[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]







                 HAS DODD-FRANK ENDED TOO BIG TO FAIL?

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

                                HEARING

                               before the

                SUBCOMMITTEE ON TARP, FINANCIAL SERVICES
              AND BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 30, 2011

                               __________

                           Serial No. 112-21

                               __________

Printed for the use of the Committee on Oversight and Government Reform







         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform




                  U.S. GOVERNMENT PRINTING OFFICE
67-620 PDF                WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001





              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

  Subcommittee on TARP, Financial Services and Bailouts of Public and 
                            Private Programs

              PATRICK T. McHENRY, North Carolina, Chairman
FRANK C. GUINTA, New Hampshire,      MIKE QUIGLEY, Illinois, Ranking 
    Vice Chairman                        Minority Member
ANN MARIE BUERKLE, New York          CAROLYN B. MALONEY, New York
JUSTIN AMASH, Michigan               PETER WELCH, Vermont
PATRICK MEEHAN, Pennsylvania         JOHN A. YARMUTH, Kentucky
JOE WALSH, Illinois                  JACKIE SPEIER, California
TREY GOWDY, South Carolina           JIM COOPER, Tennessee
DENNIS A. ROSS, Florida














                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 30, 2011...................................     1
Statement of:
    Barofsky, Neil, Special Inspector General for the Troubled 
      Asset Relief Program.......................................    13
    Massad, Tim, Acting Assistant Secretary for Financial 
      Stability and Chief Counsel................................    42
Letters, statements, etc., submitted for the record by:
    Barofsky, Neil, Special Inspector General for the Troubled 
      Asset Relief Program, prepared statement of................    16
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............    99
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, article dated March 29, 2011........    66
    Massad, Tim, Acting Assistant Secretary for Financial 
      Stability and Chief Counsel, prepared statement of.........    44
    McHenry, Hon. Patrick T., a Representative in Congress from 
      the State of North Carolina:
        Prepared statement of....................................     4
        Various prepared statements..............................    72
    Quigley, Hon. Mike, a Representative in Congress from the 
      State of Illinois, prepared statement of...................    10

 
                 HAS DODD-FRANK ENDED TOO BIG TO FAIL?

                              ----------                              


                       WEDNESDAY, MARCH 30, 2011

                  House of Representatives,
      Subcommittee on TARP, Financial Services and 
           Bailouts of Public and Private Programs,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room 2154, Rayburn House Office Building, Hon. Patrick T. 
McHenry (chairman of the subcommittee) presiding.
    Present: Representatives McHenry, Buerkle, Meehan, Ross, 
Quigley, and Welch.
    Also present: Representatives Issa and Cummings.
    Staff present: Michael R. Bebeau and Gwen D'Luzansky, 
assistant clerks; Robert Borden, general counsel; Lawrence J. 
Brady, staff director; Katelyn E. Christ, research analyst; 
Benjamin Stroud Cole, policy advisor and investigative analyst; 
Drew Colliatie, staff assistant; John Cuaderes, deputy staff 
director; Adam P. Fromm, director of Member liaison and floor 
operations; Linda Good, chief clerk; Tyler Grimm and Ryan M. 
Hambleton, professional staff members; Peter Haller, senior 
counsel; Christopher Hixon, deputy chief counsel, oversight; 
Hudson T. Hollister, counsel; Justin LoFranco, press assistant; 
Laura L. Rush, deputy chief clerk; Becca Watkins, deputy press 
secretary; Kevin Corbin, minority clerk; Ashley Etienne, 
minority director of communications; Carla Hultberg, minority 
chief clerk; Lucinda Lessley, minority policy director; Jason 
Powell, minority senior counsel; and Suzanne Sachsman Grooms, 
minority chief counsel.
    Mr. McHenry. The committee will come to order. Today's 
hearing is entitled ``Has Dodd-Frank Ended Too Big to Fail?'' 
This is the Special Inspector General for TARP, Mr. Barofsky's 
last day on the job, and he has had an eventful 2\1/2\ years. 
It has probably felt like a lifetime. We certainly appreciate 
your service and we appreciate you being here on your final day 
on the job.
    But as has been tradition for our subcommittee, we begin by 
reading the Oversight and Government Reform Committee's mission 
statement: We exist to secure two fundamental principles: 
first, America has a right to know that the money Washington 
takes from them is well spent and, second, Americans deserve an 
efficient, effective government that works for them. Our duty 
on the Oversight and Government Reform Committee is to protect 
these rights. Our solemn responsibility is to hold government 
accountable to taxpayers because taxpayers have a right to know 
what they get from their government. We will work tirelessly in 
partnership with citizen watchdogs to deliver the facts to the 
American people and bring genuine reform to the Federal 
bureaucracy.
    This is the mission statement of the Oversight and 
Government Reform Committee. It is also very similar to the 
mission statement of inspector generals across our government.
    Today's hearing will explore whether our largest financial 
institutions--I will start by giving an opening statement, so 
we will start the time now. Today's hearing will explore 
whether our largest financial institutions are still too big to 
fail. Despite passage of the Dodd-Frank Act and subsequent 
financial regulations, specifically, we are concerned about the 
ongoing perception that government bailouts remain an option 
for poorly managed financial firms. The bottom line is that 
2,300 pages, or over that, Dodd-Frank was supposed to end too 
big to fail. As it turns out, Dodd-Frank has only reinforced 
the bailout culture, perpetuated the moral hazard of government 
intervention, and tipped the economic scales for a few at the 
expense of growth and competition.
    In his January 2011 quarterly report to Congress, the 
Special Inspector General for TARP, Mr. Barofsky, outlined his 
concerns with the lasting legacy of too big to fail. This 
report detailed the unfair competitive advantage of certain 
financial institutions with implicit government support. 
Through inflated credit ratings and greater access to cheap 
credit, these institutions receive benefits that crowd out 
their smaller competitors.
    Those findings were backed up by data from the FDIC, which 
found the large financial institutions paid 78 basis points 
less to borrow funds than their smaller rivals. This point was 
not lost on credit rating agencies, who now take implicit 
government backing into account when rating credit worthiness. 
This funding advantage is the result of the market perception 
that certain institutions are just simply too big to fail.
    Dodd-Frank codifies open-ended ad hoc deal making like we 
saw in the financial crisis of 2008. And if that was not 
enough, Secretary Geithner stated to the Special Inspector 
General in December 2010 that in the future we may have to do 
exceptional things again. And he said this well after the 
passage of Dodd-Frank.
    The combination of an implicit government guarantee and 
cheap money only reinforces the moral hazard that Dodd-Frank 
failed to eliminate. Instead of taking bailouts off the table, 
the Federal Government has given large institutions a special 
preferred status. Last November voters delivered a very loud 
message to Washington: they don't want their hard-earned tax 
dollars going to any more bailouts. The American taxpayer does 
not want their government in the business of picking winners 
and losers.
    We need to create a competitive lending environment where 
small businesses can gain access to capital and thrive; where 
they can feel confident in the credit markets and start 
creating jobs again. By recognizing our Government's ongoing 
willingness to bail out large institutions, we can begin to 
have an honest conversation about ending too big to fail.
    I am interested to hear what our first panel and second 
panel have to say about this matter. On the first panel we are 
going to have the Special Inspector General for TARP; on the 
second panel we will have a representative from Treasury, Mr. 
Massad, who is the Acting Under Secretary for Financial 
Stability.
    With that, I would like to yield the balance of my time to 
the chairman of the full committee, Mr. Issa.
    [The prepared statement of Hon. Patrick T. McHenry 
follows:]




    Mr. Issa. I thank the chairman for holding this hearing and 
I thank the chairman for yielding his time.
    I really just wanted to thank a unique individual. If there 
is a wall of fame for IGs, Neil, you are going to be on it. You 
have done an amazingly good job. I looked at your op ed this 
morning and said, darn, he got the title we should have had. It 
is entitled ``Where the Bailout Went Wrong.'' So I look forward 
to hearing your thoughts on, regardless of good intentions of 
Dodd-Frank and of the TARP bill, where we should learn from the 
mistakes that probably were inevitable, but, due to your hard 
work, they are very public, and we intend to address them one 
by one. So as you go off to academia to teach and to write, I 
hope you will consider an invitation to come back here exactly 
that, an invitation, one, where we want your counsel in 
whatever form it can be provided.
    Again, Mr. Chairman, thank you for holding this hearing, 
one of many in your series, and taking seriously the special 
committee responsibilities for oversight. And again, nobody is 
more a hero here than a great IG, and we have a great IG in 
front of us.
    I yield back.
    Mr. McHenry. I thank the chairman.
    At this time I yield 5 minutes to the ranking member, Mr. 
Quigley, and, by prior agreement, he will share his time with 
the full committee ranking member as well.
    Mr. Quigley. Thank you, Mr. Chairman, for convening this 
meeting.
    Again, I would like to thank our guest today, Mr. Barofsky, 
for his work at SIGTARP. We appreciate all you have done for 
us.
    One of the lessons of the financial crisis is that the 
government bears too much risk and taxpayers are left 
vulnerable to huge losses. More importantly, if firms perceive 
that taxpayers will cover their losses, then those firms have 
an incentive to take even bigger risk. And as these over-
leverage firms grow in size, they can become too big to fail, 
in effect passing all their risk on the taxpayers, who would 
not allow a financial collapse.
    TARP, which was passed by Congress and signed by President 
Bush, averted a catastrophe, and while TARP will likely end up 
as a net profit for taxpayers, we should not minimize the fact 
that it exposed taxpayers to unacceptable losses.
    Today we must continue to safeguard our financial system 
against collapse. TARP did not create too big to fail, but it 
did reinforce it. The Dodd-Frank law is an attempt to roll back 
those perverse incentives that caused firms to become too big 
to fail; it establishes stronger prudential regulation, closing 
many of the loopholes that allowed excessive risk-taking; it 
created a systemic risk regulator to oversee all financial 
firms that are systemically important; most importantly, it 
creates a special resolution authority for failing firms to end 
bailouts and impose losses on shareholders.
    Resolution authority's successive failure will be judged on 
whether the market perceives it is a credible alternative to 
bailouts. For me, this is the key question: Does the market 
view resolution authority as a credible alternative to 
bailouts? It is my understanding that implementation of Dodd-
Frank is still in its early stages. I am hopeful that the 
result will be a predictable, credible, and orderly process for 
unwinding failing financial firms.
    Addressing the too big to fail problem is even more 
important today than before the financial crisis. In 1999, the 
five largest U.S. banking institutions controlled 38 percent of 
all banking industry assets. Today they control 52 percent of 
banking assets. To fix this problem, we need to ensure that 
Dodd-Frank is successfully implemented.
    I look forward to hearing testimony from our witnesses and 
I yield the balance of my time to the ranking member of the 
full committee.
    [The prepared statement of Hon. Mike Quigley follows:]



    
    Mr. Cummings. I thank the gentleman for yielding and I 
thank the chairman for calling the hearing this morning. 
Unfortunately, today's hearing represents a tragically missed 
opportunity in the majority's refusal to grant the request to 
invite Representative Barney Frank to testify before the 
subcommittee. As the chairman of the House Financial Services 
Committee throughout the drafting of the financial regulatory 
reform legislation and as the current ranking member monitoring 
the implementation of that legislation, Representative Frank's 
expertise on the matters before us today is unparalleled. We 
would have benefited greatly if we were able to hear from him.
    But despite the disappointment in this subcommittee's 
process, I thank our witnesses for appearing before us today. I 
particularly recognize our Special Inspector General Barofsky 
and I too commend you for a job well done. I want to thank you 
for working with me the many times I bugged you to do reports 
and look into things; I really do appreciate it. Your tireless 
work has enabled us to better fulfill our role in ensuring 
efficient and effective government oversight of the TARP 
program and again I thank you.
    In the wake of the 2008 financial crisis, we enacted Dodd-
Frank in order to set into place a robust regulatory structure 
to end too big to fail. According to FDIC Chairwoman Sheila 
Bair, the new requirements under Dodd-Frank will ensure that 
the largest financial companies can be wound down in an orderly 
fashion without taxpayer cost. Under Title 2 of the Dodd-Frank 
Act, there are no more bailouts.
    However, as Chairwoman Bair has said, and Mr. Barofsky and 
others have acknowledged, Dodd-Frank will not work unless we 
provide our regulators with the resources they need to make 
full use of these new regulatory authorities.
    Frighteningly, the budget proposed by the new majority 
would effectively cripple the regulators. If we drastically cut 
the budget of our agencies charged with carrying out this 
important regulation, we will be paving the way for the next 
financial collapse and we will never be rid of entities that 
are in fact too big to fail, and I trust that Mr. Barofsky will 
comment on that, the whole issue of the need to make sure that 
these agencies are properly funded.
    I am looking forward to the hearing from today's witnesses 
and again, Mr. Barofsky, I want to thank you for all that you 
have done. I know you are moving on to academia, but I know 
that many students will benefit from what you have to say and 
what you have learned, and we hope you will return to 
government soon. May God bless you, and I yield back.
    Mr. McHenry. I thank the full committee ranking member. In 
response to requests to have Mr. Frank testify before the 
committee, I also serve on the Financial Services Committee. He 
is an ex officio member of five subcommittees on that 
committee; he has been chairman of the Financial Services for 
the previous 4 years; he is the ranking member of Financial 
Services. He has every venue to speak about his law that he 
passed.
    Today is about the implementation of Dodd-Frank and whether 
or not that has ended the culture of too big to fail or whether 
or not it has propagated it. So we have two panels today. One 
is the Special Inspector General who oversees the program; the 
second panel is the Treasury Department, and they can, in 
essence, have a full panel to themselves. In essence, we are 
giving the minority a full panel. So usually that is praised, 
but I certainly understand, in this atmosphere, it may not be.
    But our first witness today is Mr. Neil Barofsky. He is the 
outgoing Special Inspector General for the Troubled Asset 
Relief Program. Prior to assuming his position at the U.S. 
Treasury, Mr. Barofsky was a Federal prosecutor in the U.S. 
Attorney's Office for the Southern District of New York for 
more than 8 years.
    Mr. Barofsky's last day is today. I know his staff is 
sitting behind him. They are not smiling. I think they are sad 
to see you go, Mr. Barofsky. We certainly appreciate your 
service to your Government that you have rendered in the last 
2\1/2\ years; we know it has been busy, it has been 
challenging, and you have put more hours into government 
service than you will ever be paid for, so we appreciate your 
service to your Government, and in the interest of openness.
    So, with that, it is the policy of the committee that all 
witnesses be sworn in to testify. If you would please rise and 
raise your right hand.
    [Witness sworn.]
    Mr. McHenry. Thank you. Let the record reflect that the 
witness answered in the affirmative. Thank you, Mr. Barofsky. 
So now we will give you an opportunity for your opening 
statement. Your written testimony will be entered into the 
record, but we would like to give you an opportunity to say 
what is on your mind.

