies as a shareholder 
of companies, and we have all heard the President as well as 
Secretary Geithner say the government has no desire to be a 
day-to-day manager of those companies. It will be a shareholder 
and its policies on governance as a shareholder will be made 
public soon.
    Senator Shelby. Mr. Allison, you well know this. We all do. 
Government programs are quite often difficult to create and 
sometimes just about impossible to terminate. The TARP program 
has a statutory termination date that can be slightly 
extended----
    Mr. Allison. Yes, sir.
    Senator Shelby. ----at the request of the Treasury 
Secretary. You know this. Do you believe that the TARP program 
should ultimately be terminated, and would you have any 
concerns if the program were converted into some kind of 
permanent revolving fund?
    Mr. Allison. Senator, I think that is an important question 
many Americans, as well as people in Congress, are asking. As 
you said, the program is scheduled to terminate at the end of 
the year, although it could be extended by an act of the 
Secretary until, I believe, as late as October of 2010. But I 
think it is important to point out that the programs within the 
national stability area have themselves termination provisions, 
many of them. There are terms to the financing, end dates. 
There are also disincentives built into those programs that 
cause--which should cause banks to want to repay that money as 
fast as possible. We have already seen and we will see 
additional repayments. So this program is designed to deal with 
an extremely serious financial crisis and it was not set up to 
be a long-term permanent program.
    Senator Shelby. Mr. Allison, while the TARP program has 
provided hundreds of billions of dollars to the banking sector, 
there have been a lot of complaints, and we all hear it here in 
the Senate, that the banks receiving TARP funds are not making 
loans, at least not enough. What is being done, and what do you 
intend to do, about ensuring that the TARP recipients are 
making loans, particularly to small businesses? We are not 
talking about making bad loans. I know you can't micromanage 
the daily activities of them. But as far as policies, it seems 
that the small business community is really being squeezed in 
the financial sector in this country.
    Mr. Allison. Yes, sir. Well, we are acutely aware that in 
many small communities around the country, small businesses are 
still having difficulty getting access to credit. I think there 
are a number of reasons for that, but it is important to point 
out that the Secretary recently directed that we would reopen 
the Capital Purchase Program for small banks, which provide an 
out-sized portion of lending to small businesses around the 
country----
    Senator Shelby. You believe that will help a lot, don't 
you?
    Mr. Allison. I do, and I think it is important. We are not 
forcing money on banks. We are making money available. We want 
to be helpful in every possible way to small business. We are 
also--the Secretary has initiated a number of actions--and to 
small banks. I think what is the first priority is to make sure 
these banks are well capitalized, and over time, that capital 
will turn into more and more lending. I think we have to go 
through a period where there are concerns by borrowers, as 
well. Small companies, in some cases, are fearful about 
borrowing because they are not sure about the economic 
environment.
    As the Chairman said, we are not yet out of the woods with 
this economic crisis. We all have to be aware of that. We have 
to be vigilant. We can't be complacent. We have to be willing 
to modify these programs, if necessary, moving forward. We have 
to have a constant dialog with the Senate, with the House, with 
the American people, and with the financial community to make 
sure that these programs are as effective as they possibly can 
be, and I know that the Secretary is completely dedicated to 
making sure that happens.
    Senator Shelby. Thank you, and thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator Shelby.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman.
    Kind of going back to when this program would end, assuming 
it wouldn't be extended, does that mean that the money would be 
paid back by October of 2010 for the program to end, or does 
that mean that no more money would be lent out by October of 
2010?
    Mr. Allison. Senator, it would mean that no more money is 
going to be invested from this program from that point onward.
    Senator Tester. OK.
    Mr. Allison. There still may be monies outstanding. That is 
why it is also important that we have a strong and effective 
asset management capability within the Office of Financial 
Stability----
    Senator Tester. Yes.
    Mr. Allison. ----and that will be one of my 
responsibilities, if I am confirmed, as well, to make sure that 
happens.
    Senator Tester. And you may or may not have looked at this. 
I mean, you are talking about AIG, Bank of America, GM, 
Chrysler. Those paybacks are probably going to take some time, 
or what is your perspective on that?
    Mr. Allison. Senator, I don't think any of us can forecast 
exactly how long that will take. I think it will take some 
time. The purpose of putting capital in there is to enable, for 
instance, the auto companies to make that transition over some 
period.
    Senator Tester. OK. Jump back to the auto program. You had 
said that you are going to be jumping in waist-deep, at least, 
if not further, into this program. Can you tell me, from your 
perspective right now, who is making the day-to-day decisions 
on that program, or will it be you?
    Mr. Allison. Well, eventually, if I am confirmed, I will be 
involved in making those decisions----
    Senator Tester. The primary decision maker?
    Mr. Allison. The Secretary is involved, as well, and I will 
report to the Secretary of the Treasury, as well, and I am sure 
we will have a continual dialog about that along with others 
within the Treasury Department and throughout the government.
    Senator Tester. One of the concerns that Ranking Member 
Shelby brought up, I believe, or maybe it was Chairman Dodd who 
brought up the fact that the TARP recipients aren't loaning 
money, or at least in some cases that is the case. Yesterday, 
it was brought up to me by a person who uses--an industry, 
actually, that uses a lot of fuel that this TARP money is being 
used to speculate in the oil market. Would you have any control 
in your position to look at that? Quite honestly, I have got 
some real problem with folks tinkering around in the oil 
industry that aren't taking delivery on the product, and maybe 
I am alone in that, maybe I am not, but it creates artificial 
balloons and when they pop, we have problems. Would you have 
any ability in your position to take a look at if, in fact, 
they are doing something like messing around in oil speculation 
and driving the prices up artificially?
    Mr. Allison. Senator, I should point out that already, the 
Treasury Department is producing monthly reporting on the 
lending activities of the banks that are receiving Financial 
Stability funds and that reporting was recently expanded to 
include all the banks that have received that funding. We will 
work to make that reporting as fulsome as we possibly can.
    Let me also point out that throughout this recession, and I 
think thanks to these programs that have been put in place, we 
have seen lending remain fairly steady throughout this period, 
and I think it has been important, by injecting capital into 
these banks as they wish to have it, that we have been able to 
sustain lending during this very difficult period. But all of 
us want to see lending increased.
    And may I also say, Senator, that we will--I will be glad 
to get back to you on your question about whether these monies 
are being used for oil speculation. We want to develop more 
reporting, both for the oversight committees as well as for the 
Congress.
    Senator Tester. If they are----
    Mr. Allison. Yes?
    Senator Tester. ----is it within your capacity to say no?
    Mr. Allison. Senator, we are not going to be in the 
business of micromanaging these banks. We are there to help 
them be financially sound.
    Senator Tester. I appreciate that. But the reports that we 
can get, we can give direction off the reports.
    Mr. Allison. Yes, sir.
    Senator Tester. Thank you.
    Mr. Allison. Thank you.
    Senator Tester. A couple questions, if I might, Mr. 
Chairman. Your predecessor recently commented that firms deemed 
too big to fail have an unfair advantage over smaller 
competition because they can raise money more cheaply in the 
debt markets. What are your thoughts on that?
    Mr. Allison. Senator, the administration is working right 
now on a proposal on financial reregulation that is very much 
needed and I am sure that it will be addressing broadly the 
type of issue that you are raising.
    Senator Tester. So you do think that it is a concern?
    Mr. Allison. I think that there is a concern on behalf of 
the American public and certainly myself that we have a strong, 
stable financial system----
    Senator Tester. Yes.
    Mr. Allison. ----and a system that is responsive to the 
long-term needs of the shareholders and the long-term needs of 
this country.
    Senator Tester. OK. I will let you off on that one.
    Do you think--just give me your opinion on the too big to 
fail thing as an overall perspective, and you know what mine 
is. I mean, I think that if failure is not a possibility, that 
means the taxpayers are on the hook, and that also means that 
there is not a lot of risk there if you know that you cannot 
fail and you are one of those banks that are too big. What is 
your perspective on that? Do you think it is healthy? Do you 
think we need to do something about it? What would you do if 
you were in my boots?
    Mr. Allison. Senator, I think one of the reasons for this 
initiative on financial industry reform and reregulation is to 
deal with the fact of what we were confronted with as a country 
last year when these huge institutions began to fail and there 
was no real mechanism for an orderly resolution to those 
problems. I think what we need is to have a mechanism in place 
to, if that type of event should ever recur again, and we are 
going to try to work very hard to make sure it wouldn't----
    Senator Tester. Right.
    Mr. Allison. ----that there is a mechanism for dealing with 
it. The other is to make sure that these organizations have a 
framework of regulation that will allow for transparency and 
active interaction between regulators and financial 
institutions to try to prevent some situation like this from 
happening again.
    Senator Tester. OK. Very good. Thank you, Mr. Allison. 
Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much.
    Senator Warner.
    Senator Warner. Thank you, Mr. Chairman.
    I want to go back to comments that both Senator Schumer and 
Senator Shelby made. Senator Shelby raised the point of--I 
liked your analogy to we have got this bear, AIG, and we don't 
know what to do with it. Senator Corker and I, when Secretary 
Geithner was in recently----
    Chairman Dodd. Senator Warner, let me apologize. I did not 
see Bob Corker walk into the room. I apologize to my friend 
from Tennessee.
    Senator Warner. I was about to say good things about him 
and you are going to cut me off?
    [Laughter.]
    Chairman Dodd. No, no, no. I apologize, and my apologies to 
my colleague from Tennessee, but normally we go back and forth 
from one side to the other, so forgive me. Senator Corker, I 
apologize.
    Senator Corker. I will let him ask his first question----
    Chairman Dodd. All right.
    [Laughter.]
    Senator Corker. ----and then come back to him, because I 