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

    Mr. Barofsky. Thank you, Chairman McHenry, Ranking Member 
Quigley, Chairman Issa, Ranking Member Cummings. Thank you for 
your kind comments and thank you for the opportunity to appear 
before you today. It is a privilege and an honor to testify 
before this subcommittee on this, my final day as Special 
Inspector General.
    It is hard to believe that 2\1/2\ years ago there was no 
such thing as TARP, no such thing as SIGTARP, certainly no such 
thing as a TARP Subcommittee, and since that time we have seen 
an historic outpouring and outlaying of Government funds to a 
financial industry that was teetering on the brink of collapse, 
accompanied by historic oversight.
    The Emergency Economic Stabilization Act [EESA], which, of 
course, created TARP, also created SIGTARP at Congress's 
insistence, and I am proud to say that, since our inception in 
December 2008, we have made great progress fulfilling the goals 
set forth for us by Congress. By the numbers alone, we have 
issued nine quarterly reports, 13 audits, secured civil or 
criminal charges against more than 50 individuals, 18 different 
defendants have been convicted of TARP-related fraud, and our 
investigations have helped assist in the recovery of or 
prevention to loss from fraud from more than $700 million, 
making sure that SIGTARP as an agency will more than pay for 
itself. As importantly, we have helped bring transparency and 
accountability to a program desperately in need of them.
    Treasury, through TARP, made a series of promises both to 
Wall Street and to Main Street. Unfortunately, its track record 
has been mixed. It has fulfilled its promises to Wall Street, 
as reflected in the returns of record profitability of the 
Nation's largest banks, but, unfortunately, it has failed to 
live up to some of its promises to Main Street.
    First, with respect to the promise to restore lending, such 
an important part of any economic recovery, has gone 
unfulfilled. When Treasury gave out hundreds of billions of 
dollars to banks, it did so without any policy in place to 
accomplish that goal, without any strings to require lending or 
even provide incentives for it. Not surprisingly, credit 
continued to contract throughout the financial crisis and well 
into the recovery.
    Second, the promise to preserve home ownership, such an 
important part of the legislative bargain that Treasury struck 
with Congress in order to get TARP passed, lies in tatters. The 
original promise to modify up to $700 billion in mortgages that 
Treasury was to purchase under TARP cast aside within weeks 
after EESA was passed. That was replaced months later by a 
promise by this administration to modify up to four million 
mortgages for struggling homeowners. That promise too has 
essentially been cast aside, replaced with the cold, stark 
reality of a failed program that was poorly designed, poorly 
managed, poorly executed, and will come nowhere close to living 
up to that original promise.
    Finally, after Secretary Paulson and then Secretary 
Geithner told the world that they would stand by and not let 
our largest banks fail, and demonstrated that they were ready, 
willing and able to use the TARP funds to accomplish that, we 
are left with a financial system with the largest banks that 
are bigger, more concentrated, and even more dangerous to the 
system than before the crisis.
    We were then promised that through regulatory reform, the 
era of bank bailouts would end, a promise that looks like it 
too may very well go unmet because, notwithstanding the passage 
of Dodd-Frank, the financial markets still perceive that the 
U.S. Government will bail out the largest banks, with credit 
rating agencies explicitly giving higher ratings to those banks 
based on the assumption that, should they hit the rocks again, 
the U.S. Government will come to their rescue.
    As to the execution of Dodd-Frank, it still remains 
theoretically possible that it will address the problems of too 
big to fail. Treasury and the regulators were certain we would 
give them the broad powers and authorities to take on the 
largest banks. But these are the same regulators whose 
incompetence and lack of foresight was described by the 
Financial Crisis Inquiry Commission as one of the causes of the 
financial crisis.
    And while Chairman Sheila Bair stands out as a strong 
advocate for using the tools of Dodd-Frank to either shrink or 
simplify the most complex financial institutions as necessary, 
she also appears to stand alone as her term quickly winds down. 
Without dramatic and quick action, I am afraid that this 
promise too will be broken, with potentially devastating 
consequences.
    Mr. Chairman, ranking member, I thank you for the 
opportunity to be here today. I also want to thank you and the 
chairman of the full committee and the ranking member of the 
full committee for your strong support over the years. At 
SIGTARP, we would not have been able to accomplish nearly any 
of our goals or our accomplishments if it wasn't for the 
strong, continuous and, above all, bipartisan support from 
Congress.
    If we had received only support from one side or the other, 
it would not have had nearly the impact that your uniform 
support has been for our office, so I thank you. I also want to 
thank the incredible men and women who work at SIGTARP for 
their sacrifices, their commitment. They demonstrate all the 
good that is in Federal workers, and it has truly been my 
privilege and honor to get to work with them for the last two-
plus years.
    So I thank you and I look forward to answering any 
questions you may have.
    [The prepared statement of Mr. Barofsky follows:]



    
    Mr. McHenry. Thank you for your testimony. I recognize 
myself for 5 minutes.
    To initially start this questioning, you have mentioned in 
your reports, you mention in your editorial today in the New 
York Times that the objectives of TARP have been shifted 
dramatically in the 2\1/2\ years since the creation of the 
program. It is not evolving, but it seems like if they fail to 
meet metrics they have set for themselves, that they change the 
metrics. Can you elaborate on this?
    Mr. Barofsky. It has happened far too often with this 
program that when a goal wasn't met, rather than do what you 
would expect in a good government program, which is you have a 
goal, you set forth a plan or policy to achieve that goal, you 
measure performance against that goal, and if you are not 
performing you change the program, so make the necessary 
changes to accomplish that goal.
    Far too often in TARP it has been set a goal, adopt no 
policy to achieve that goal, basically ignore it, try not to be 
incredibly transparent about the progress toward that goal; 
when you don't meet that goal, rather than change the program, 
change the goal and then declare mission accomplished, program 
a success, and move on. That has happened with the housing 
program, certainly, and it has happened with a lot of the Main 
Street goals, which have basically been written out.
    Recently, in testifying in front of congressional oversight 
panel, a Treasury official talked about these goals, these 
incredibly important Main Street goals that were part of the 
bargain, is why TARP got passed, and dismissed them essentially 
a window dressing, just things to be taken into account. Well, 
they were intended to be more than that, and those are some of 
the broken promises that I discussed in the op ed and that we 
discussed in our reports.
    Mr. McHenry. Now, to go further on this, there has been a 
discussion in recent days that TARP has been a success for the 
taxpayers, that in dollars and cents terms it hasn't been a 
huge negative. What are the negatives? What is the legacy of 
TARP and our unprecedented intervention in the market?
    Mr. Barofsky. Well, I think that there are a number of 
areas where TARP fell short. First, of course, are the goals 
not met, the goals that were part of the bargaining we just 
discussed that were not met, and there is a cost to not meeting 
your Main Street goals. One of those costs has been on the 
impact of government credibility, and the bottom line is that 
people don't trust their government, and part of the reason why 
they don't trust their government today is because of the 
bailout, because of the failure to meet its goals and, frankly, 
because of the mismanagement of the program.
    Second, one of TARP's greatest legacies is the two big to 
fail problem. As I noted before, when the secretaries told the 
markets we are not going to let these banks fail, this was 
instrumental in one of the other positive aspects of TARP, 
which is helping to prevent a financial collapse, but it really 
exacerbated the problem of too big to fail; it was no longer 
implicit, it was as explicit as it could be.
    The whole reason why TARP helped contribute to avoiding the 
economic collapse was because of the promise we are not going 
to let these institutions fail, and that has had the unintended 
consequences of the problem of getting bigger and bigger, more 
concentrated. You mentioned now the statistical data that backs 
up what we all know, that they are able to borrow money more 
cheaply, they are able to access the credit markets, access the 
capital markets, and right now they are more systemically 
significant than they were before, if for no other reason that 
there are fewer of them and they are bigger than ever, and that 
is a real legacy.
    Mr. McHenry. Now, has Dodd-Frank prevented that from 
continuing?
    Mr. Barofsky. Dodd-Frank was not a magic wand. Passing a 
piece of legislation that gave Treasury and the regulators 
certain powers and authorities didn't actually change the 
status quo; it gave one possible path that the regulators could 
choose to use to potentially accomplish that goal, but the bill 
itself is just that, a bill, and, unfortunately, based on the 
market's perception, they are very, very much unconvinced that 
it will be used in the effective way that it would need to be 
used in order to really address too big to fail.
    Mr. McHenry. Even in the design of the bill does it leave 
wide openings for bailouts to continue?
    Mr. Barofsky. Well, technically, under the letter of the 
law, and there is some dispute about what the meaning of all 
this is, it does state in certain language that bailouts won't 
happen. But that sort of ignores reality, and the reality is 
when we talk about too big to fail, I think far too often we 
lose sight of the fact what those words mean and that it means 
really what they say, that whether there is a law on the books 
or not a law on the books, if these institutions, if we have a 
repeat of the financial crisis, it is not going to matter what 
the law on the books is because its failure is not an option.
    You can't let those banks fail if that happens. It doesn't 
matter your political ideology, it doesn't matter your personal 
ideology; the country will go down the tube, there will be a 
systemic crash that will have devastating consequences, Great 
Depression, Armageddon, no cash coming out of the ATMs. And the 
point is that, much like with TARP, the White House, whoever 
happens to be president at the time and whoever happens to be 
controlling Congress at that time, for the best of the country 
has to go in and rescue the banks. It is not a moral question; 
that is what too big to fails means.
    So while I think people can argue whether certain 
interpretations and portions of Dodd-Frank which gives a 
certain degree of discretion as to which creditors possibly get 
paid 100 cents on the dollar and which don't, which I know is a 
subject of the debate, or other provisions that you can point 
to and say, OK, this doesn't mean an orderly bankruptcy, this 
gives a suggestion that these banks can continue in the form of 
a bailout, whether funded by the industry or elsewhere, it is 
almost all besides the point because, if you have too big to 
fail banks, it is all going to be put to the side and we are 
going to be right back where we were in late 2008.
    Mr. McHenry. So, in essence, it codifies the status quo.
    Mr. Barofsky. Unless and until Treasury and the regulators 
use the powers that they have under Dodd-Frank--and a lot of 
these powers, frankly, they had before Dodd-Frank and went 
unused. But unless and until they use those authorities, we are 
actually in the status quo or slightly worse than the status 
quo because this, with nothing. Maybe you have a chance of 
convincing the markets, but right now the markets are looking 
at Dodd-Frank and they are rejecting it.
    Now, that is not to say that Dodd-Frank doesn't do some 
good things that help limit the banks. Increasing capital 
requirements is important around the edges, the Volcker rule, 
although I think a lot of exceptions may defeat it, are all 
helpful to help limit, in certain areas, potential risks, but 
the big ticket question that we are talking about today, does 
it solve too big to fail, the answer is certainly not yet. And 
by all indications of what has been happening and what the 
direction has been, I am not entirely optimistic that it will.
    Mr. McHenry. Thank you. Thank you for testifying.
    I recognize Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman.
    It is not that I disagree with you on the point; I want to 
understand it a little bit better. As you advocate in your 
testimony today and editorial discussing Ms. Bair's 
recommendation to simplify or shrink, can you react to, I 
guess, the response to that about too big to fail, Mr. Zandi's 
remark? And if I can quote, ``There is no reasonable way of 
sufficiently reducing their size and complexity without 
jeopardizing their independence. Large European and Asian banks 
will gobble them up, pushing the too big to fail risk overseas 
and outside of our control. Cutting our banks down in size 
won't mean there will be any less risk taking in the financial 
system; it will mean that the risk taking will shift elsewhere 
in the financial system where it is harder to monitor and to 
regulate. Think hedge funds.''
    What would your response to that be?
    Mr. Barofsky. Well, that seems almost to me like an 
embracing of too big to fail.
    Mr. Quigley. But is he correct?
    Mr. Barofsky. I don't think he is correct. I mean, I think 
that if you--this is very similar to a different argument that 
has been advanced that our largest banks, if they are not of 
the size and scope that they are, they are not going to be able 
to compete with their larger European banks.
    Essentially what that means, if we break that down, what it 
really means is that, OK, so other countries guarantee their 
banks and those banks have an advantage, and unless we 
guarantee our banks, our banks are not going to be able to 
compete with those other banks. That is essentially what it 
comes down to.
    So really the question becomes do you believe that the 
Government should subsidize and guarantee and backstop our 
largest financial institutions or do you believe that we should 
be true to our capitalist ideals and let these banks compete 
without an economic subsidy, a very significant subsidy that 
they receive? And, sure, there are a number of doomsday 
scenarios that one could posit, that if we actually use the 
tools of Dodd-Frank and were true to the idea of ending too big 
to fail, it may actually result in banks that are not as 
profitable as they are today.
    Mr. Quigley. But there are all sorts of instances in which 
unfair trade practices, for example, by other countries do put 
our capitalistic ideals at risk. I am just asking, you don't 
see that as a possibility in the banking industry?
    Mr. Barofsky. I think it is a possibility, but I think 
there are other ways to deal with those policy concerns rather 
than embracing the idea that we should be effectively granting 
our largest banks a subsidy and essentially putting them on the 
books. I mean, there is very little difference when you compare 
where we were in the lead up to the financial crisis with 
Fannie Mae and Freddie Mac than we are right now with some of 
our largest banks.
    It is the same type of implicit guarantee; it is the same 
type of distortions on the market. And in many ways we could 
very well end up in that exact same situation. So, sure, maybe 
our banks are able to reap short-term profits because they are 
able to compete with other banks that have subsidies, but I am 
going to take the other side. I am going to say if we remove 
these subsidies, if we remove this implicit guarantee, over 
time we are going to have a healthier and better banking 
system. This is what Chairman Ben Bernanke said recently, this 
is what Larry Summers said recently, that our system would be 
stronger without it.
    Mr. Quigley. How do you protect our banks in the meantime 
from unfair practices or unfair competition as it might exist?
    Mr. Barofsky. Well again I think there is constant 
interaction----
    Mr. Quigley. I don't think you need to like too big to fail 
or embrace it to be concerned about that potential risk, right?
    Mr. Barofsky. Right. And we shouldn't ignore it. But the 
Treasury Department has whole offices that are dedicated to 
dealing with foreign countries and dealing with foreign 
regulators through the G-20. There are mechanisms to deal with 
unfair practices internationally, and that is the right place 
to deal with them, I think, not throwing your hands up and 
saying we are going to subsidize our largest banks; we are 
going to take money out of one pocket and put it into the 
pockets of the shareholders and executives at these largest 
banks, and I think that is what is happening.
    One study I saw recently was $34 billion was one of the 
dollar subsidies that we give to our largest banks as an 
implicit guarantee, and I say take that money and let's put it 
elsewhere, and I think we will be better off.
    Mr. Quigley. And I appreciate that. I guess the second 
point would be what is implied here is that this encourages 
banks to engage in risky behavior. Could you detail the risky 
behavior you see today?
    Mr. Barofsky. Sure. The idea of risky behavior is that 
banks sort of have--anyone who runs a bank, especially when 
they are large and interconnected in so many different 
businesses, they are going to make decisions on how they invest 
their money, how they manage their portfolio, and the question 
comes what is the level of risk that they are going to attach 
to each of those decisions.
    And the problem with too big to fail is that it impacts 
that decisionmaking process. Senator Kaufman, when he was Chair 
of the congressional oversight panel, described it as being the 
rational decision of an executive when you take out the sine 
curve, what you call the bottom of the sine curve in the 
decisionmaking process of profit and loss from a particular 
design, and that what too big to fail does is takes out the 
bottom of that because it is the rational assumption that if 
the risk doesn't work out, you are not going to have the 
negative consequences of that risk. And that is what happens 
with too big to fail, is you actually rationalize risky 
behavior because it is in the best interest not only of the 
bank, but of the shareholders and its executives.
    Mr. Quigley. Thank you. I yield back.
    Mr. McHenry. Mr. Meehan for 5 minutes.
    Mr. Meehan. Thank you, Mr. Chairman.
    And thank you, Mr. Barofsky, for once again coming before 
our committee. But let me thank you, as well, for the service 
that you have given in looking at this issue in such scope, a 
tremendous challenge to our country when it happened but the 
healthy capacity to then look back at what happened and ask the 
kinds of difficult questions that allow us to consider the 
implications of all that happened so quickly with such 
remarkable significance at the height of the challenge to our 
financial system.
    So I appreciate your service to our Nation and I thank you 
for it and wish you the best of luck as you move into the next 
part, but thank you for your contribution. And I know that you 
would say, as well, that is something that has been a great 
part of it, has been the work that you have done, but you have 
been supported by some other fine people as well, some of whom 
I have known from prior existence, and I want to compliment 
them too on the great work that they have done with you for 
your work.
    But you have studied this. You have spent time really 
looking at the big picture and have had the chance to sit back 
maybe more than many of the people here in Congress have, and 
you made a comment talking about unless there is dramatic and 
quick action, we are going to head down a path, and that is a 
very concerning observation to me. Can you identify what you 
mean by dramatic and quick action, and what you think we ought 
to be doing here in Congress to protect against the kind of 
concern that you have identified in your testimony?
    Mr. Barofsky. First of all, thank you for your kind 
comments, and it is certainly true, I am the one who gets to 
sit at the table and I am the one who gets to take the credit 
for our successes and the blame for our failures, but it 
doesn't happen without the people at SIGTARP and the senior 
staff, and, yes, we have both benefited from one individual, 
you as a U.S. attorney, of course, that is my Chief of Staff, 
Geoff Moulton, who has been wonderful for our organization and 
I am deeply appreciative.
    As to your question, what I was referring to is I think we 
have to stay here within the realm of the possible, and I could 
go back and say that there are certain things that could have 
been done with Dodd-Frank, things that were suggested in the 
Senate by Senators Brown and Kaufman that could have made this 
a better protecting against too big to fail, but here in the 
realm of where we are today there is a path that has a better 
chance than most of succeeding, and that is the one that is 
being advocated by Sheila Bair, outgoing chair of the FDIC, and 
it is ultimately not a very dramatic departure, it is really 
just fulfilling the mandate of Dodd-Frank.
    And what she has said is that part of the proposal is these 
living wills, where the banks are required to come up with 
plans of how they would be resolved in the event of a financial 
crisis, and she came out with something and has been saying 
this over and over again, which on its face does not appear to 
be very controversial. She says in order for us to carry out 
the mandate of Dodd-Frank, in order for us to really address 
too big to fail, we need to use these provisions, and if banks 
come up with things that are not sufficiently credible not just 
to us but to the markets, so that they can be resolved in a 
meaningful way, then we need to use the powers of Dodd-Frank to 
simplify and shrink those institutions. And she has had 
stronger language than that on other occasions.
    What is remarkable about this is the deafening silence with 
which it has been met by the other regulators, the other 
members of the Financial Stability Oversight Council, including 
its chairman, Secretary Tim Geithner. This is a path that at 
least has a chance of working because ultimately they are too 
complex, they are too large, and I think Chairman Greenspan 
said, famously, in the beginning of this crisis, too big to 
fail starts with too big. And it is not always too big; that 
would be an oversimplification. It is interconnectedness, it is 
a number of other things. But it is a really, really good place 
to start.
    But it really does appear that is what is happening with 
Chairman Bair's suggestion is that the others are playing the 
equivalent of a regulatory game of running out the clock; they 
say nothing, they do nothing, and the bottom line is that she 
is not going to be able to institute those changes before she 
steps down over the course of this summer, and even those plans 
aren't going to be coming in a matter of 6 months. It could be 
a year before anything happens.
    So what would be an example of dramatic change? How about a 
strong endorsement from the Secretary of the Treasury, from the 
chairman of the Federal Reserve and others that Chairman Bair's 
suggestion is going to be adopted? Perhaps this could help chip 
away at the market's perception that resolution authority is 
somewhat of a joke. I mean, if you look at the language that 
Moody's used in rejecting the idea that Dodd-Frank is going to 
work, going to somehow end too big to fail, that this 
resolution authority is going to work, it is striking language. 
It is not just a passive rejection, it is a complete rejection.
    Mr. Meehan. Well, Moody's is one of the groups that has 
actually included within their analysis the idea that the 
government is actually going to bail out the banks. I mean, 
this is part of the problem that we are looking at.
    Mr. Barofsky. Absolutely. They reject that this is really 
going to happen. So it is a minor first step. But I think if we 
start by the government officials who are in charge of 
implementing Dodd-Frank, instead of issuing what are basically, 
I am sorry, empty statements that this is going to end too big 