think----
    Chairman Dodd. He seems to be complimenting you in some 
way.
    Senator Corker. No, that is right. Go ahead. Go ahead with 
that.
    Chairman Dodd. Very smart of you, Senator Warner, to do 
that.
    Senator Warner. I am learning, Mr. Chairman. I am learning.
    [Laughter.]
    Senator Warner. But we pressed--we were very concerned, and 
I think a lot of folks have been obviously very concerned about 
the whole AIG situation. We were concerned with the fact that 
100 percent pay-off on the counterparties with AIG, no haircut 
taken. Secretary Geithner said, well, he didn't have any 
authority and now there is a precedent set, and consequently, 
even if we tried to give him authority, perhaps it couldn't be 
fully utilized.
    That brings me to what Senator Schumer raised earlier, 
which is as we think about a repayment pattern from the 
financial institutions that receive TARP funds, we know they 
want to pay back these dollars. We know many of them want to 
pay them back as soon as possible. Secretary Geithner said that 
as these banks start paying back, at least initially it was his 
intent to take back not only--let them repay, but also kind of 
wash out the warrants or sell back the warrants, as well.
    And my concern is before we start setting precedents on 
this repayment program that we think through an overall 
strategy and policy goal for our repayments, and what I am 
particularly concerned about is the warrants. You know, the 
American taxpayers, we as shareholders and investors took an 
awful lot of downside risk exposure and I would like to see 
some of the upside here.
    Now, I know that we don't want to be long--none of us want 
us to be long-term holders of--investors in financial 
institutions, but my hope would be that, one, you would have an 
overarching policy in terms of repayments; that second, that 
one thing that you would consider, and we raised this with 
Secretary Geithner, that while we, the Federal Government, may 
not want to hold those warrants too long because we don't want 
to have that potential even hint of political interference, I 
would hope we would at least consider some other options rather 
than selling them before we got full value, which might include 
setting up a trust or selling them to a third party where we 
could share some of the upside so there is an independent 
financial entity that is making sure that we get some value on 
those warrants since we, the taxpayers, have taken that risk. 
So if you could comment a little bit about your thoughts about 
a repayment policy and particularly as it applies to the 
warrants.
    Mr. Allison. Senator, first of all, I appreciate your 
concern about the taxpayers and the importance that the 
taxpayers receive an appropriate return on the investment that 
they have been making in these institutions. Given the recent 
enactment of the Reed amendment, which gives the Treasury more 
flexibility as to the timing of disposition of the warrants, 
the Treasury is now looking at that issue actively and I am 
sure it will be announcing before too long what its policy will 
be on warrants, given this change in the rules governing the 
management of the warrants.
    Senator Warner. So in other words, that doesn't give any 
hint of what your thoughts are.
    Mr. Allison. This is actively being discussed right now and 
I am sure that there will be policy that is made public before 
long.
    Senator Warner. Thank you, Mr. Chairman.
    Chairman Dodd. And, of course, under the Reed amendment, 
there is a lot of flexibility.
    Mr. Allison. Yes, sir.
    Chairman Dodd. That was the idea.
    Mr. Allison. There is.
    Chairman Dodd. I think what Senator Warner is suggesting, 
that now that we have the flexibility, looking at a range of 
ideas that would give us additional options within that range 
of flexibility other than making the choice of either selling 
those warrants or holding those warrants, it seems to me 
between those two bookends, there are some opportunities here 
that we ought to examine.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman.
    Chairman Dodd. My apologies again.
    Senator Corker. No, no, no. I understand. There is a lot 
going on.
    Mr. Allison, first of all, thank you for being here, being 
willing to do this. I think we are fortunate in the public 
arena to have people like you with the background you have that 
are willing to offer yourself and I want to thank you for that.
    Mr. Allison. Thank you, Senator.
    Senator Corker. I have a lot of similar kinds of concerns. 
When we began this program with TARP, it was sold and we all 
focused on it in this way, I think, as something where we were 
going to buy assets of value. We all talked about the fact--I 
know we were highly involved in meetings about the fact that 
the $700 billion in all likelihood would yield a return, that 
we would get back more than $700 billion. And by the way, I 
think that very well could have been the case. It is evident 
with some of the things like AIG, and I don't want to create a 
debate here on the panel, but starting to use money for things 
like mortgage modifications and all that, that that is likely 
not going to be the case today.
    But as we look at the various--as we look at TARP, or as 
you look at it, I would like to get an understanding. I know 
that these things evolve and there is fine print in bills and 
people are able to be very entrepreneurial about taking 
advantage of a few words in a bill and starting to do a lot of 
other things with it, which I think we have all learned a 
lesson from in many, many ways. But is it your perspective that 
with these TARP funds, your primary goal is in stabilizing the 
financial system, investing in things that will have value and 
that will return taxpayers their money?
    Mr. Allison. Yes, sir. As the law states, the Financial 
Stability Program is intended to improve the stability of the 
financial system while protecting the interest of taxpayers. I 
think it is very important that I, if I am confirmed for this 
responsibility, are mindful of both of those conditions. I 
think it is early to say what the eventual returns will be to 
the American public. I can assure you that if I am confirmed, I 
am going to work very hard to make sure that these monies are 
well invested and well managed and tightly controlled going 
forward, keeping the interest of the taxpayer and American 
people very much in mind.
    Senator Corker. You know, as we look at where we are in the 
TARP program today, somebody like you, I don't think, would 
take on a position like this unless you had responsibilities 
and you felt like you were making a difference. I mean, you 
have stature and you have substance. And yet as I look at the 
program and where we are, it seems to me that those decisions 
that are going to be left as it relates to TARP, other than 
making decisions about timing and when we take advantage of our 
warrants and those kinds of things, much of the heavy lifting 
may have already been done. It seems like the decisions about 
who we are going to invest in majorly will be made by the 
Treasury Secretary and that the TARP leader may be more of an 
implementor, and I am just wondering what kind of conversations 
you all have had in that regard, because again, looking at your 
resume and background, I am just wondering what it is that is 
luring you to this position.
    [Laughter.]
    Mr. Allison. Well, I am lured to the position and have 
taken on this responsibility, if you confirm me, because I 
believe that this is still a very serious economic time for 
this country, that much still has to be done to restore 
stability. There are many positive signs thanks to the 
initiatives by the administration and these programs. We are 
seeing spreads coming down, credit spreads in the banking area. 
We have seen home sales more steady the past few months. And 
there are other signs, for instance, the banks being able to 
issue equity on their own, to issue unsecured debt. These are 
all very positive signs. But we also see housing prices are 
still falling. The commercial real estate market is still under 
pressure. Small businesses are still having some difficulty. We 
have still credit spreads, this measure of risk in the system, 
still higher than they historically had been and should be.
    There is still a great deal of work to be done here and I 
don't think at this point we ought to become complacent and 
think that because the banks are starting to repay some of this 
money that the crisis is over and we can just go ahead. There 
still could be, as the President and the Secretary have said, 
some bumps along the road here.
    I think we have to see this program through and make sure 
that it is well administered all along the way. As the Chairman 
said, this is going to require close management and experienced 
management skills and I think that is what I can help to bring 
to this and also provide assistance to the Secretary of the 
Treasury, who has the overall responsibility for these 
programs.
    Senator Corker. A very good answer, and this is my last 
question, Mr. Chairman. Secretary Paulson last summer, when he 
was given the authority, if you will, to act as a conservator 
for Fannie and Freddie, mentioned that before he left, he was 
going to give a statement about what the ultimate outcome of 
those two organizations ought to be. The events of the day and 
the crises that continued sort of prevented that from 
happening, or if it happened, it was overwhelmed by other news 
that was happening at the time.
    You have been at Fannie and you are a smart guy, and I am 
wondering if while we are all here, since it is a major 
responsibility of all of us on this committee, if you could 
just tell us what you think, as we move through this crisis, 
what the ultimate outcome should be with Fannie and Freddie. A 
lot of people have talked about privatization. A lot of people 
have talked about we ought to only use them as insurers. There 
are all kinds of things that have been stated. You have lived 
it and breathed it and I wonder if you might share with us what 
you think the ultimate outcome of those organizations ought to 
be.
    Mr. Allison. Senator, thank you for the question and let me 
just tell you what I used to tell the people at Fannie Mae who 
were asking this question themselves. You could see they were 
quite concerned about the future of an institution where they 
had worked for many years, and by the way, they are outstanding 
employees and they are working extremely hard today on behalf 
of the American public.
    What I told them was, let us not try to anticipate what 
form this company may take and whether it may even exist in the 
years ahead. Let us look at what is in the best interest of the 
American public. Let us do our jobs on behalf of people right 
now who are desperate to stay in their homes, and that is the 
line of business of Fannie Mae today, is to keep people in 
their homes.
    I think that this will be an issue debated within Congress. 
The administration will take its viewpoint on this down the 
road. I think what is most important is that we have a vibrant 
housing system in the United States with liquid markets so that 
people can access credit in responsible ways to own their home. 
After all, that is part of the American dream. So at this 
point, I wouldn't offer any specific prescription. I think this 
depends on major government policy going forward. This is a 
pivotal moment and I think that it calls for a debate, a 
reasoned debate about the future of the housing market and of 
housing policy in the United States.
    Chairman Dodd. Thank you very much, Senator----
    Senator Corker. That was pretty much a nonanswer, and I 
guess during a confirmation hearing, when you don't know if you 