to fail as we know it, we are never going to have to bail out 
anyone again, citing to different provisions in the law, which 
I have heard and I am sure you will hear again, that, oh, this 
law says we can't bail out, so therefore there will never be a 
bailout, let's start with an articulated plan, similar to the 
one advocated by Chairman Bair, saying, OK, this is how we are 
going to do this; we are going to simplify and shrink these 
institutions so we can have a credible response to the market 
that we are not going to bail them out, because right now the 
empty rhetoric we are not going to bail these banks out, the 
market is not buying it.
    And you can actually measure whether or not your statements 
are effective or not; all you have to do is look at what the 
credit rating agencies say, look at what the spread is, how 
much cheaper the benefit is, how much cheaper it is for the big 
banks to raise capital. I mean, there are things you can 
actually look to.
    And while it is unfortunate that credit rating agencies 
still have so much power and so much influence, that is the sad 
reality of where we are today, and I think that it has to start 
with an increase in rhetoric and then it has to be backed up by 
demonstrated action to fulfill those rhetorical promises. But 
right now we don't really have any of that; what we have is a 
lot of discussion about endless rulemaking that will accomplish 
some goal; a real sense of incrementalism, we will do a little 
bit here and a little bit there, and maybe eventually the 
incentives will be in place that these banks may reduce in 
size. I personally believe that Chairman Bair's approach is the 
better one.
    Mr. McHenry. The gentleman's time has expired.
    Mr. Meehan. Thank you, Mr. Chairman.
    Mr. McHenry. Thank you.
    The ranking member of the full committee, Mr. Cummings.
    Mr. Cummings. Mr. Barofsky, thank you so much. As you were 
testifying, I could not help but think about the fact that come 
June 25th, in my district, 40 miles from here, people will 
march into a room to a conference, someone preventing 
foreclosure, they will march in, Mr. Barofsky, with tears, 
literally, about 1,000 of them--that is what happened at the 
other five--and they will face some very difficult situations, 
and finally they will get a chance to sit down with some 
lenders and try to come to some resolve with regard to 
modifications. Many of them will be lied to. Many of them have 
been lied to. They have been playing games with them, a lot of 
these servicers, as if they were fools.
    When I read your editorial piece at 4:25 this morning, I 
was very impressed and I am just wondering. You know, we just 
voted yesterday to end the HAMP program, and I know how you 
feel about it; many of us feel the same way. But when you end 
the program, if we end the program and there is nothing to 
substitute, nothing, I am just wondering is that a good idea? I 
am just curious.
    Mr. Barofsky. I mean, as Special Inspector General it has 
always been my position and continues to be my position that 
TARP made a promise and, Congressman, I don't want to presume 
anything about you or your decision to make your vote, but for 
a lot of progressives that I have spoken to, Members of 
Congress, the reason why they voted for TARP, one of the really 
things that convinced them to vote for what was essentially a 
bank bailout was this promise to preserve home ownership.
    Mr. Cummings. Well, you are right, that was one of the 
reasons why I voted for it.
    Mr. Barofsky. So this is as part and parcel of TARP, in my 
view, as was the need to save the financial system. I don't 
rank them, but I put them side by side. It was just as 
important a goal of TARP to preserve home ownership in dealing 
with the foreclosure crisis as it was to save the large banks.
    Now, the second panelist today disagrees with that 
conception and talks about that as being something to be taken 
into account, but I believe that is on par. So I look at the 
disappointment, the broken promise of the HAMP program and I do 
agree with you that we can't just abandon that goal of TARP.
    I also can't defend, for those who voted for termination of 
HAMP, I can't defend this program because ultimately Treasury 
has had opportunity after opportunity to make meaningful 
change. Why on earth have those servicers that you just 
described, what they have done to those homeowners in this 
program, which has been so well documented, how come Treasury 
has not lived up to a different promise it made, the promise it 
made in November 2009 to impose financial penalties on those 
servicers for not performing? Why are we here, 2 years into the 
program, without a single financial penalty for nonperformance 
under the program?
    Mr. Cummings. And I agree with you. Before they shut me 
down, I need to get to one other thing, though. You know, the 
reason why I started out the way I did is because we can have 
all the discussions we want, but when I go back to my district, 
and I know Members on both sides of the aisle, when they go 
back to their district, some of them may not see these folks, 
but there are a lot of Americans suffering, and you are talking 
about too big to fail and Dodd-Frank. If we basically cut the 
money for carrying out Dodd-Frank, do you have an opinion on 
that? Because that is what is happening.
    Mr. Barofsky. I come from a law enforcement background; I 
spent 8 years at the U.S. Attorney's Office, and I have seen, 
during budget freezes, and hiring freezes. At SIGTARP we have 
been blessed, and I thank all the members of this committee on 
both sides of the aisle for your generous support through 
resources for our agency; we couldn't do what we could 
otherwise. But those types of budget cuts and freezes have a 
direct impact on the ability of those offices to put people in 
jail, to lock people up, to hold people accountable.
    Mr. Cummings. But does it also have an impact, you said you 
know how the market is viewing Dodd-Frank. You talked about the 
possibilities that Dodd-Frank could operate, but you also said 
they look at it and say, you know what, we are not so worried 
about it because you said too big to fail. But also could it be 
that they see that there is an effort to kind of take the money 
from out of these agencies so that they can properly enforce 
and carry out Dodd-Frank? That is what I am trying to get at.
    Mr. Barofsky. It may be part of that perception issue. 
Look, the bottom line is if the regulatory agencies that are 
charged with, again, they are not just charged with 
implementing Dodd-Frank, they are implementing other things, 
including law enforcement goals and enforcement goals. I am 
thinking specifically of the SEC. When you take away funding, 
it may be that they reallocate resources to Dodd-Frank, but 
overall, as an agency, they are going to be able to accomplish 
less as far as enforcement is concerned and accomplish less, 
perhaps, in implementing Dodd-Frank. And I am not here to wade 
into the politics of a budget battle.
    Mr. Cummings. No, I understand.
    Mr. Barofsky. But, look, it is just simple; I have seen it 
over and over again. When budget cuts hit, when spending 
freezes hit, it has a direct impact on enforcement. That is a 
reality.
    Mr. Cummings. Just one last thing, Mr. Chairman.
    A Wall Street Journal article recently noted that 
Republicans appear to be drafting bills aimed at dismantling 
the financial reform piece by piece at a time. What impact do 
you think that these repeated news reports about the funding or 
dismantling Dodd-Frank have on the market's perception of 
whether Dodd-Frank is working?
    Mr. Barofsky. To be honest with you, I am not really sure 
of what the impact is, in part because of the political 
realities of divided government. It is a question of how much 
success one side may have versus the other side. I haven't 
really traced anything or seen anything or heard anything that 
directly links that but, of course, if the agencies are cut so 
deeply to the bone that they are unable to implement provisions 
of regulatory reform, that is going to have an impact.
    But I think the far greater impact, frankly, is the lack of 
political and regulatory will in staking out how they are going 
to use those authorities, even if they have all the resources, 
to really take on the issue of too big to fail. And unless and 
until we see that shift, I think that is going to have the far 
greater impact on market perception.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. McHenry. I thank the ranking member.
    Ms. Buerkle is recognized.
    Ms. Buerkle. Thank you, Mr. Chairman, and thank you, Mr. 
Barofsky, for being here this morning. To echo my colleagues' 
comments to you and your staff, thank you for all the fine work 
that you do. I have one general question and then I would like 
to just ask a couple questions about some of the comments you 
have made already.
    Would you agree that TARP picked winners, perhaps letting 
weaker entities survive? And, if so, do you think that maybe 
was a misallocation of funds?
    Mr. Barofsky. Well, when you look at TARP as a whole, I 
think that the lack of transparency in the program in certain 
aspects have led to the very fair criticism that at times TARP 
may have picked winners and losers. Generally speaking, when we 
are talking about the different TARP programs and, of course, 
there were 13 different TARP subprograms. We often think of 
TARP as a monolith, and usually then we think of TARP as one of 
those programs, the capital purchase programs, which, by very 
definition, picked winners and losers because banks applied for 
TARP funds, and some received TARP funds and others didn't. And 
those who received TARP funds essentially got the benefit of 
government capital and those that did not.
    But there was in fact a process in place that was dependent 
mostly on the banks' regulatory ratings or CAMEL's ratings, 
that type of thing, and on certain occasions there were 
exceptions and we have done audit work on this. So certainly 
there were winners and losers picked. TARP certainly didn't 
have a perfect record; there have been a number of banks that 
were supposedly healthy, deemed healthy and viable that failed; 
others that were deemed healthy and viable and, months later, 
had to get tremendous amount of additional support, like Bank 
of America and Citigroup. So I certainly understand that 
concern.
    On the flip side, it would have probably been inappropriate 
for TARP to give money to all financial institutions that came 
to the window. Part of the importance of protecting taxpayer 
money was making sure that it went into banks that were healthy 
and viable, but they didn't have a perfect track record. But I 
don't blame them for not having a perfect track record. Based 
on our audit work and our reporting, it was an incredibly 
difficult time, to say the least; there was a real sense of 
panic. They made mistakes, for sure, but I don't think those 
were mistakes that were intentional in any way. Overall, I 
think they tried to get it right; they just didn't sometimes.
    Ms. Buerkle. Thank you. I just want to go back to a comment 
when you were responding to our chairman. You mentioned that 
unless Treasury and the regulators use their authorities, and 
you mentioned that some of those authorities they already have, 
that we will experience a status quo or worse. Could you expand 
on that for me, the authorities that you are referring to, and 
whether or not they exist outside of Dodd-Frank, prior to Dodd-
Frank, actually?
    Mr. Barofsky. I think the concept of, for example, caps on 
leverage, capital floors are sort of examples of things that 
have been around for a while. I think what Dodd-Frank does, and 
this is sort of one of the positive things it does, it really 
forces an entry point for using those types of mechanisms 
anticipatorily.
    In other words, again, I am going to go back to the 
discussion earlier about using living wills. This gives us an 
entry to evaluate the largest banks, those deemed systemically 
significant, and evaluate whether or not they really could 
survive or whether the system could survive their failure; and 
that is the key to any resolution plan, is to take whatever it 
is and, as Chairman Bair suggests, putting it through a reality 
check.
    And if it doesn't meet that reality check, using those 
tools to either spin off certain businesses, to shrink the 
company, to simplify the organizational structure. If you look 
at some of the stuff that came out of the Lehman bankruptcy and 
the 3,200-something different entities that were comprised 
there, hopelessly complex, it makes resolution very difficult. 
I mean, I think that is a good start.
    Of course, we also have to remember that one of the 
limitations if we wait too long, in other words, we don't use 
the authorities when we get these resolution plans, 
prescriptively, before the next financial crisis, even our best 
intentions may not really work because in an era of a financial 
crisis, that is when all these institutions are suffering 
similar threats at the same time. It is going to be very 
difficult to execute some of these resolution plans.
    How do you sell off a large business or a large business 
chunk as part of a resolution if there is no one to buy it 
because the other entities are also going through the same 
stress of a financial system collapse? And I think that is what 
Secretary Geithner meant when he said to us that Dodd-Frank 
helps, but in the event of another financial crisis the size 
and the scope of the one that we just went through, there may 
be a need to do exceptional things again, because even with the 
best intentions the reality of that type of shock to the system 
is going to require, as long as the banks are too big, it is 
going to require, again, extraordinary intervention.
    Ms. Buerkle. Thank you very much.
    Mr. McHenry. Mr. Welch, 5 minutes.
    Mr. Welch. Thank you very much, Mr. Chairman.
    Mr. Barofsky, I want to thank you for the tremendous work 
that you have done. We are really in your debt.
    Mr. Barofsky. Thank you.
    Mr. Welch. As I understand it, what you are saying is that 
Dodd-Frank has not succeeded in making the market believe that 
it has addressed this question too big to fail.
    Mr. Barofsky. In essence, the implementation of Dodd-Frank 
has not succeeded in convincing the market.
    Mr. Welch. And when you say the implementation, is that 
because of the regulatory provisions that had to be part of the 
followup of Dodd-Frank?
    Mr. Barofsky. Right. So much of Dodd-Frank put the 
responsibility on the regulators and, frankly, on the Treasury 
Department as the chair of the Financial Stability Oversight 
Council to implement the necessary changes and send the right 
messages to the market.
    Mr. Welch. So we would have been better off with Congress 
specifying what were the guidelines and what were the 
parameters within which these large financial institutions 
could operate, is that what would have been a better approach?
    Mr. Barofsky. Well, I don't know whether I can say it would 
have been a better approach; it would have been a more 
effective approach if ideas like Senator Browns and Senator 
Kaufman's amendment in the Senate to Dodd-Frank, which would 
have put leverage caps and size caps on the largest 
institutions. If that had passed, that would have sent a very 
large and very clear message to the markets that the largest 
banks are not going to be too big to fail.
    Mr. Welch. And that is simple.
    Mr. Barofsky. And much simpler. You would have relied a lot 
less on the regulators if that were included.
    Mr. Welch. And when we get into the regulators, we are, of 
course, having a budget challenge in this country and in this 
Congress, and if we are cutting the budget for, for instance, 
the SEC by $25 million, what kind of signal does that send and 
how does that affect the ability to actually supervise the 
regulations that would apply?
    Mr. Barofsky. Well, according to the SEC, it would have a 
very direct result; it would inhibit their ability, according 
to Chairman Shapiro, of being able to implement the 
requirements that they need to do under Dodd-Frank.
    Mr. Welch. Right. And in your independent capacity, that 
conclusion that they are offering makes sense to you; that is a 
threat to their ability to carry out their responsibilities?
    Mr. Barofsky. There is no question. When you are a 
regulatory agency, a law enforcement agency, and you have fewer 
resources, you have to make cuts. Frankly, you have to make 
cuts across the board; everything suffers. So that will suffer; 
I think enforcement will suffer.
    Mr. Welch. The same thing with the Consumer Financial 
Protection Board. Dodd-Frank called for an independent watchdog 
and that would be independent, it wouldn't be their advocating 
for the interest of the large financial institutions, it would 
be advocating for the interest of consumers, and the CR 
provision, continuing resolution provision, would cut that 
budget by 40 percent, from about $143 million to $80 billion. 
So would you have the same response to that budgetary cut and 
its impact on being able to provide those protections?
    Mr. Barofsky. I would imagine so. I am not really familiar 
with the budget of the Consumer Protection Bureau and what the 
requirements are, but, again, having been fortunate enough to 
work with Elizabeth Warren as she was the chair of the 
congressional oversight panel, I would certainly take her at 
her word that if this would impact the ability of that bureau 
to go forward, then it would be accurate.
    Mr. Welch. Let me ask you this. One of the points of this 
hearing is there are some legitimate questions about how TARP 
is being implemented and whether too big to fail is going to 
work, and it is not clear what the consensus would be on this 
committee as to whether we would want to be tougher on the too 
big to fail policy or not; that is not part of what the hearing 
is.
    But let's assume that we did have a view that was shared 
across the aisle, both sides, where we did want to protect the 
taxpayer from a future bailout. What would be your 
recommendation that Congress should do in order to provide us 
with protection against another bailout?
    Mr. Barofsky. I think, again, step one is working within 
the realm of the possible of the bill that has already been 
passed, and that is to exert as much pressure as you can on the 
Financial Stability Oversight Council, on Secretary Geithner to 
fulfill the promise and to not take an incrementalist approach, 
but to take a strong, hard look at the recommendations and the 
advocacy of Chairman Bair and use those tools. The goal should 
be nothing short of getting rid of that subsidy, getting rid of 
that economic advantage that the largest banks have over their 
smaller counterparts, whether it is the 78 basis points 
referenced in the chairman's opening statement, whether it is 
the implicit guarantee, the increased credit rating.
    That has to be a goal because this is the remarkable thing 
about too big to fail: perception matters. Perception is as 
important as anything else, and it is unfortunate. It is 
unfortunate that credit rating agencies still have so much 
influence over things, but that is the reality, and we need to 
take that perception head-on and we need to figure out how to 
use the tools that we currently have to try to deal with that 
perception and not just, I am sorry, essentially ignore the 
advocacy of Chairman Bair and others who have strong ideas 
about trying to get us to a point where these banks no longer 
enjoy that subsidy.
    Mr. McHenry. If the gentleman would yield, I would be happy 
to, I think we agree that we want to end too big to fail, and I 
know that has been your advocacy in your time as Congress, as 
well as mine. The bill of goods that some of us saw coming out 
of Dodd-Frank is that it would prevent too big to fail.
    Mr. Welch. Well, I appreciate that and, as the chairman 
knows, I voted, really in significant part because of the 
testimony of Mr. Barofsky, in favor of the committee bill on 
HAMP. And to the extent that we can find ways to solve the 
problem, we have to do it together. So I really appreciate your 
statement.
    Mr. McHenry. Well, thank you. And I appreciate the 
gentleman's advocacy. We don't always agree, but you certainly 
had a great way of reaching out and trying to find consensus, 
and I appreciate that.
    With that, I yield 5 minutes to Mr. Issa, the chairman of 
the full committee.
    Mr. Issa. Thank you, Mr. Chairman. I would join in saying 
that as we start looking at the particulars of the continuing 
resolution, if we can get to some bipartisan discussion where 
we agree to the number and then begin saying if we need to add 
to SEC or as Mr. Barofsky, I am sure, would agree, some of the 
sunlight Web sites and so on that are also seeing cuts plus 
those back up because they actually save us money, then I think 
we could find those offsets.
    I think as the chairman worked so hard to recognize that 
HAMP was a large amount of money that did not need to be spent 
to ruin people's credit ratings, it still, at the same time, I 
would join with the gentleman in saying I am concerned about 
where we make the cuts, and I would hope that in the very near 
future we begin talking about the need to make austerity moves 
and then begin to say where can we find multiple votes for 
something by putting things back in.
    You mentioned the SEC. I am very concerned that many of the 
sunlight activities that we have, on a bipartisan basis, been 
investing in are also on the block there, and it is my 
intention to work with leadership on whatever the final 
resolution is, once we get with the Senate, to plus those back 
up. I think we need to have the access that, quite frankly, 
Dodd-Frank, with bipartisan support of this committee, almost 
got in the way of data transparency; and we still have to get 
back as a committee to getting that transparency into what was 
Dodd-Frank.
    Mr. Barofsky, if I can throw a slide up, I want to just go 
through a couple of these, because it illustrates probably the 
most important point you are making today, which is the two to 
dash three step credit rating increase.
    Go to the next slide.
    Real examples. Wells Fargo. If their cost of money is 4.81 
versus Comerica at 5.26.
    Next slide.
    If Goldman Sachs, vilified often here, but if their cost of 
money is just under 5 percent while National City is over 6 
percent, that is not the three-quarters of a point you were 
talking about, it is even greater.
    Next slide.
    Barclay's Bank at 4.39 versus BB&T, certainly important in 
this region, a little less than three-quarters of a point, 5.07 
higher.
    Last, Citicorp, 5.64, not earned in any way except that 
they are big; Huntington National Bank, 6.54.
    Let me ask it to you in a different way, as a former 
businessman. If I am among the most credit-worthy companies, 
the Fortune 500 down to small companies that simply have 
healthy balance sheets, is there any reason in the world that 
they are not going to migrate to the largest banks when the 
largest bank can make a profit nearly a point cheaper than its 
competition? Pure cost of money. Isn't this going to move the 
most creditworthy onto the big banks, while leaving the little 
banks with higher rates and being forced to take whatever is 
left behind?
    Mr. Barofsky. No, absolutely, because, again, let's say you 
are depositing money at one of these banks and you go beyond 
the FDIC's limit. Don't you want to have the implicit 
government guarantee of too big to fail behind your deposits? I 
mean, you may, from an ethical and moral point of view, not 
want to support these institutions because of this implicit 
government guarantee, but, as a businessman, how could you not 
take advantage of the fact that you are getting what is 
essentially free deposit insurance based on the implicit 
guarantee that the government is going to bail them out? And 
what does that do? Makes them bigger; makes them even more 
systemically important. It is a downward spiral. It also takes 
those smaller banks, it gives them an incentive as well. We 
need to get bigger; we need to get into this gravy train; we 
need to get on this subsidy level so that we can also out-price 
our competition and raise money more cheaply just because of 
this implicit guarantee. It is a complete perversion of the 
system.
    Mr. Issa. And I think that brings up a point that I want to 
make sure the committee focuses on. If we do not change where 
we are today, the five banks that represent 50 percent will be 
seven banks that represent 80 percent. Basically, through 
mergers the little banks will get this rate by getting big 
enough to be not too big to fail, right? That would be the 
business approach in order to get my business away from the big 
five.
    Mr. Barofsky. It is a real danger. I mean, there are some 
provisions in Dodd-Frank that limit concentration above 10 
percent of all deposits, but it is a real concern and a real 
problem. One of the things that we talk about is Lehman, and 
wasn't Lehman a good example of the government not stepping in, 
but so much of the incentive of allowing Lehman to fail was the 
lesson that we need to get bigger than Lehman because we need 
to make sure that we are big enough that we don't have to go 
through a bankruptcy because of the implicit guarantee of too 
big to fail.
    Mr. Issa. Well, thank you and thank you for your service 
and your testimony here today. I look forward to reading your 
work as an academic.
    Yield back.
    Mr. McHenry. Thank you, Mr. Chairman.
    Now I recognize Mr. Ross of Florida.
    Mr. Ross. Thank you, Mr. Chairman.
    Mr. Barofsky, a pleasure to have you here. You know, as I 
was a kid growing up, I remember commercials and the Avis 
commercial: We try harder because we are No. 2. All of a sudden 
No. 1 seems to now be, in the financial markets, a guarantee by 
the Federal Government, and that whoever is No. 2, good luck to 
them, because you can try as hard as you want, as long as you 
are too big to fail, you will always be No. 1.
    So my question and followup with the chairman here, with 
community banks, if we see what happens, where you have seven 
banks take 80 percent of the market, it seems to me that there 
is an incentive only for community banks to merge with or to be 
acquired by the too big to fail banks. Is that what we are 
seeing a precedent with the TARP package?
    Mr. Barofsky. Well, again, there are some limits on, there 
potentially could be some limits in Dodd-Frank and from the 
regulators that could help to prevent the largest banks from 
just gobbling up all the smaller community banks over a certain 
cap, but certainly consolidation and continued consolidation 
certainly could occur and might be a likely bi-product of where 
we are.
    Mr. Ross. Which really wouldn't be that healthy for the 
consumer or, in this state of economy that we have today, where 
the community banks are the ones that are serving most of our 
businesses in terms of loans, it could give them what I think 
would be an opportunity for the too big to fail banks to 
dictate more policy and restrictions that would make it even 
more prohibitive to have a recovering economy.
    Mr. Barofsky. Less competition is never good for the 
consumer. And I have to say although the notion of the too big 
to fail banks of having even more political power almost seems 
unfathomable at this point, but it certainly could happen.
    Mr. Ross. Systemically, as a result of the TARP package, 
and I may have missed this because I came in late, but has 
there been anything to change the way we do business to avoid 
ever having to have another TARP package passed by this 
Congress?
    Mr. Barofsky. In many ways, the way the TARP has been 
executed, and its legacy of increased moral hazard has made 
future bailouts, if anything, more likely, and unless and until 
we deal with this too big to fail problem, the increased 
concentration, the increased size, the increased 
interconnectiveness, the fewer number of large institutions all 
will contribute and lead us to a point where the too big to 
fail banks have become even bigger and their failure even less 
conceivable or possible.
    Mr. Ross. And would it not be just as likely, then, because 
of the precedent set there, that such packages, TARP packages 
would now be considered for nonfinancial institutions; 
insurance companies? We saw that with AIG, but I guess my 
question is does this not set a precedent that goes well beyond 
assisting the too big to fail financial institutions and to any 
entity that may be deemed to be too big to fail, regardless of 
what their commercial purpose is?
    Mr. Barofsky. The moral hazard generated by TARP wasn't 
just limited to banks, it was, as you said, to insurance 
companies like AIG, to the automobile industry like GM and 
Chrysler. So, no, I think that is part of TARP's legacy, is the 
expanding moral hazard.
    Mr. Ross. And as a professor, would it be wise now in any 
of your classes that you would consider the opportunity of 
changing your business plan to include a path to where you can 
now be acquired or be guaranteed by Federal Government because 
of the precedent that has been set over the last 2 years?
    Mr. Barofsky. It certainly is a possibility. Again, unless 
we take the steps to make that so painful and really address it 
through our regulation, again, right now it is a pretty good 
place to be, to be too big to fail.
    Mr. Ross. So much for entrepreneurship.
    I yield back. Thank you.
    Mr. McHenry. I thank the gentleman.
    With that, I ask unanimous consent that I have two 
additional minutes, and I will grant the full committee ranking 
member or the gentleman from Vermont, Mr. Welch, 2 minutes. OK, 
thank you.
    Mr. Barofsky, I have spoken to you about the Small Business 
Lending Fund, this legislative creation that doesn't have 
oversight from your office, from the SIGTARP's office. Can you 
talk about the Small Business Lending Fund and the impact this 
has, especially on these TARP banks, these small TARP banks 
that are still within the program?
    Mr. Barofsky. Sure. Part of the Small Business Lending Fund 
Congress enabled Treasury to refinance, if you will, really 
move banks off of the TARP ledger and onto the SBLF ledger. 
And, when doing so, Congress gave Treasury the authority and 
direction to adopt certain procedures that were different for 
the TARP banks than other banks that come in and apply for this 
program.
    And we made a series of recommendations to Treasury, which 
have been rejected, to help protect the American taxpayer as 
those banks move from the TARP ledger to the SBLF ledger. Look, 
there is less oversight in the SBLF program; there are less 
protections, capital protections for the taxpayer, and we have 
made a couple recommendations and they have been rejected.
    It is not entirely within our jurisdiction; on this issue 
it very much is within our jurisdiction because we have 
jurisdiction over the sale of troubled assets, and here the 
sale of the preferred shares of stock, which essentially are 
being sold from one government entity and purchased by another 
government entity is very much, in our view, within the 
confines of our jurisdiction, which is why we have announced an 
audit specifically on this issue.
    Unfortunately, Treasury is dithering on whether or not they 
think we have this jurisdiction. We have tried to schedule an 
entrance conference and we were told to hold off for a little 
bit because the Treasury general counsel has to decide whether 
or not we have the right to conduct an audit of the exit of 
banks from TARP.
    Now, I haven't written a letter, I haven't made a big deal 
about this because, frankly, I can't even conceive that they 
are going to come out and suggest that the very clear intent of 
Congress that we have jurisdiction over the exit of TARP banks 
isn't going to be there, and because the money hasn't funded 
into this program yet, we don't have this great sense of 
immediacy of getting this entrance scheduled.
    But if there is some bizarre legal construct that they 
adopt and suggest that we can't do this work, I certainly hope 
that my successor will immediately bring that to this 
committee's attention because this is a really important area 
because of the potential for the taxpayer really to get a raw 
deal as TARP banks exit TARP and go into SBLF, and we need very 
close oversight.
    Mr. McHenry. Thank you. Thank you for testifying.
    I yield 2 minutes to the full committee ranking member, Mr. 
Cummings.
    Mr. Cummings. Mr. Barofsky, back on February 25th I 
requested that your office conduct an audit and analyze the 
homeowner complaints. Can you tell me what is going on with 
that and when we can expect to have some results?
    Mr. Barofsky. I just got an email that has the preliminary 
numbers. We are going through I think it is more than 25,000 
hits to our hotline, and part of what this has been helpful is 
helping us to organize and categorize our hotline hits. Since 
we have gotten your letter our staff has been going through our 
hotline literally entry by entry and pulling together, and I 
got notice just last night that we have some preliminary 
results.
    So I expect that we will have it to you before too long. I 
don't want to give you an exact date because when you are 
walking out you shouldn't dump on the people behind you with a 
commitment that you can't deliver, but I will definitely have 
staff get in touch with your staff today to give you an 
estimate of the timeframe.
    Mr. Cummings. Thank you. That may be one of your last 
duties?
    Mr. Barofsky. Probably, yes. I think so.
    Mr. Cummings. Let me ask you this. One of the things that 
concerns me is that we are going to--as you move on, the 
question becomes--and Mr. Massad is going to testify in a few 
minutes. I remember when I was practicing law, one of the 
things I would say if one witness wasn't side by side with the 
other, which is never, I would say what would your response be 
to what they are going to say in some way or another. It sounds 
like you made some reasonable recommendations and Mr. Massad, 
who will testify in a few minutes, has said, Mr. Chairman, that 
he is going to come in, he told us a month or so ago that he 
was going to be retooling.
    Have you seen any evidence of that? And why wouldn't the 
administration accept some of your recommendations? Why do you 
think? I am just curious because there is a lot of frustration 
on both sides of the aisle, and I am just curious as to what 
you think.
    Mr. Barofsky. There has been no retooling. The announcement 
yesterday, which I think, non-coincidentally, was on the date 
of the vote in the House to terminate HAMP. There was an 
announcement, it was an op ed in Politico that Mr. Massad 
authored, and essentially it said that they are going to now, 
finally, 2 years later, almost 18 months after the promise to 
impose financial penalties on nonperforming servicers, there is 
going to be a plan.
    So I read the op ed, it was brought to my attention, and, 
frankly, it sounded initially like a little bit of a gimmick. 
The idea is they are going to give servicers grades and then 
withhold payments based on that grade. But, OK, at least it is 
some movement in that direction, although, again, I don't put a 
lot of faith in words at this point, given the words that we 
had almost 18 months ago; it is action that matters.
    So I did what I would normally do in that situation, I 
reached out to the Treasury and said, OK, give us the backup 
for this. Let's give us so we can evaluate, so if I am asked a 
question today in front of this committee, I can give an 
opinion about whether this is going to be effective, what the 
construct is, and the response back I get, first, I got no 
response, and then eventually we got a response that, no, no, 
no, we can't tell you because we don't have any other policy or 
plan other than what was outlined in the op ed.
    This is ready, fire, aim all over again with respect to 
this program. So this has been the one incidence of potential 
retooling of finally meeting our recommendation? And not just 
our recommendation, almost everyone's recommendation to start 
holding servicers accountable financially? And I am hopeful. I 
am hoping that this is better late than never, as opposed to 
too little too late, but ultimately words, at this point, are 
just words. And after all of the broken promises we need to see 
some action on this front if we are ever going to get the 
servicers to be held accountable for their terrible and abysmal 
performance that even Treasury acknowledges.
    Mr. Cummings. Thank you, Mr. Chairman. Thank you very much.
    Mr. McHenry. I thank the ranking member.
    Mr. Barofsky, we certainly appreciate your testimony, your 
candor, your ability to actually react to a whole variety of 
questions. Too often in Congress we see the person on the other 
side of the panel as more sport. It is quite interesting to 
have someone who is on the other side of the panel who is of 
sporting mood, that you are willing to react and answer the 
question posed to you.
    Too often in this place and around Washington it is not 
about answering the question posed to you, it is about what you 
want to answer; and you have been very frank, very forthcoming, 
very open in answering the questions posed to you, even when 
they are not convenient, and we certainly appreciate your 
service to your government and to your country. Thank you for 
your time today, thank you for your testimony, and, most of 
all, thank you for your hard work.
    Mr. Barofsky. Thank you, sir.
    Mr. McHenry. Good luck to you in your future endeavors. God 
bless.
    Mr. Barofsky. Thank you so much.
    Mr. McHenry. This committee will now be in recess for 5 
minutes until we set for the second panel.
    [Recess.]
    Mr. McHenry. The committee will come back to order. We will 
now recognize our second panel. Mr. Timothy Massad is the 
Acting Assistant Secretary for Financial Stability at the U.S. 
Treasury. In his capacity, Mr. Massad heads the Office of 
Financial Stability which administers TARP. Prior to joining 
Treasury, Mr. Massad was a partner with a New York law firm 
which has a diverse corporate practice.
    Thank you for being here today. It is the policy of this 
committee that all witnesses be sworn in before they testify. 
If you would please stand and raise your right hand.
    [Witness sworn.]
    Mr. McHenry. Thank you. You may be seated. Let the record 
reflect that the witness answered in the affirmative.
    So, with that, Mr. Massad, we will recognize you for 5 
minutes. Your written testimony will be entered into the 
record. We will then have some questions from the panel.