are going to be confirmed or not, it is maybe unfair to ask 
that. I sure hope that as time moves on and you are confirmed, 
that you will be more clairvoyant and helpful to us as to what 
you think ought to occur. But I will certainly, like Senator 
Tester, will give you a pass and tell you you would be well 
qualified to run for public office based on that answer, but 
thank you.
    [Laughter.]
    Mr. Allison. Thank you, sir.
    Chairman Dodd. Let me just say, I was going to suggest, by 
the way--let me just mention to my colleague, before Senator 
Corker leaves, just so my colleague is aware, your reputation 
at Fannie among the employees was just remarkable. At a time 
when they were being absolutely deluged and overwhelmed, you 
restored a sense of confidence to a workforce that was feeling 
rather battered in many ways, and I want my colleagues to know 
about that. That is strong leadership at a time like that.
    And obviously, we would like your ideas. I want to pick up 
on Senator Corker's point. This is a very important issue as to 
where we go with this policy, and the fact that you were there 
and understand that institution as well as you do and enjoy the 
reputation with the workforce as strongly as you do. This is 
not the moment for it. But there will be a moment we would like 
to invite your thoughts and ideas of how that construct ought 
to occur, so I second the request----
    Senator Corker. Thank you, Mr. Chairman.
    Chairman Dodd. ----and appreciate that.
    Let me go back to Senator Warner. Do you want to finish up 
and then----
    Senator Warner. Yes. I just have one more point. Thank you, 
Mr. Chairman.
    Mr. Allison, one of the comments you made in terms of your 
priorities was transparency, and I just want to get a little 
further confirmation on that as well. One of my frustrations 
that actually led me to put forward legislation with Senator 
Martinez and Senator Brown--and Senator Tester said he wants to 
join me in this--to try to mandate, since we have not seen it 
so far from the administration, on a publicly accessible, 
single-Web site basis the status of all of the investments we 
have made with the TARP program. I mean, the Chairman made 
clear that, I think, there are 12 odd separate programs and 
initiatives, and the administration has gotten better on this. 
You still need not only a technology degree but also a finance 
degree to try to find all this information on various Web sites 
around, and the fact that it could and should be consolidated 
into a user-friendly, single-site where the American people can 
check what we have done with this $700 billion and what the 
status of these loans and investments are is terribly 
important, because I can tell you, at least, again, in my 
State, an awful lot of folks think that we have taken these 
funds and basically either thrown them into the wind or flushed 
them down the toilet and that we are never getting them back, 
when in reality I am optimistic that we--I would like to hope 
we get it all back, but that we will actually get a fairly good 
rate of return and that we will have shored up the financial 
system.
    This is as much a comment as a question, but my hope is 
that when you get confirmed, as I know you will, that perhaps 
you could mitigate or even get rid of the reason for this 
legislation by trying to put in place this kind of user-
friendly, single-Web site to highlight and in real time 
indicate the status of all these TARP programs and let the 
American public know where these funds have gone and what the 
status of either repayment or potential for repayment would be.
    Mr. Allison. Senator, thank you very much for your 
suggestion. I fully share your thoughts about that, as I know 
the Secretary does as well. And the Treasury is in the process 
of further enhancing the information on its Web site about 
these programs, and I have met with people in the homeownership 
initiative area about that very subject. So I am confident that 
we will be able to prepare more information, and we would like 
to have a two-way dialog about this and make sure that we are 
satisfying your needs for information and those who you 
represent.
    Senator Warner. Well, Mr. Allison, I hope that would be the 
case. My only hesitancy--and it is one of the reasons why we 
actually put forward legislation, which I, again, would love to 
not have the need for--is that we have heard that response from 
every individual who has testified, from the Secretary on down, 
that, yes, that is a good idea, we want to get this information 
out, yet it is still pretty hard to find in a single source and 
in a user-friendly way. So we look forward to that kind of 
conversation and that kind of result.
    Mr. Allison. Thank you.
    Senator Warner. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much.
    Senator Merkley.
    Senator Merkley. Thank you, Mr. Chair, and I thank you for 
your testimony, Mr. Allison. You have both the Wall Street 
experience and the experience in the housing world. I wonder if 
you can give us some insights on the role that prepayment 
penalties and yield spread premiums played in creating 
financial risk or contributed to the housing bubble and how we 
ought to address those in the future.
    Mr. Allison. Well, I think that there is a need to 
reexamine the financing of homeownership in the country. It is 
obvious that some of these loan structures were totally 
inappropriate for the people to whom they were sold, and I 
think that needs to be looked at very carefully. I think there 
should be a simpler process for borrowing. The terms of the 
borrowing should be highly transparent. And I think that 
attention is going to be given to that as well, as the 
Government looks at reregulation of the financial industry.
    You know, a home is the biggest investment most people ever 
make, and that should be taken into account. If we want to 
promote homeownership and promote wealth creation in the United 
States among the public, I think there has to be much more 
attention given to the structures of those loans.
    Senator Merkley. How did those practices contribute to 
systemic risk?
    Mr. Allison. I think we have seen inappropriate lending 
practices, not full transparency in some cases. I think there 
is plenty of evidence that many homeowners were convinced to 
take risks that they should not have been taking, and that 
happened on a pretty large scale. And I think that led to a 
significant part of the housing crisis.
    Senator Merkley. Thank you. I would just suggest that one 
has to track how the securitization and the subsequent 
splitting of the tranches, and the creation of CDOs and CDO-
squared contributed to creating really the toxic assets that 
contaminated the international banking world, and one needs to 
make those connections, I feel, in order to get one's hands 
around the systemic risk part of this.
    Am I way off track here, or do you share that----
    Mr. Allison. Well, I think that we have seen that Secretary 
Geithner is concerned about making sure that there is adequate 
disclosure, that there are mechanisms in the marketplace that 
will lead to better risk management. And this is complex issue. 
There are many elements to having an inappropriate risk 
management approach within the financial industry, and I am 
sure that is getting a lot of attention among those who are 
working on these proposals for reregulation.
    Senator Merkley. To change topics here, my support for the 
second half of the TARP was contingent upon a big chunk of it 
going to mortgage modification, assisting homeowners, or 
perhaps in refinancing. The reports we get from the field in 
Oregon remain very minimal; that is, people are as frustrated 
today in trying to reach someone they can talk to. Those who 
service the loans are as unknowledgeable, if you will, and as 
unhelpful as they were months ago. We have one particular 
institution that folks repeatedly get told, ``Well, our 
institution is participating,'' when their institution is 
participating. This institution was featured in an article 
yesterday in a different States with experiences that very much 
reflect what is happening in Oregon, in which a person who had 
lost their job and was doing everything they could to make 
their payments, but clearly was going under, was simply told 
they would have to wait until they were behind 3 months, and 
then the effort was made to sell them a new loan at a higher 
interest rate with high servicing charges that would have put 
them further in the hole, kind of a repeat of the types of 
flipping practices that have been destructive.
    Somehow we have to get over the hill here. We have to get 
into the world where our institutions are really taking 
seriously the modifications programs. Institutions that have 
received enormous tax support from citizens who are earning 
30,000 bucks a year and seeing their tax money go to help these 
institutions but then in return are being stonewalled on the 
mortgage front.
    What can we do to accelerate this effort to assist our 
citizens?
    Mr. Allison. Senator, I share your concerns that we be as 
effective as possible in rolling these programs out to every 
community in America where people are feeling under great 
pressure right now. And this is a mammoth program, and it has 
taken some time to get rolling. I think all of us are 
impatient. We want this to be working as quickly as possible 
because people are suffering every day.
    So I know that people are working day and night. I am 
encouraged, as I mentioned before, that more banks are becoming 
involved. The banks who account for the institutions, at least 
75 percent of mortgage loans are involved in this program right 
now. It has taken them time to build their staffing, to change 
some of their systems, to be able to implement this program as 
it is designed. And it is frustrating when we all want to see 
this operating overnight because we know people out there need 
this immediately.
    So I can assure you that, if I am confirmed, I will be 
working with others within the Government. I know that 
Secretary Donovan is very concerned about this, Secretary 
Geithner, not to mention President Obama. There is a great deal 
of pressure on even to get this program out as fast as 
possible, working closely with the banks, and they are making, 
I think, great efforts to.
    Now, we have to do more. We have to reach more 
institutions. We have to reach more people. It is important 
that they know these programs are available. In the case you 
mentioned, I think, you know, it is important that we try to 
get as many banks as possible involved in this program. And I 
would be happy, if I am confirmed, to talk with you or your 
staff about this and learn more about those situations. I think 
everybody has got to be working at maximum effort to try to 
make this program effective.
    Senator Merkley. I appreciate your statement and what I can 
characterize as a commitment that it is a high priority for 
you, maximum commitment.
    Mr. Allison. Yes, sir.
    Senator Merkley. Or an effort to make this program success. 
Thank you.
    Mr. Allison. Thank you.
    Chairman Dodd. Thank you very much, Senator.
    Senator Reed has joined us, and I am going to have to slip 
out in a minute. Senator Tester I think is going to take the 
gavel to finish the hearing. I have been told you are, anyway.
    Let me, if I can, the issue was raised by Senator Shelby 
earlier about AIG, and on May 20th we had a hearing--in fact, 
the Secretary was here, and the issue came up dealing with 
creditors and counterparties. And, obviously, a lot of the 
attention was focused on bonuses and so forth when the AIG 
matter broke in the winter. At about the same time, there were 
announcements about the counterparties and creditors that did 
not get anywhere near the same attention. But one of the things 
that has been disturbing is the fact that while the value of an 
AIG stock has declined, obviously, the creditors and 
counterparties were getting paid 100 percent of value.
    The issue it obviously raises, as many of us raised here, 
is: Who is doing the negotiating? We are an 80-percent owner of 
this company, and here counterparties are getting 100 cents on 
the dollar. It does not exactly sound like a great negotiating 
position, it seems to me, given the exposure of the dollar 
amounts.
    What I would like to know is--and, again, I realize you are 
not in the job yet, but, you know, what tools do you feel the 
Government needs to negotiate the best terms for taxpayers? Do 
we need to give you any additional tools? If there is something 
we need to be doing, I would like to know about it. If you have 
the tools necessary to negotiate better, then we would like to 
know whether or not--what they are and how they are intended to 
be used, without getting into--I do not expect you to 
necessarily tell me what the answer ought to be. But the answer 
that we cannot do anything, that we just have to accept this, 
is unacceptable. I think most of this, anyway, is just 
unacceptable given the exposure we are talking about.
    Mr. Allison. Mr. Chairman, I think everybody is frustrated 
about the AIG situation. I think that is a major reason why the 
Secretary and others are working hard on financial reregulation 
proposals. There was no mechanism for the orderly resolution of 
the AIG problem, and there needs to be if, God forbid, there 
ever is another situation like that.
    I think one of the practical implications--and, again, I am 
not involved in the AIG matter directly, but there were cross-
default clauses that would trigger defaults across AIG's 
exposures to counterparties and debt holders that would have 
caused a massive problem within the financial system given the 
size of that entity. And that could have had ripple effects 
throughout the banking system.
    So I think that the Government has been doing what it can 
in that very difficult and very complex situation to protect 
the interests of taxpayers. That is frustrating, and I think 
that it is a very strong reason why there is a need to put new 
measures in place that can deal with a situation like that if 
it ever does happen again.
    Chairman Dodd. Well, the resolution mechanism is clearly 
something we have got to deal with, but, again, the negotiating 
process that goes on, I believe the tools are there. It is a 
question of whether or not you buy into the notion that any 
negotiation that could in any way diminish something less than 
100 cents on the dollar value would somehow create the kind of 
economic problems that you have just mentioned, or not. And I 
know there is a pretty significant debate. I am not satisfied 
that that is the case, but I am going to continue raising this 
issue, as I am sure others will, because, again, the exposure 
dwarfs--there were a lot of headlines about the bonuses. The 
bonuses by comparison to the exposure here is just no 
comparison, it is such a vast difference what we are talking 
about potentially.
    Let me turn to Senator Reed, and thank you very much, and 
we look forward to moving your nomination as soon as we 
possibly can.
    Mr. Allison. Thank you.
    Chairman Dodd. And thank you again for your willingness to 
take on this job.
    Mr. Allison. Thank you very much.
    Chairman Dodd. And welcome to your family as well. 
Delighted to have them.
    Mr. Allison. I appreciate that very much. Thank you.
    Senator Reed. Thank you, also, Mr. Allison. Thank you, 
Chairman Dodd.
    Senator Warner I believe raised the issue of warrants which 
is close to my concern also. Just once again to emphasize with 
the recent legislation you have complete flexibility on the use 
of the warrants, and I urge you to use that flexibility wisely.
    There is an issue that, frankly--this is a question that 
has just come to mind. The TARP fund will receive two forms of 
payment: the principal that was advanced and also interest on 
the preferred. Does that interest revert back into the TARP 
program? And another question related is the value of the 
warrants, the profits from the warrants, does that go back into 
the TARP program?
    Mr. Allison. Senator, as I understand it, the monies that 
are received go into the general funds of the U.S. Treasury. 
The amount advanced initially is then deducted from the amount 
outstanding under the $700 billion limit. I will double-check 
that for you, but that is my understanding.
    Senator Reed. So, essentially, the repayment would restore 
the ability to extend the principal amount that is repaid, but 
the additional, the profits, the interest, and the value of the 
warrants, they go back to the general Treasury.
    Mr. Allison. Again, that is my understanding. I will go 
back and double-check it for you, Senator.
    Senator Reed. Thank you very much, Mr. Allison.
    I would assume that you have looked at the April 21st 
report of the Special IG for TARP.
    Mr. Allison. Yes, sir.
    Senator Reed. And I think he did a very good job in laying 
out some of the problems of transparency and oversight. Do you 
have any thoughts about these recommendations and how to 
influence them? And if you have covered them before, I 
apologize.
    Mr. Allison. I have begun in my first week in the Treasury 
to meet with the Special Inspector General. I meet with him 
every week, if not more often. Our staff at the Treasury meets 
with him also, and his staff.
    We are, I think, all intent on making sure these programs 
are very well controlled and that there is as much transparency 
as practical given the need to have these programs also be 
quite broad. I know that the Special Inspector General shares 
those objectives. So we are respectful of his findings, and we 
take them very seriously, and we are working with him to find 
practical ways of dealing with those concerns.
    Senator Reed. And there is another issue, or potential 
issue. I know the regulators are doing a great deal to avoid 
the issue, that is, a reapplication to TARP for an institution 
that might have paid out but then needs additional assistance. 
Are you establishing any procedures for that, or is that 
something that is still off on the horizon?
    Mr. Allison. Senator, if I am confirmed, I will certainly 
look at that, and I would be happy to meet with you or your 
staff on that question. Thank you for the question.
    Senator Reed. Well, again, thank you, Mr. Allison, for your 
willingness to serve. I think it began as a lieutenant--or an 
ensign, really, in the United States Navy.
    Mr. Allison. Yes, sir.
    Senator Reed. So thank you very much.
    Mr. Allison. Thank you very much.
    Senator Tester [presiding]. Thank you, Senator Reed.
    Senator Merkley, do you have any further questions?
    Senator Merkley. Yes, I would like to ask one more 
question, if appropriate. One of the concerns I have is related 
to the PPIP program and the possibility of manipulation between 
buyers and sellers. I believe that TARP recipient banks are not 
going to be participating in the legacy loans program, but that 
no such restrictions have been put in place in the legacy 
securities program, which will be managed by Treasury and the 
Fed under TALF.
    Any thoughts or insights that you have basically parties 
with an interest on both sides of the transaction?
    Mr. Allison. Well, there are going to be very clear 
conflict-of-interest rules in the Public-Private Investment 
Partnership, and those rules are also being discussed with the 
Special Inspector General as well as with people within 
Treasury. I think it is very important for the credibility of 
the program and to protect the taxpayers that the program be 
administered in a way that prevents such conflicts of interest.
    Senator Merkley. Absolutely. Thank you.
    Mr. Allison. Thank you.
    Senator Tester. Mr. Allison, there have been a few figures 
floating around about how much is left out there to be invested 
or loaned, however you want to put it. Have you been able to 
take a peek and see what is left out there, how many billion 
are left?
    Mr. Allison. It is roughly $100 billion, Senator, that is 
available today.
    Senator Tester. And as things unfold here, your crystal 
ball being as clear as anybody's, what kind of criteria do you 
see utilizing for potentially investing those dollars, 
personally?
    Mr. Allison. Well, I think first of all it is important 
that we leave some headroom in this program because we are not 
yet out of this crisis.
    Senator Tester. Right.
    Mr. Allison. And I think the Treasury, the Government, 
needs some flexibility so that if there is a need in the 
future, we can intervene in a timely manner on behalf of the 
American public.
    Senator Tester. So it is $100 billion which you think is 
adequate for headroom?
    Mr. Allison. Senator, I would not want to place a number on 
that. I think we all have to be vigilant, and there needs to be 
flexibility in this program so we can act on behalf of the 
American people, if necessary.
    Senator Tester. OK. Thank you. Thank you very much. I 
appreciate you putting yourself forward for public service and 
going through all the questions.
    Mr. Allison. Thank you.
    Senator Tester. I also appreciate your family for being 
here. I think that behind every good guy there is a good 
family, so we appreciate that.
    Thank you very much.
    Mr. Allison. Thank you, sir. Thank you, Senator.
    Senator Tester. This hearing is adjourned.
    [Whereupon, at 11 a.m., the hearing was adjourned.]
    [Prepared statements, biographical sketch of nominee, and 
responses to written questions supplied for the record follow:]
            PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY
    Thank you Mr. Chairman. This morning we are considering the 
nomination of Mr. Herbert Allison for the position of Assistant 
Secretary for Financial Stability at the Department of the Treasury. If 
confirmed, Mr. Allison will have the primary responsibility for running 
the TARP program.
    When Secretary Geithner appeared before the Committee a few weeks 
ago, I noted my serious concerns about the manner in which the TARP 
program had been hastily conceived and then inconsistently 
administered.
    I believe the failures in both design and execution have wasted 
taxpayer funds and done little to address the problems in our financial 
markets. I think it is crucial that we terminate this program as 
quickly as possible.
    That said, the TARP program remains in place and hundreds of 
billions of taxpayers dollars are at risk. Consequently, the program 
must be properly administered until it is wound down.
    I believe proper administration means protecting the American 
taxpayer while taking deliberate but careful steps to end the program.
    As I noted at the earlier hearing with Secretary Geithner, we 
should be under no illusions about how difficult it will be to unwind 
the massive funding facilities that have been constructed.
    In fact, it is very likely that the greatest challenges posed by 
this financial crisis still lie ahead.
    If the Treasury stumbles in dismantling its facilities, there is a 
great risk of sparking another and potentially more severe crisis.
    If done well, the withdrawing of government intervention will 
likely do no more harm. If done poorly, we could face serious and 
prolonged economic problems.
    I look forward to hearing today from Mr. Allison about how he would 
manage the TARP program, how he proposes to retract TARP facilities, 
and how quickly he believes that can be done.
    Thank you, Mr. Chairman.
                                 ______
                                 