    STATEMENT OF TIM MASSAD, ACTING ASSISTANT SECRETARY FOR 
             FINANCIAL STABILITY AND CHIEF COUNSEL

    Mr. Massad. Thank you. Thank you, Chairman McHenry, Ranking 
Member Quigley, and distinguished members of the subcommittee 
for the opportunity to testify today. You have invited me here 
to address whether the perception that some institutions are 
too big to fail persists despite the passage of Dodd-Frank, and 
I am happy to do so. I am also pleased to be following Special 
Inspector General for TARP Neil Barofsky on his last day in 
office.
    SIGTARP's recent quarterly report suggests that TARP's most 
significant legacy may be the moral hazard associated with too 
big to fail institutions, and I am happy to address that 
statement as well.
    Moral hazard is a real and significant concern, but to 
suggest that this is TARP's main legacy confuses a response to 
a crisis with the need to fix the flaws in our regulatory 
system that helped trigger the crisis. TARP was necessary and 
it did what it was supposed to do. Its most significant legacy 
is that it, combined with other government actions, helped save 
our economy from a catastrophic collapse and may have helped 
prevent a second Great Depression.
    The lesson we learned from having to take these actions was 
that, to better protect ourselves against future crises and to 
deal with the moral hazard issue, our regulatory system needed 
to be fixed. Today, while more work remains, we have taken 
significant action to do just that. In particular, we have 
taken steps to address the moral hazard associated with the 
fact that TARP and other government interventions were 
necessary and to address the too big to fail problem.
    Just 19 months after TARP was enacted, Congress passed the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, the 
most comprehensive reform of our financial regulatory system 
since the 1930's. Dodd-Frank contains three main elements that 
work together to address the too big to fail problem in 
particular.
    First, and most important, Dodd-Frank gives the government 
authority to shut down and break apart large non-bank financial 
firms whose imminent failure might threaten the broader system. 
It does so in a way that protects the economy, while ensuring 
that large financial firms, and not taxpayers, bear the costs. 
Dodd-Frank provides us with the tools to ensure that no firm 
will be insulated from the consequences of its actions or 
protected from failure. Dodd-Frank makes clear that taxpayers 
must not be asked to bear the costs of a financial firm's 
failure.
    Second, Dodd-Frank creates a framework for identifying and 
responding to risk in the financial system; it creates the 
Financial Stability Oversight Council, FSOC, and the Office of 
Financial Research, the OFR. FSOC is charged with identifying 
risks to financial stability, responding to any emerging 
systemic threats, and promoting market discipline. OFR supports 
this task by addressing the critical need for more 
standardized, more useful, and more reliable data.
    Third, Dodd-Frank requires regulators to impose 
substantially stronger prudential standards. Risk-based 
capital, leverage and liquidity standards will be tougher. 
Bigger and more complex firms will have to hold more capital 
than smaller and less complex firms. Dodd-Frank also requires 
that certain large firms undergo regular stress tests, and 
requires living wills. It also restricts risky activities by 
banks such a proprietary trading, as well as the excessive 
growth by acquisition of the very largest firms.
    Dodd-Frank sets a clear path forward. We have made 
important progress since enactment to implement its provisions, 
but there is a lot more work to do. The financial markets are 
closely watching this progress, which underscores the 
importance of the implementation.
    Let me turn briefly back to TARP, because another piece of 
restoring a strong financial system is unwinding the 
extraordinary assistance that had to be provided during the 
crisis. Since I last appeared before the full committee, TARP 
has continued to make good progress. We have moved quickly to 
reduce the dependence of the financial system on the emergency 
support provided.
    I am happy to note that as this hearing is taking place, we 
expect to receive an additional $7.4 billion in repayments from 
banks. This means the taxpayers will have recovered more than 
100 percent of the funds invested in the banking system, that 
is $251 billion compared to the $245 billion invested. Every 
additional dollar we recover from now on will be a net gain to 
the taxpayer. And with today's repayments, over 70 percent of 
the total amount disbursed under TARP has been recovered. The 
ultimate cost of TARP will be far less than anyone expected. 
Earlier this month, the CBO estimated the overall cost to be 
approximately $19 billion.
    Of course, TARP is only one part of the actions taken by 
the government to respond to this crisis, which also included 
support for Fannie Mae, Freddie Mac, the Federal Reserve's 
actions to provide credit and guarantees of money market funds 
and bank debt. And it is important to look also to the cost of 
all of these measures. Our latest estimate of the direct fiscal 
cost of these interventions, which will be made available 
shortly, will show that there actually should be a small profit 
when we look at all those actions combined.
    Now, this estimate does not include the stimulus measures 
and it doesn't include the significant costs to our economy of 
this crisis. Jobs were lost, businesses failed, household 
wealth declined, and tax revenues fell. But that damage would 
have been far worse without the government's emergency 
response.
    Thank you again for the opportunity to testify. I welcome 
your questions. And let me just say I am also happy to respond 
to any of the matters that Mr. Barofsky raised, whether it is 
pertaining to Dodd-Frank or other issues.
    [The prepared statement of Mr. Massad follows:]