             PREPARED STATEMENT OF HERBERT M. ALLISON, JR.
       To Be Assistant Secretary for Financial Stability (TARP),
                       Department of the Treasury
                              June 4, 2009
    Chairman Dodd, Ranking Member Shelby, and all of the Members of 
this Committee, I am honored to be before you today. First of all, I 
want to thank President Obama and Secretary Geithner for the trust they 
have shown in asking me to serve. I also want to thank you and your 
staff for the time you have spent with me, helping to move my 
nomination forward, and working to acquaint me with the concerns you 
have about the financial crisis and the comprehensive measures needed 
to address it.
    If I am confirmed, I will always keep in mind Congress's directive, 
that the primary objective of the Assistant Secretary for Financial 
Stability is to restore liquidity and stability to the financial system 
of the United States. In doing so, we must never forget that this 
financial crisis isn't just about banks, credit, and lending--it's 
about the day-to-day effects the crisis is having on the American 
people. Millions of people have lost their jobs, numerous families have 
lost their homes, nearly all working people have lost retirement 
savings, hundreds of thousands of young people have been forced to 
postpone college, and countless small businesses have curtailed their 
activities and laid-off skilled employees, all because of failing 
credit markets. These real-world harms are the reason Congress has 
given the Office of Financial Stability the mandate it has, and I will 
ensure that combating these human costs remains the focus of the 
office.
    Before I briefly review my background and my plans for the Office 
of Financial Stability, should I be confirmed, I want to express my 
heartfelt thanks to my wife of 35 years, Simin, and my sons, John and 
Andrew, who are with me today and have provided unwavering support over 
many years.
    I began my career in public service, as an officer in the U.S. 
Navy, serving 4 years on active duty, including a year in Vietnam, 
before receiving an honorable discharge in 1969. After attending the 
business school at Stanford University, I joined Merrill Lynch and 
spent more than 28 years with that company, leaving as President in 
1999. In 1998, I played a central role in devising and negotiating the 
unwinding of Long Term Capital Management--the hedge fund that a decade 
ago posed systemic risk to our banking system.
    In all of these areas, my experiences taught me lasting lessons 
about the right ways to do business including the importance of sound 
corporate governance, independent oversight, tight controls over risk 
and pay geared to long-term performance. At Merrill Lynch in the 1990s 
I contributed to strengthening all of these practices, which were not 
always popular, but which have proven essential to the long-term 
viability of any company. If I am fortunate enough to be confirmed, I 
will bring those principles with me to the Office of Financial 
Stability.
    Since leaving Merrill Lynch, I have led two major financial 
institutions through transformations necessary to their future success, 
TIAFF-CREF and Fannie Mae.
    In 2002, I became Chairman and CEO of TIAA-CREF, the leading 
provider of retirement and asset management services in the 
educational, medical, and cultural fields. To meet the changing needs 
of its customers, the challenges from increased competition, and the 
need for more stringent regulation, we transformed operations, controls 
and product lines. While improving investment performance, we doubled 
its capital base and established strong, independent risk management. 
We also upheld TIAA-CREF's leadership in corporate governance, becoming 
the first Fortune 100 company to allow stakeholders an advisory vote on 
executive compensation. And we redesigned executive compensation 
programs to give far greater weight to performance on behalf of clients 
than to profits. These efforts produced results: TIAA-CREF is one of a 
select few financial companies in the United States that retains AAA 
debt ratings, and the company and its clients have avoided the worst 
effects of this crisis.
    In September of 2008, I was named CEO of the Federal National 
Mortgage Association as the company was placed into government 
conservatorship. The crisis that devastated Fannie Mae's liquidity and 
capital base also threatened millions of American homeowners with 
foreclosure. New management had to quickly transform the company's 
focus from maximizing profit and market share to helping hard-pressed 
American families stay in their homes. While much remains to be done, 
we have laid the groundwork for success. Working closely with the 
Federal Housing Finance Agency, we began developing foreclosure 
prevention and mortgage modification programs and the systems to 
support them. The hard work by the company's employees convinced the 
government to appoint Fannie Mae as agent for the President's Home 
Affordable Refinance and Modification programs, which offer financial 
relief to millions of Americans. We also began reforming aspects of 
Fannie Mae's operations, controls, and policies that had contributed to 
the company's excessive risk-taking. We initiated quality-assurance 
programs covering the company's purchases of mortgages; no longer would 
Fannie Mae simply take the word of bankers and mortgage brokers for the 
quality of their loans. And we began to pursue institutions that had 
not been upfront about the defective loans they were selling the 
company. Today, although still burdened by credit losses on loans made 
during the housing bubble, Fannie Mae is performing well on behalf of 
the American people.
    Members of the Committee, if I am confirmed, I will bring the same 
managerial discipline and drive for results to the important office I 
will occupy. The Financial Stability Program is essential to President 
Obama's and Secretary Geithner's plans for recovery. Our economy 
declined sharply last year in large part because credit stopped 
flowing. Without access to credit, small businesses in Connecticut, 
Alabama, and Colorado cannot buy the new equipment, raw materials, and 
inventory that they need to expand. And larger businesses, like Boeing, 
Caterpillar, and United Technologies, need well-functioning credit 
markets as they adjust to the changing nature of the global 
marketplace. The Financial Stability Program is designed not only to 
help companies endure the challenges of the current economic crisis, 
but also to enable them to compete successfully in the new economy. 
Strengthening and reforming our financial markets is an essential to 
furthering those goals and achieving our ultimate ends: putting 
Americans back to work and resuming strong, sustainable economic 
growth.
    Given the magnitude of the financial crisis, this program must meet 
the highest standards. Much good work has already been done and for 
that I am grateful to those that have already served. But with the 
extraordinary amount of the American people's money with which we have 
been entrusted, good work is not enough--we must strive to be flawless. 
Every dollar must be wisely and carefully managed, and we must be 
constantly accountable to the public which has entrusted us with their 
money.
    To that end, if confirmed, I will work closely with the Special 
Inspector General, the Government Accountability Office, the 
Congressional Oversight Panel, the Financial Stability Oversight Board, 
and the committees of Congress to assure the kind of accountability and 
oversight the American people deserve. And finally, as Secretary 
Geithner has directed, I will emphasize transparency so that the 
Congress and the American people will know what we are doing with their 
money, why we are doing it, and how it is making a difference in our 
economy. Openness will be a guiding principle of this office and will 
help ensure that we remain focused on putting these taxpayer dollars to 
their highest and best use--rebuilding the American economy.
    In closing, I would like to say a few words about public service. 
My family has always emphasized to importance of serving one's 
community, whether at the federal or local level. My father spent much 
of his career as a Special Agent with the FBI. His father worked for 
years for the United States Department of Agriculture. My Mother's 
father served as Sheriff of Sioux Falls, South Dakota. And with me 
today is my brother, George Allison, who retired with the rank of 
Captain after 28 years in the U.S. Navy. I admire all Americans who 
devote themselves to serving their communities and their country. 
Having started my career as an officer in the U.S. Navy, I am honored 
and inspired by this opportunity to return to public service. Thank 
you.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

         RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN DODD
                  FROM HERBERT M. ALLISON, JR.

Q.1. It has come to our attention that some TARP recipients are 
exerting their status as creditors in corporate bankruptcy/
restructuring proceedings to obtain the best financial outcome 
for themselves. In some cases, the heavy hand of these 
creditors is preventing companies from successfully 
restructuring to eliminate debt, preserve jobs, and emerge 
stronger and more stable. Do you believe it is appropriate for 
TARP banks to exercise their creditor status in this manner?

A.1. Mr. Chairman, I appreciate your leadership on this issue 
and, if confirmed, I look forward to working with you on this 
and many other matters. President Obama and Secretary Geithner 
have stated that, as a general matter, the Administration is 
not seeking to involve itself in day-to-day management of 
individual companies. I believe taxpayer value is best 
protected by avoiding government involvement in tactical 
business decisions. While some recent corporate bankruptcies 
and their impact on communities and employment concern me 
deeply, if confirmed, I intend to work with my colleagues at 
Treasury and throughout the Administration more broadly to find 
alternate ways to help these companies and their employees and 
support overall recovery.
                                ------                                


         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
                  FROM HERBERT M. ALLISON, JR.

Q.1. A recent report from the National Foreclosure Mitigation 
Counseling Program indicates that homeowners are waiting, on 
average, 45-60 days for responses to requests for help. Other 
homeowners are finding servicers reluctant to make meaningful 
changes to the terms of their mortgages despite advertised 
participation in the Administration's foreclosure prevention 
initiatives. Companies that have agreed to participate in these 
programs must be held accountable, especially when so many are 
simultaneously receiving taxpayer dollars. What mechanisms 
would you recommend putting in place to ensure that servicers' 
public pronouncements translate into relief for homeowners? 
Would you, for instance, consider collecting regular data on 
the volume of homeowner inquiries, average response time, and 
number and type of workouts offered, in the model of the 
Monthly Lending and Intermediation Surveys? Would you consider 
requiring detailed action plans from participating servicers 
for how they will expand the capacity of their loss mitigation 
departments, and holding them accountable to meeting 
benchmarks?

A.1. I agree that it is extremely important that participating 
servicers fully comply with the Home Affordable Modification 
Program (HAMP), and I also recognize the importance of 
providing robust public reporting on servicer performance and 
borrower behavior and experience under the program. If 
confirmed for this position I expect to oversee this process 
and make sure as many Americans as possible are able to take 
advantage of this program.
    In specific response to your question, the Treasury is 
currently working with Fannie Mae, the program administrator, 
and with the servicers to provide detailed information 
concerning the program. We will be capturing information from 
each servicer at the loan level and it will include items such 
as homeowner contacts, types of workouts offered and accepted, 
interest rate before and after modifications, payment amount 
changes, as well as a number of other categories. We will be 
able to look at this data by different views including by 
servicer, geographic regions, and loan characteristics. We are 
also creating a database which will allow further views of the 
data. This detailed information will begin flowing the end of 
June. At that time Fannie Mae will have completed the 
electronic system to capture this information. It is 
anticipated that the first payments under this system would 
happen in July when the first set of homeowners would complete 
the 90 day trial modifications.
    In addition to this detailed information which we will be 
receiving from the servicers, we have also instructed Fannie 
Mae to establish a call center capability that will allow the 
borrower to be able to speak to a representative to obtain more 
help with the program. This call center augments the Making 
Home Affordable web page which was launched a couple of months 
ago. The call center provides the extra support that borrowers 
might need. This call center has been established through the 
``Hope hotline.'' It will allow us to also capture independent 
information concerning the borrowers' experience with each 
servicer,invaluable in managing the program. Another important 
feature of the call center is that borrowers that need more 
help will be able to be immediately transferred to a HUD 
certified counselor who can provide the extra support that they 
may need. The contract to expand the ``Hope hotline'' was 
signed this past month and the hotline has been ramping up over 
the last few weeks and it should be fully operational, with the 
further Making Home Affordable information, now.
    In addition, if confirmed, I expect to be working closely 
with servicers to ensure they put in place the proper systems 
and workforce to properly implement this program.
    All of the features I have described should help to make 
this program live up to the expectations of the Congress and 
the Obama Administration. It is a complex issue that has 
required tremendous effort on all parts in order to handle the 
volumes of borrowers, technical changes to systems, and proper 
support mechanisms to be put in place in such a short span of 
time. If confirmed for this position I expect to oversee this 
program and make sure it is done right.
                                ------                                


        RESPONSE TO WRITTEN QUESTIONS OF SENATOR BENNET
                  FROM HERBERT M. ALLISON, JR.

Q.1. It's my understanding that certain TARP recipients, which 
are creditors to companies undergoing Chapter 11 bankruptcy, 
are using the restructuring process to increase the pricing of 
their debt instruments. It's troubling that financial 
institutions that have benefited from taxpayer money are now 
acting in a manner that undermines the vitality of companies 
that don't have the luxury of receiving Federal assistance. 
It's also disturbing that these creditors were expected to be 
repaid in full under the bankruptcy process. Is this an issue 
that the Treasury Department is monitoring?

A.1. Both President Obama and Secretary Geithner have stated 
that, as a general matter, the Administration is not seeking to 
involve itself in the day-to-day management of individual 
companies. I believe taxpayer value is best protected by 
avoiding government involvement in these individual business 
decisions. While some recent corporate bankruptcies and their 
impact on communities and employment is something that concerns 
me deeply, I intend to work to find alternate ways to help 
these companies and their employees and support overall 
recovery. I appreciate your attention to this issue and, if 
confirmed, I look forward to working with you on this issue.
                                ------                                


        RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING
                  FROM HERBERT M. ALLISON, JR.

Q.1. ESSA established numerous reporting requirements regarding 
a variety of issues, but all with a common purpose--to provide 
information to Congress and other government entities on the 
implementation of the Act's provisions.
    The Act's stated purposes are:

        (1) to immediately provide authority and facilities 
        that the Secretary of the Treasury can use to restore 
        liquidity and stability to the financial system of the 
        United States; and (2) to ensure that such authority 
        and facilities are used in a manner that--(A) protects 
        home values, college funds, retirement accounts, and 
        life savings; (B) preserves homeownership and promotes 
        jobs and economic growth; (C) maximizes overall returns 
        to the taxpayers of the United States; and (D) provides 
        public accountability for the exercise of such 
        authority.

    This is the Black Letter Law that was written into the ESSA 
Act and cannot be superseded. Even though transparency is at 
the discretion of the Secretary of the Treasury as stated in 
section 114, the Act still requires the Secretary to make sure 
that the intent as described above is insured under the act.
    If confirmed, can you please share with us how under your 
leadership the Department of Treasury will ensure and safeguard 
the Act's stated purposes?

A.1. If confirmed, I will do my best to see that the Office of 
Financial Stability operates effectively and efficiently, 
maintains high ethical standards, manages its programs in a way 
that maximizes their effectiveness in order to restore 
liquidity and stability to the financial system while 
protecting the interests of the taxpayers, and provides full 
and timely disclosure of its activities to Congress and the 
public.

Q.2. Although most firms will perform fully within their 
commitments to correctly manage the funds provided to them, 
isn't there potential that this opens the opportunity to have 
the funds used inappropriately without the proper level of 
transparency as both a deterrent and a regulatory process?
    If confirmed, will you institute a technological system 
that would not only provide for true transparency, but provide 
for near real time oversight of how TARP funds are being 
utilized?

A.2. If confirmed, I will continue Treasury's efforts to 
develop ways to monitor the effectiveness of TARP programs. 
Technology is a necessary part of these efforts and I look 
forward to hearing from and working with Congress.
                                ------                                


         RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO
                  FROM HERBERT M. ALLISON, JR.

Q.1. Can I have your assurances that you will look into making 
sure that the Federal Home Loan Banks are sufficiently strong 
to continue to achieve their core mission of providing 
liquidity and supporting community banks and thrifts?

A.1. The Federal Home Loan Banks have played an important role 
of providing a stable source of funds to their member 
institutions throughout the recent disruptions in credit 
markets. The Federal Home Loan Banks have access to a credit 
facility that the Treasury Department established under the 
Housing and Economic Recovery Act of 2008. The Treasury 
Department works closely with the Federal Housing Finance 
Administration in evaluating the financial condition of the 
Federal Home Loan Banks. If confirmed, I will look forward to 
continuing this work with my colleagues at the Treasury 
Department.
                                ------                                


       RESPONSE TO WRITTEN QUESTIONS OF SENATOR MARTINEZ
                  FROM HERBERT M. ALLISON, JR.

Q.1. The Special Inspector General for TARP continues to 
recommend that Treasury require all TARP recipients to report 
on their actual use of TARP funds. To my knowledge, Treasury 
has no data driven, transparent way to show that the funds 
infused into TARP recipients have been used and performed as 
intended. The American people have a right to know how their 
tax dollars are being spent. If confirmed, how would ensure 
that TARP funds are better accounted for?