    
    Mr. McHenry. Thank you, Mr. Massad. I recognize myself for 
5 minutes.
    There are a number of questions that Dodd-Frank raises. 
Now, I certainly read your editorial against my legislation 
ending the HAMP program. We don't have to relitigate that; we 
won the vote last night, so I am fine with that, obviously, and 
we had a bipartisan vote as well.
    And I hope that sends a strong message to the overseer of 
that program, you, Mr. Massad, and your staff that the status 
quo there is simply not acceptable. Destroying 800,000 people's 
credit scores, taking their savings is not a responsible 
program in order to help a half a million people. And the 
people that are brought into the program, given verbal 
modifications of their mortgages, and yet are kicked out at the 
program at the end of the day, in your recent report, that 
number was 740,240. And we appreciate your releasing those 
numbers, but it is simply not acceptable. But we don't have to 
relitigate that because I was happy to win the vote.
    Now, I want to raise a question that I think is 
interesting. You said the taxpayers won't be on the hook for 
future bailouts. Can you explain how you justify that under 
Dodd-Frank?
    Mr. Massad. Dodd-Frank provides that taxpayers will not 
fund any bailout. What it provides is it gives the authority--
--
    Mr. McHenry. How does it provide that?
    Mr. Massad. It gives the authority to the FDIC to liquidate 
a non-bank financial firm that is threatening the system and to 
impose those costs on creditors and shareholders, including the 
ability to clawback those costs. And to the extent those costs 
can't be imposed on creditors and shareholders, then there is 
an assessment after the fact on large financial institutions.
    Mr. McHenry. OK. So you disagree with Mr. Barofsky's 
assertion that Dodd-Frank and your boss, the Treasury 
Secretary's comment in the event of a next crisis, we would 
have to do extraordinary things beyond the scope of the Dodd-
Frank legislation?
    Mr. Massad. As I have testified before, Mr. Chairman, the 
Secretary's statement referred to the fact that it is difficult 
to predict the shape, the nature of a crisis, and you may have 
to take extraordinary actions, but he was referring to using 
the tools of Dodd-Frank.
    Mr. McHenry. Interesting. Interesting. OK, so another 
question I have is, is Treasury, in terms of looking at 
financial stability, are you looking at the interconnectedness 
of our financial markets across regulatory regimes, meaning 
foreign regulations and how they are moving forward? Speaking 
to market participants, I think they see an opportunity for 
regulatory arbitrage and to make money based on the fact that 
other European countries, for instance, are behind us in terms 
of changing their financial regulations. Is this a concern to 
you?
    Mr. Massad. Oh, absolutely, Mr. Chairman. It is a very good 
question; thank you for raising it. One of the important things 
we have to do is to work with foreign regulators to try to----
    Mr. McHenry. Are you doing that?
    Mr. Massad. Yes. There is a lot of work going on by 
Treasury, by the Fed, by others to do that. The Dodd-Frank law 
provides for that.
    Mr. McHenry. Well, I know it provides for that. I am asking 
you the question of how that is going. Is that progressing? And 
how is it progressing? What are you doing?
    Mr. Massad. There is a lot of work going on by each agency, 
Mr. Chairman.
    Mr. McHenry. I know that there is a lot of work going on by 
each agency. I mean, you are stating some very obvious things. 
I understand part of the Treasury tact here, and I have seen 
you in committees before, is not to answer questions. Well, I 
am the chairman of this committee; I call my own time, so you 
need to answer the question.
    Mr. Massad. Mr. Chairman, I will be happy to provide you 
with details about that. I do not have them at my fingertips. 
It is not my responsibility to coordinate with our 
international friends on those regulatory regimes; it is my 
responsibility to implement the TARP program. But I would be 
very happy to get you a detailed response on that.
    Mr. McHenry. OK. So financial stability doesn't entail 
looking at international regulatory regimes is what I am trying 
to understand from you. I will move on. I will move on. It is 
fine.
    So the Financial Stability Oversight Council, which is a 
creation of Dodd-Frank, entails a number of regulators sitting 
on a council together, and I understand that. Now, each 
regulator has their own staff. Is it your view, in terms of 
preparing for this and how this council will actually operate, 
how their meetings will occur, where they will occur, is this 
largely being driven by the Treasury Department?
    Mr. Massad. Mr. Chairman, the FSOC is chaired by the 
Secretary of the Treasury; it has a number of members, as you 
know, 10 voting members as well as non-voting members. It meets 
periodically. It is developing staff. It is promulgating rules. 
So there is a lot of activity there and it requires the 
coordination across all agencies, as you know.
    If I may also, though, respond, I don't believe I said that 
financial stability doesn't entail looking at international 
regimes; I think I said the contrary, sir. And, again, I would 
be happy to get you details on what is going on in that regard.
    Mr. McHenry. Well, you said it wasn't your responsibility.
    Mr. Massad. That is correct, it is not. My responsibility 
is the TARP program.
    Mr. McHenry. Right. OK, fantastic. Great.
    So, with that, I recognize Mr. Quigley for 5 minutes.
    Mr. Quigley. Thank you, Mr. Chairman.
    Good morning.
    Mr. Massad. Good morning.
    Mr. Quigley. Questions this morning were brought up earlier 
about community banks and their relative disadvantage. Are you 
in a position to talk about the comparative disadvantage many 
of those banks, many of them in my State, are at at this point 
and what can be done?
    Mr. Massad. Congressman, that is a very important question. 
I would be happy to talk about that. We obviously have to have 
a thriving community bank sector in this country. We have taken 
a number of actions under the TARP program to do that. The 
Obama administration did not provide any funds to large banks; 
we provided funds to about 400 small banks, and about 650 small 
banks were funded under the program.
    The Treasury also pushed for the implementation of the 
Small Business Lending Fund to provide additional assistance to 
those banks. The differential you have referred to is 
important, and I think, once again, Dodd-Frank provides us with 
some tools to address that. It allows us to impose tougher 
standards on the largest banks; capital standards, leverage 
standards, liquidity standards. Now, again, there is a lot of 
work to be done to implement that, but I think it does give us 
some tools to address that very problem.
    Mr. Quigley. If you could mention at least some of the 
differences that still exist that need to be addressed. Could 
you detail some of those?
    Mr. Massad. Sure. Well, a basic problem, of course, is a 
lot of our small banks don't have access to the capital 
markets. That is why, of course, we have been able to see that 
a lot of the larger banks have repaid TARP funds; many of the 
smaller banks have not because it is more difficult for them to 
raise money to do so. But we are continuing to work with them. 
The capital under TARP is not required to be repaid at any 
time. And I think, again, the fact that we funded a lot of 
those banks has helped them weather this storm.
    Mr. Quigley. The perception in my State is that, as 
simplistic as it sounds, you have bailed out the big banks and 
shut down the small ones. If you were in my position, how do 
you respond to those banks?
    Mr. Massad. Very good question, Congressman. I think what 
we say is that, in fact, under TARP, particularly under 
President Obama, we provided capital to any small bank that was 
viable, and we ended up providing that to, as I say, overall in 
the TARP program, about 650 banks, and we are continuing to 
work with them. Now, the issues you have raised, as to whether 
big banks have an advantage, again, I think the Dodd-Frank Act 
is meant to provide us with tools to level the playing field. 
It needs to be fully implemented.
    Mr. Quigley. Longer discussion at some other point.
    Let me shift gears just for a few minutes. March 21st of 
this year Forbes reports that Goldman Sachs and others are 
skirting the Volcker Rule by saying that it doesn't apply to 
long-term principal investments. What has Treasury's reaction 
to that been?
    Mr. Massad. Congressman, I am not familiar with the 
particulars of implementing the Volcker Rule. I would be happy 
to get you a response on that.
    Mr. Quigley. Thank you. I yield back.
    Mr. Meehan [presiding].
    [Remarks made off mic.]
    Mr. Meehan [continuing]. Time to be before our committee, 
and you had identified at the outset of your comments that one 
of the things that you would do is to try to be responsive to 
any comments that were made by the gentleman who testified 
before you. He raised an issue, which was a question that I 
think your general counsel was looking at, the right to conduct 
an audit of the exit of banks from TARP. Is there any reason 
why that should be a question? And what is your position as to 
the authority of the Inspector General to audit that particular 
process?
    Mr. Massad. Thank you, Congressman, that is a very good 
question. I believe that issue goes to whether SIGTARP or the 
Treasury Inspector General has jurisdiction or what each of 
their jurisdiction is. That is the issue. In my capacity, I 
respect that both are entitled to their opinions, and I defer 
to the judgment of the General Counsel as to the proper 
jurisdiction between them, and that is what is going on.
    Mr. Meehan. OK. Well, you have a willingness on the part of 
SIGTARP to engage in this particular activity. If it is 
determined that the Inspector General from Treasury is the 
entity by you, are we assured that the Inspector General from 
Treasury would conduct that same audit?
    Mr. Massad. Well, again, it is not my determination; it is 
a question of interpreting what the law requires and provides 
for, both as to the Small Business Lending Fund law as well as 
TARP, and I would say that I think both the Special Inspector 
General's Office and the Inspector General's Office are very, 
very excellent operations that have conducted thorough audits, 
and I would be happy to work with both of them as we have.
    Mr. Meehan. Well, thank you. Well, then I understand that 
is a little issue that will have to be resolved, but it will 
give us a chance to follow that, and I thank you for your 
observation because I didn't understand why there would have 
been any reluctance.
    As we look at the larger question of not just where we have 
been with TARP, because there is a lot of analysis and 
information on both sides, much of it credible, about the 
successes of TARP, but there is a real issue about where we are 
going, and part of the problem has been, I think, in some ways, 
the unintended consequences, or presumably unintended 
consequences, with the bigger banks getting bigger; as my 
colleague, Mr. Quigley said, a lot of the oversight going 
toward the institutions that perhaps were not really the target 
of this initial effort.
    And what I am concerned about is the perception that now we 
have rating agencies that are factoring in the likelihood that 
somebody is going to step in to cover these banks in shoring up 
their position. So I am dramatically concerned about the 
consequences, as Mr. Bernanke said, sort of it creates almost 
limited market, it limits the market discipline in this kind of 
a context.
    So how do we check the ability to be assured that we aren't 
going to see this again? And one of the factors that I see that 
you have been looking at has been the idea of the living will. 
Now, what is going to happen in practice with that living will? 
Are we enforcing this and are we requiring that a real effort 
be made to compel these organizations to explain how they are 
going to get out of it?
    Mr. Massad. Absolutely, Congressman. It is a very good 
question, and I was rather surprised by Mr. Barofsky's comment 
that somehow Treasury was opposed to this. It is a requirement 
of Dodd-Frank. Implementation of living wills is left to the 
FDIC and the Federal Reserve. They are working on it; they have 
until January 2012. But it was part of the original proposal 
that Treasury made, and we have backed the concept the entire 
time. But you are absolutely right that is a critical tool, and 
how thoroughly that is enforced, I think, and how thorough 
those plans are will make a critical difference.
    Let me just add, also, in terms of the rating agencies, 
they are obviously watching this very closely, as well they 
should, but I think, again, they have made it clear that what 
they are doing is monitoring it. They are seeing how we 
develop----
    Mr. Meehan. They are not just monitoring, they are making 
calculations, and the calculations they are making is that we 
are rating these banks, giving them a preferential position 
with respect to the rest of the market based on their 
confidence that effectively somebody else is going to step in.
    Mr. Massad. That is correct, and they are doing that 
worldwide. But they have also said we are closely monitoring 
the situation to see how these resolution regimes are 
implemented and to see if there is the political will to ensure 
that there aren't bailouts in the future.
    Mr. Meehan. What would that political will take? What 
should be requiring of them in order for them to be able to 
pass the scrutiny of that living will analysis?
    Mr. Massad. Well, again, I think we are at the early stage 
of the implementation. This law was passed 8 months ago, and to 
sort of say it is not going to work is a bit like saying, when 
we passed the Securities and Exchange Act in 1933, that, well, 
because they didn't fix our markets within 6 months, they 
didn't work. In fact, we set up the SEC, we took a lot of 
actions.
    We now have the most vibrant, robust capital markets in the 
world. It is the same thing as saying, well, we passed the 
Civil Rights Act and it didn't end discrimination overnight. 
There is some time needed to implement these things. We are 
busy working on it; it involves many, many agencies, not just 
Treasury. And I welcome Mr. Barofsky's suggestions, if he has 
suggestions on how to implement it, but I haven't heard any 
specifics.
    Mr. Meehan. Thank you, Mr. Massad.
    At this point in time I turn to the gentleman from 
Maryland, Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Let me ask you this, Mr. Massad. You heard the testimony of 
Mr. Barofsky, did you not?
    Mr. Massad. Yes, I did.
    Mr. Cummings. And when you were here before us before, you 
said that there was going to be some retooling with regard to 
the HAMP program. Basically, if I were to sum up what Mr. 
Barofsky said with regard to the HAMP program and your 
retooling is that it is a little late, but at least it seems 
like you are aiming in the right direction, but he doesn't seem 
to have a lot of confidence, based on the past, that your 
department is going to do very much of anything, even under the 
threat of demise of the program. And I am just wondering what 
is your reaction to that?
    Mr. Massad. Certainly, Congressman. Thank you for the 
question. I guess my reaction was once again to be a little 
puzzled. I felt like there was strong criticism, but I didn't 
hear a whole lot of specifics. SIGTARP has made about 18 
recommendations to us on the HAMP program. We have implemented 
14 of those. The ones we didn't implement basically would have 
made it harder for people to get assistance; it would have 
required us to thumb print anyone, it would have required more 
documentation about income, comparing their income today to 
when they got their mortgage, and other things like that. And 
the last specific recommendation we got was in April of last 
year.
    Now, lately he said the program is a failure, but, again, 
we haven't seen anything specific. We made an announcement 
yesterday that we are expanding our compliance reporting and we 
will withhold incentives. Again, on that, what we did from the 
outset was we had a very strong compliance program to try to 
get servicers to fix the problem. There wasn't, frankly, we 
only pay money when they actually enter into the permanent 
modification. They weren't entering into the permanent 
modification, which is why we focused on remedial actions 
initially.
    Mr. Cummings. But you understand there is a lot of 
frustration on both sides of the aisle, and the question is 
what can we do passed the conversation to really effect more 
people. Is there something that we need to do differently? I, 
for one, and I know many of my colleagues voted against the 
bill yesterday to end the HAMP program, but most of us said to 
ourselves and to each other that Treasury has to do better. I 
mean, that is just real.
    So I am just wondering what is going to happen. We can't 
keep going down this road the way we are going, because there a 
lot of people suffering. And with all of that money out there, 
I think it just gives the opposition more ammunition to not 
only destroy the program, but also not replace it with 
anything. And that goes against everything that we are trying 
to accomplish. So I just want to know what your reaction is to 
that.
    Mr. Massad. Well, you are absolutely right that those 
people who want to end the program have not offered any 
alternatives. We continue to look at ways that we can improve 
it, but it is a very difficult issue. We have a lot of people 
who have spent a lot of time on this and, believe me, if there 
was a silver bullet, if Mr. Barofsky knows of a silver bullet, 
he certainly hasn't told us. It is not easy. At the same time, 
the program is continuing to help tens of thousands; it is 
affecting people indirectly through the standards that we are 
setting.
    Mr. Cummings. Do we need to raise the standards?
    Mr. Massad. Yes, absolutely. We need national servicing 
standards, and there is a lot of activity going on in that 
regard, as you know, both through the discussions on the 
foreclosure problems and otherwise, and I think we will see 
that coming. We are very committed to that. And we have also 
met with Members of Congress about the specific things that 
need to be in those national servicing standards.
    Mr. Cummings. One of the things that Mr. Barofsky said, 
too, with regard to too big to fail, he said that in Dodd-Frank 
there are the tools there, and I think you agree with that. But 
he said that he does not believe that the administration has 
the will to really carry it out, and I want you to comment on 
that. But I also want you to comment on this other issue that I 
brought is, which is that if we take substantial funds away 
from your budget, how would that affect and that market 
perception that he talked about so much?
    Mr. Massad. Congressman, I agree 100 percent that taking 
away funds from implementation at this time, whether it is 
Treasury, SEC, FDIC, CFTC, because they all have 
responsibilities here, would not be a good thing. We need to 
make sure we vigorously enforce this.
    As to Mr. Barofsky's comment, again, I don't know what 
specifics he is referring to. The implementation process is an 
open one. There are a number of rulemaking proceedings going 
on. If he has comments on those, he can make them. If he thinks 
that certain things aren't happening fast enough, he should 
point that out.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Meehan. Thank you, Mr. Cummings.
    At this point the gentlelady from New York, Ms. Buerkle.
    Ms. Buerkle. Thank you, Mr. Chairman.
    And thank you, Mr. Massad, for being here this morning and 
your willingness to testify. I am looking at your opening 
statement and I just wondered if we could flesh out a couple of 
items that are in your comments here this morning. In reference 
to Dodd-Frank you listed three points for us. The first one is 
Dodd-Frank gives the government the authority to shut down and 
break apart large non-bank financial firms. To what extent, 
what is the scope of that, and should we be concerned that the 
government has that kind of power that they can just shut down 
a private entity?
    Mr. Massad. It is a good question, Congresswoman. There is 
a process that has to go on. There is a determination that has 
to be made by the Treasury, with also the vote of the FDIC and 
the Federal Reserve, and in consultation with the President, 
and there are criteria that have to be met in order to do that 
in terms of when you can use that authority. Those criteria 
include that there is not another way to deal with the 
situation, that the firm in fact does pose a threat to our 
financial stability, and there are others. And, again, there is 
rulemaking going on to further explicate that because it is 
important for there to be clarity as to those rules.
    Ms. Buerkle. Thank you. And I guess the second point for 
identifying and responding to risk, I think that would tie back 
to the first point. Are there certain benchmarks that you are 
going to look for that will identify that someone is in trouble 
that then the government needs to take this aggressive action?
    Mr. Massad. Sure. And again there are standards in the law 
that now have to be implemented and flushed out more. But I 
think the key thing to remember here is that prior to the 
passage of Dodd-Frank we regulated entities based on the type 
of entity, and we didn't have a comprehensive way of looking at 
risk to the system, and that is what we have now and that is 
why this law is so important and that is why implementation of 
it is so important.
    And we can take proactive measures to impose prudential 
standards, whether it be capital, leverage, liquidity. We can 
limit risky activities, and there is a whole process where even 
before you exercise the liquidation authority you can impose 
restraints on firms. So it gives us a lot of tools but, again, 
they need to be implemented.
    Ms. Buerkle. I guess going along with that gives you the 
tools, at what point what is the concern that the government--
many feel Dodd-Frank is an overreach, and while we want to 
prevent what happened in the meltdown, we want to still 
maintain free market. So what point does the government step 
back and say we are not going to get involved?
    Mr. Massad. Sure. Well, obviously, there is a balance 
there. I think Congress struck the right balance in the Dodd-