A.1. This is an important issue and I share President Obama and 
Secretary Geithner's commitment to transparency. I agree with 
you that it is important to monitor TARP investments to 
determine whether they are achieving their intended purposes.
    Treasury has already taken a number of steps towards these 
goals. Treasury is tracking lending levels at the banks that 
have received CPP funds. Treasury has launched a monthly 
lending survey of the 21 largest CPP recipients, and has issued 
four monthly Snapshots that provide detailed information by 
institution and category of loan. It contains quantitative 
information on three major categories of lending--consumer, 
commercial, and other financial activities--based on banks' 
internal reporting, as well as commentary to explain changes in 
lending levels for each category. In addition, the survey 
contains a qualitative section that provides market color on 
lending demand and credit standards generally to help Treasury 
and the public meaningfully and accurately interpret the 
quantitative data. Treasury has recently added a small-business 
lending component to this survey.
    Treasury has also published its first monthly report of 
lending activity by all CPP participants (over 500 banks). This 
report measures consumer and commercial lending activities at 
CPP participants.
    Because banks' double-entry bookkeeping systems, including 
their cash flow statements, cannot trace the precise paths of 
funds from their receipt to investment, we have no way to 
attribute contributions of TARP capital to particular uses. 
Nonetheless, if confirmed, I will continue Treasury's efforts 
to develop additional ways of assessing the performance of TARP 
programs and more detailed reporting of results to Congress and 
the American taxpayers. I will be pleased to brief members of 
the Committee on those initiatives in the months to come.

Q.2. Senator Warner and I introduced the TARP Transparency Act 
(S. 910), which directs Treasury to implement technology to 
more aggressively compile information and disclose to the TARP 
Inspector General, the Congressional Oversight Panel, and the 
GAO how TARP funds have been used. This type of system will 
bring to the surface potential issues in real time as they 
occur, not after the fact like traditional audits.
    Do you believe a technological system, utilizing near real 
time data, would be beneficial to Treasury's efforts to track, 
report, and analyze the impact of TARP funds?

A.2. I appreciate your concerns and if confirmed, I would be 
happy to study this issue in greater detail. While I agree that 
advanced technology could improve Treasury's ability to track, 
report, and analyze the impact of TARP funds, the absence of 
such a system does not undermine transparency or impede the 
flow of information to TARP's oversight bodies. In fact, 
Treasury already publishes a wealth of information about TARP 
programs and investments on the financialstability.gov Web 
site, and maintains active and open working relationships with 
SIGTARP and GAO and, increasingly, with the Congressional 
Oversight Panel.
    Treasury staff provides briefings for all four oversight 
agencies as new programs are developed, announced, and 
structured, as well as in response to specific requests from 
the oversight agencies. Additionally, Treasury staff interacts 
with the staff of the oversight agencies on a daily basis, 
answering questions, providing information, and making itself 
available for meetings to discuss topics of interest or address 
audit inquiries.
    If confirmed, I intend to be in regular contact with the 
Special Inspector General to discuss any issue or concern that 
either party wishes to raise.
                                ------                                


        RESPONSE TO WRITTEN QUESTIONS OF SENATOR VITTER
                  FROM HERBERT M. ALLISON, JR.

Q.1. On February 5, 2009, in a GAO TARP report on the Status of 
Efforts to Address Transparency and Accountability Issues, 
Assistant Secretary for TARP Neel Kashkari said, ``Once the 
funds are given to the institutions, the money is fungible, we 
have no idea how to track it.''
    Do you agree with Mr. Kashkari that TARP funds cannot be 
tracked and thus there is no way to determine how TARP funds 
have been used?

A.1. It is important to distinguish between Treasury's capital-
enhancement programs and its other programs. The Capital 
Purchase Program, Capital Assistance Program and institution-
specific programs for AIG, Citigroup and Bank of America were 
designed to provide capital to cushion against losses and allow 
financial institutions to continue operating in the ordinary 
course of business, including lending to consumers and 
businesses. In order to serve its purpose, capital must be 
available for any legitimate business purpose. While Treasury 
requires applicants for participation in the Capital Assistance 
Program to specify how they intend to use the funds, accounting 
for actual use of particular dollars invested as capital is not 
a meaningful exercise. Because banks' double-entry bookkeeping 
systems do not trace the paths from creating liabilities 
(receiving capital) to investing in assets (making loans), we 
cannot precisely attribute the contribution of TARP capital to 
particular uses. The banks can, however, report trends in loans 
and other uses of funds, and we do require that they report 
such to Treasury.
    On the other hand, Treasury's homeownership preservation 
program, small business lending initiative, auto industry 
programs, and the terms of Treasury's participation in the Term 
Asset Backed Securities Loan program impose specific 
limitations on the use of TARP funds, and require controls and 
periodic reports to insure that those limitations are 
respected.

Q.2. If you do agree, are you saying, that that this Congress 
and the American people will never know how over $700 billion 
of taxpayer dollars were spent?

A.2. As Secretary Geithner has said, our two goals are first, 
to stabilize the financial system and second, to protect the 
American taxpayer. I am committed to both of these goals and 
will work to ensure that our investments through TARP are 
achieving their intended purposes.
    The Financial Stability Plan and other Administration 
initiatives seem to be having positive effects (such as rising 
consumer confidence, lower credit spreads, and relatively 
stable volumes of lending in spite of a deep recession) that 
should lead to increased willingness of companies to borrow and 
banks to lend as the economy stabilizes.

Q.3. As you know, Treasury Secretary Timothy Geithner has said, 
``Oversight and transparency requirements in the original 
(TARP) proposal were inadequate.'' And, Lawrence Summers, 
Director of the National Economic Council, has said, ``The 
priority now has to be restoring trust, demonstrating that the 
financial system can be supported in ways that are accountable 
and transparent.''
    If there is no one specific source of information that 
would provide a transparent exposure to the true nature of the 
use of taxpayer-supported TARP funds, from a statisticians 
perspective, it is impossible to determine if these infusions 
were either associative or causal in actually improving the 
health of the financial sector and the overall economy.
    Is it possible to have better technological mechanisms and 
processes in place to determine the actual impact the infusion 
of TARP funds have had on the overall economy?
    If it is possible to use better technology to track TARP 
expenditures, what impediments stand in your way to instituting 
such mechanisms and processes?

A.3. Just as it is impossible to pinpoint any single cause of 
the current financial crisis, it is impossible to measure the 
precise effect of any particular expenditure of TARP capital. 
Nevertheless, it seems clear that the funds injected into the 
financial system through TARP have had a positive effect. For 
example, risk spreads in the interbank market, which were at 
unprecedented levels before the Capital Purchase Program was 
announced, have returned to more normal levels. The 3-month 
LIBOR-OIS is down to 45 basis points from 365 basis points in 
October 2008. Spreads for investment grade corporate bonds have 
fallen 250 basis points since November 2008 and spreads on high 
yield corporate bonds are down 870 basis points.
    Issuance of asset-backed securities, which fund about half 
of all consumer credit in normal times, has restarted and 
increased since the Term Asset-Backed Securities Lending 
Facility began operating in March 2009 with $30 billion in new 
ABS issuance in 2009. While lending standards remain tight, the 
largest 21 CPP recipients extended roughly $260 billion on 
average each month in new loans to consumers and businesses in 
the first quarter of 2009.
    The question of using technology to better track TARP 
expenditures is an important one and if I am confirmed as 
Assistant Secretary for Financial Stability, I look forward to 
familiarizing myself with the issue and then determining 
whether it may be cost-effective to introduce additional 
technological mechanisms and processes for depicting the impact 
of TARP funds on the overall economy.

Q.4. If confirmed, will you work with Congress to institute 
such a technological system that would not only provide for 
true transparency, but provide for near real time oversight of 
how TARP funds are being utilized?

A.4. If confirmed, I will keep uppermost in mind that the 
ultimate purpose of the Act under which the Office of Financial 
Stability was created and operates is to benefit the American 
public by strengthening the financial system so that access to 
capital and liquidity is restored, confidence of businesses and 
households is bolstered, homeownership is protected and new 
jobs are created. If confirmed, I will lead the Office of 
Financial Stability with constant awareness that the support of 
Congress and the public for Financial Stability programs 
depends on trust that taxpayer money is being invested 
carefully, all activities adhere to the law, and controls and 
management of risk are rigorous. To merit that trust, I will 
endeavor to provide full and timely disclosure of the Office of 
Financial Stability's activities to Congress and the public.
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