Frank Act in giving us those tools, but the answer to your 
question really gets into the details of how it is implemented, 
and that is why, again, it has to be implemented thoughtfully 
over time, and that may change over time. As our financial 
industry changes, we are going to have to change how we look at 
it and how we think about risk.
    Ms. Buerkle. Then just one more question regarding your 
testimony. You talk about Dodd-Frank, you say but much work 
remains to be done. Can you just expand on that briefly?
    Mr. Massad. Certainly. There are about 250 rulemakings that 
have to happen; there are about 70 studies, one-time studies 
that have to happen; it involves efforts of many agencies, not 
just the Treasury, not just the FDIC, but also the Federal 
Reserve, the SEC, the CFTC and others. So that is the work I am 
referring to. A number of those things have already been done 
or are in process; a number of proposed rules are out there, 
but there is a lot more work to be done.
    Ms. Buerkle. Thank you. In my few seconds that are 
remaining here, I just have one last question. The government 
now is a player and a referee. Do you see a conflict in all of 
this?
    Mr. Massad. Well, I don't think we want the government to 
be a player in the sense of having interest in firms; that is 
why we are trying to unwind the TARP program so quickly, for 
example, and get out of the business of owning stakes in 
private companies. And, as I said, we have been very, very 
successful in doing that quickly. I think the government needs 
to stick to its role of regulating risk and monitoring risk and 
taking action when firms pose risks to the system. But clearly 
we have to have a system where there is no firm that is too big 
to fail and that firms fail as a result of the actions they 
take.
    Ms. Buerkle. Thank you very much.
    I yield back.
    Mr. Meehan. Thank you, Ms. Buerkle.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney.
    Mrs. Maloney. Thank you and welcome to the committee again.
    Mr. Massad. Thank you.
    Mrs. Maloney. During the financial crisis some firms became 
so risky, they were so risky and so interconnected that their 
failure was a threat to the broader economy, and I know 
Congress tried to address that and Treasury in Dodd-Frank. Can 
you describe the progress being made under the authority 
granted under Dodd-Frank to prevent companies from becoming so 
interconnected and so risky that they could be a danger to the 
broader economy?
    Mr. Massad. Well, yes. Thank you for the question. There 
are a number of efforts going on in that regard looking at the 
riskiness of activities. For example, the FSOC will make 
determinations about which firms pose those sorts of risks 
based on not just their size, but also their 
interconnectedness, their leverage, the nature of their 
activities; and that work is ongoing. Those determinations 
haven't been made yet; they will be made by the FSOC, which, as 
I noted earlier, is comprised of all these various agencies.
    Mrs. Maloney. Thank you. One of the factors that led to the 
financial crisis was the evolution of what we call the shadow 
banking system, where the purchase, sale, and trading of 
derivatives had grown to a trillion dollar business, but it 
became very evident during the crisis that people, Treasury, 
even the companies did not understand the scope, location of 
the risk, the size of it. I can recall AIG coming before this 
committee, saying the threat was only $50 million, and then 
later it became billions and billions and billions. There was 
no control, no understanding of even the location, the size. 
Can you comment on what advances you have made on the 
derivative market and bringing them to the light of day to 
ensure that it can exist without posing a threat to financial 
stability?
    Mr. Massad. Certainly, Congresswoman. As you know, Dodd-
Frank does provide provisions for greater transparency and 
regulation of the derivatives market, and we did not have those 
previously, and there is a lot of work going on in that regard.
    Mrs. Maloney. Can you specify?
    Mr. Massad. Congresswoman, I am not directly involved in 
that work. Again, I would be happy to get back to you. That 
involves Treasury, but also the SEC, the CFTC. But I would be 
happy to arrange that for you.
    Mrs. Maloney. And the growth of the shadow banking system 
also illustrates the fact that Federal regulators had in many 
ways failed to keep up with market innovation and development. 
Regulation couldn't keep up with the innovation and dynamic 
action taking place in the markets. Can you ensure us that 
Dodd-Frank and the regulations that you put in place are going 
to be able to keep pace with innovations in the financial 
markets?
    Mr. Massad. That is a very good question, and, again, what 
Dodd-Frank does is gives us the tools to do that. We have to 
implement them. But previously we didn't have a system where we 
could look at risk across our entire system; we regulated 
banks, we had certain regulation of other type of entities. But 
as you have noted, the had an entire shadow banking system 
developed; we had all this risk being taken on by firms that 
weren't subject to regulation.
    AIG is a classic example. There was no Federal regulation, 
effectively, of AIG, and it did engage in these derivatives 
that were terribly destructive. Now, as to AIG, for example, we 
have now wound that down. That is part of the reason why they 
are going to be able to repay the government every dollar that 
we gave them.
    Mrs. Maloney. That is good news. Earlier, we heard 
testimony from Special Inspector General Barofsky, and one of 
the points that he raised and has raised is that the act does 
not reach far enough to fully address international firms that 
operate globally, and we are in a global economy, a global 
market. Are U.S. regulators working with their foreign 
counterparts to address the issue of cross-border resolution 
authority and are our financial institutions at a competitive 
disadvantage because we have regulation, yet many of these 
other areas in the financial global market do not? They don't 
have the capital requirements; they don't have the risk 
restraints; they don't have the oversight that American firms 
will be having.
    Mr. Massad. Congresswoman, thank you for that. The 
international coordination piece of this is very critical. We 
are dealing in a global world; we have these large institutions 
who aren't just national institutions, they operate worldwide, 
and that is why that coordination is important. It is going on; 
I know the Federal Reserve is involved in that, the Treasury is 
involved in that. I would be happy to get you more details on 
what is taking place in that regard, but obviously Congress 
couldn't legislate something that mandates what our foreign 
counterparties do; it requires us to engage in cooperation and 
coordination with them.
    Mrs. Maloney. Well, the Basel talks, where do they stand? 
They are going to have international capital requirements.
    Mr. Massad. They will.
    Mrs. Maloney. Where does that stand now?
    Mr. Massad. That is right, and that will result in higher 
capital requirements that will be phased in over time that are 
badly needed. Fortunately, many of our institutions are better 
capitalized today than their foreign counterparts, but we need 
to phase in those tougher standards.
    Mrs. Maloney. Well, my time has expired. Thank you for your 
service.
    Mr. Massad. Thank you.
    Mr. Meehan. Thank you, Mrs. Maloney.
    Let me turn now to the gentleman from Illinois.
    Mr. Walsh. Thank you, Mr. Chairman.
    And, Mr. Massad, thank you for your testimony today. Let me 
ask you just a brief question or two related to the insurance 
industry. I have heard from a number of people of late who have 
expressed concerns with how Dodd-Frank has and will affect the 
insurance industry. You know that insurers are already heavily 
regulated at the State level, including an industry-funded 
State guarantee system that helps secure policyholders in the 
event of an insurance company failure.
    Most insurers are not engaged in significant unregulated, 
interconnected off-balance sheet, highly leveraged activities, 
and so designations such as systemically important would appear 
to be unwarranted in this industry. Overlapping and conflicting 
rules between State and Federal regulators adds an additional 
costly layer of regulation that would significantly 
disadvantage these insurers and their customers.
    As you know, in the event of another large financial 
company failure, companies with assets over $50 billion could 
be on the hook to pay for the resolution of these failed firms, 
even though they exhibited no bad behavior of their own. 
Insurance companies who, according to the Dodd-Frank Act, will 
continue to be resolved in the existing State system, are never 
resolved by the orderly liquidation process, and yet have to 
pay to resolve banks and other bad actors in the financial 
industry. These costs will inevitably be borne by the consumer.
    So if insurance companies are already regulated at the 
State level and if it is clear that they don't participate in 
systemically risky behavior, why do they have to bail out other 
failing financial service companies that do participate in this 
risky behavior?
    Mr. Massad. Congressman, your question raises a number of 
very, very important issues. Let me try my best. I guess where 
I would start is that we have come out of a period where in 
fact we did have a very large insurance company that was 
regulated at the State level, but which posed huge risks to our 
system because it wasn't regulated beyond that, and that was 
AIG. And we didn't have the tools to deal with it and its 
potential failure could have brought down our entire system. So 
obviously that has animated the provisions of Dodd-Frank that 
in part address the insurance industry.
    But I recognize your point, that we have to make sure that 
these provisions are implemented in a way that which is fair to 
those companies that don't pose those risks and that don't 
engage in those activities. I think that is a process that we 
have to focus on as we go forward. The FSOC is very focused on 
those sorts of issues because we, again, need to do this in a 
way that imposes standards and restrictions on those firms that 
pose the significant risk to the system, while at the same time 
level the playing field for the others.
    Mr. Walsh. You would acknowledge, though, that with regard 
to AIG, it wasn't their insurance business that in effect got 
them in trouble or brought them down.
    Mr. Massad. Well, it is a complicated question. There were 
things going on with their insurance business that did pose 
some risks, but you are correct that AIG was involved in a 
number of activities that went outside of the traditional 
insurance area.
    Mr. Walsh. And outside of the traditional insurance 
activities, which really didn't get them in trouble. What 
activities did get AIG in trouble?
    Mr. Massad. Well, again, I think it is a complicated 
question. They had, obviously, a derivatives business that 
posed a lot of risks, but they were also engaged in some 
activities with the capital through their insurance business 
that posed liquidity challenges, and that was one of the 
reasons why they had liquidity problems and the Fed had to step 
in.
    Mr. Walsh. But even using AIG as an example, is there a 
part of you that thinks, again, it is a bit of a stretch to 
want to lump the insurance industry into Dodd-Frank as well?
    Mr. Massad. Well, again, I think the regulation of large 
firms that pose a risk to the system is designed to recognize 
that we can't achieve our goal by doing that by type of entity 
or by particular business line today. We have to have the 
ability to look across the entire financial industry and 
determine where are the risk coming from and take appropriate 
action. At the same time, as you have pointed out, we have to 
make sure that those regulations don't impose unfair burdens on 
other companies that aren't engaged in those activities.
    Mr. Walsh. Right. And I would second that point and just 
reiterate that fact that, in general, the insurance industry 
did not at all engage in systemically risky behavior. But, Mr. 
Massad, thank you.
    And, Mr. Chairman, thank you.
    Mr. McHenry. I thank my colleague.
    In your testimony you say outright that Dodd-Frank was 
necessary because of the moral hazard created ``when government 
provides emergency assistance to private firms.'' So you 
believe that Dodd-Frank answered the too big to fail question?
    Mr. Massad. Congressman, yes. I believe Dodd-Frank gives us 
the tools to address the too big to fail problem.
    Mr. McHenry. And so too big to fail is no longer 
permissible?
    Mr. Massad. Well, Congressman, Mr. Chairman, as I said when 
you were out of the room, you know, we have to implement the 
law. The law is not a magic wand, it is a bit, as I said, like 
saying, when we passed the Civil Rights Act, that didn't 
eliminate discrimination. We have a lot of work to do.
    Mr. McHenry. That is a heck of an analogy. In today's 
financial times, Alan Greenspan wrote, ``The financial system 
on which Dodd-Frank is being imposed is far more complex than 
the lawmakers, and even most regulators, apparently 
contemplate. We will almost certainly end up with a number of 
regulatory inconsistencies whose consequences cannot readily be 
anticipated.'' Do you agree?
    Mr. Massad. No. I guess what I would say is the question is 
what are we saying would be the alternative. I don't think 
anyone would say that we would be better off without the tools 
that we have now provided for through Dodd-Frank to regulate 
risk, to impose higher prudential standards, to be able to 
prevent a firm from threatening our entire system. The question 
is, again, we have to implement those wisely.
    Mr. McHenry. Are we doing that?
    Mr. Massad. I think we are doing that.
    Mr. McHenry. OK. To continue with Mr. Greenspan's piece in 
today's Financial Times, ``Under Dodd-Frank, the regulators are 
being entrusted with forecasting and presumably preventing all 
undesirable repercussions that might happen to a market when 
its regulatory conditions are importantly altered. No one has 
such skill.'' Do you agree or disagree?
    Mr. Massad. Well, I think, again, we have to try. I don't 
think any of us want to be in the situation that we were in in 
the fall of 2008, where because we had a regulatory system that 
had been outgrown, we had a financial industry where there was 
a huge amount of risk being taken on without transparency, 
without adequate regulation, and that is what contributed to 
the crisis we had. I think because of that we learned the 
lesson that we need to overhaul our regulatory system. That is 
the judgment Congress has made, and I think the task is now to 
implement that judgment.
    Mr. McHenry. Mr. Barofsky and a number of folks have 
testified that during the last financial crisis, in 2008, that 
the laws that we had then we could have prevented the crisis. 
Do you agree?
    Mr. Massad. That is news to me. I would be happy to discuss 
that with Mr. Barofsky.
    Mr. McHenry. OK. So basically it is your view that Dodd-
Frank has ended too big to fail.
    Mr. Massad. As I said, Mr. Chairman, Dodd-Frank gives us 
the tools to address the problem.
    Mr. McHenry. OK. Now, moving back to HAMP, I want to give 
you an opportunity to respond now in our second round here. You 
know, you made an interesting face when I was saying that we 
have 740,000 homeowners who have actively been harmed by this 
program. Do you disagree?
    Mr. Massad. I do, sir, and I appreciate your----
    Mr. McHenry. So the folks that have fallen out of this 
program, that enter into the program, you tout 1.4 million, is 
that the number?
    Mr. Massad. Trial modifications? That is correct.
    Mr. McHenry. Trial modifications. Now, do you understand 
that when they are entered into a trial modification they are 
told verbally that oftentimes they are going to make a lower 
monthly payment going forward? Are you aware of that?
    Mr. Massad. I am, sir.
    Mr. McHenry. OK. Now, in a trial modification that is 
verbal, as all these are verbal, when you are paying less than 
what is contractually obligated by a homeowner, that harms your 
credit. Are you aware of that?
    Mr. Massad. Mr. Chairman----
    Mr. McHenry. Are you aware of that, yes or no?
    Mr. Massad. Mr. Chairman, if I can answer how the trial 
modification works, because I think it is important to have all 
the facts on the table. The trial modification provides a 3-
month period in which payments are lowered temporarily, and 
during that time we have to determine if someone qualifies for 
a permanent modification. What we did at the outset was we 
allowed people, we allowed servicers to accept people into 
trial modifications on the basis of what we called stated 
income; you could basically raise your hand and say this is how 
much I make, I qualify. Because it was a terrible crisis, 
because we had a lot of people who were in need.
    Mr. McHenry. I understand; I read your editorial. The point 
I am asking--and I know you are trying to go through all this. 
I understand how this works operationally. I want to make sure 
that you understand how this works. So when you are given that 
verbal modification, this temporary modification, does that 
hurt your credit?
    Mr. Massad. Mr. Chairman, I think----
    Mr. McHenry. You are not answering the question.
    Mr. Massad. Well, I don't----
    Mr. McHenry. It either does or it doesn't. If it doesn't 
hurt your credit----
    Mr. Massad. I think the answer can't be given as a simple 
one without, again, looking at what happens to those people. If 
I may answer--can I answer the question in this regard, if you 
will allow me? You refer to all these 750,000 people being 
hurt. We actually----
    Mr. McHenry. It is 740,240 according to your last report.
    Mr. Massad. Thank you. We actually publish statistics on 
what happens to those people. Now, those statistics are based 
on servicer surveys, but it is in our monthly report, and it 
shows what happens. The majority of them ended up in 
alternative modifications or alternative payment plans or are 
current. Very few of them went to foreclosure.
    Mr. McHenry. Do you believe that HAMP has harmed any 
borrower?
    Mr. Massad. I am sure there are people who were harmed.
    Mr. McHenry. How many?
    Mr. Massad. I don't know the answer to that.
    Mr. McHenry. I thought you publish statistics about what 
happens.
    Mr. Massad. Mr. Chairman, we publish a lot of statistics, 
and I am trying my best to address your concern. I think it is 
important to remember that whenever you implement a program 
like this on a massive scale in a crisis, what we were doing 
was buying time for people. Most of those people ended up in 
better situations. There are----
    Mr. McHenry. How many?
    Mr. Massad. Well, again, based on the servicer surveys, the 
majority, the vast majority of them were clearly in better 
situations; only a small number went to foreclosure. But the 
point even about those is----
    Mr. McHenry. How many went to foreclosure?
    Mr. Massad. About 5 percent. But the point is----
    Mr. McHenry. How many? What is that number? I don't have 
the report in front of me.
    Mr. Massad. Foreclosure completions is 58,000. But the 
point is that their loan wasn't increased; they owed the same 
amount.
    Mr. McHenry. And so when the servicer comes back in, when 
they are not given a permanent modification, they owe those 
missed payments or the difference between the payment they were 
making and the payment they were obligated to make.
    Mr. Massad. That is correct, sir.
    Mr. McHenry. Right. And there are penalties and fees 
associated with that, as well as additional interest.
    Mr. Massad. There may be in some cases.
    Mr. McHenry. So, therefore, that temporary modification has 
left them worse off than had it not been given originally.
    Mr. Massad. Sir, if, again, you are talking about a pool of 
people who are given that breathing room, and the majority of 
them, the vast majority of them end up being in better 
situations, I still think it was the right policy judgment to 
make.
    Mr. McHenry. Even if this program is actively harming 
individuals and leaving them worse off?
    Mr. Massad. Well, again, it is not that the program is 
actively harming them, sir, it is that they have a mortgage. 
They owe the same amount. It should have been explained to them 
that if they didn't get the permanent modification, they would 
still owe what was previously due.
    Mr. McHenry. OK.
    Mr. Massad. Now, if that wasn't explained to them, that was 
a mistake. But that should have been explained to them. But the 
program didn't make them worse off.
    Mr. McHenry. Well, I have numerous examples from 
constituents that I could read to you. The program has harmed a 
large number of individuals, and the Treasury Department--you 
know, the Special Inspector General's report on HAMP has been 
out there for quite a while; you have had plenty of authority 
to go in and fix this program. You haven't fixed it. So you are 
touting some of these statistics. The other thing I just wanted 
to make sure to ask, while you have the survey there, or your 
statistics there, you quoted the foreclosure number. How many 
are in pending foreclosure? Do you have a statistic similar to 
that?
    Mr. Massad. Foreclosure starts, those not accepted for 
trial modifications is 163,000. Now, a lot of those could have 
been in foreclosure starts even before they went into the 
trial.
    Mr. McHenry. OK. Well, look, I wanted to give you an 
opportunity to respond. If you would like to add anything else, 
I would be happy to give you the opportunity right now.
    Mr. Massad. I would be happy to. Again, I think we faced 
the worst housing crisis of a generation. We were trying to 
roll out a program that could help a lot of people. A lot of 
people were already delinquent for months, so we were trying to 
create some breathing room. Most of those people are in better 
situations. Those that are not I think, again, their mortgage 
didn't increase because of HAMP; they simply weren't accepted 
into the permanent modification because we have very prudent 
eligibility criteria so that we spend taxpayer dollars wisely.
    Mr. McHenry. Thank you.
    Mrs. Maloney.
    Mrs. Maloney. Thank you. First of all, Mr. Deputy 
Secretary, could I request to have your op ed, your editorial, 
placed in the record?
    Mr. McHenry. Without objection.
    [The information referred to follows:]



    Mrs. Maloney. And I would like to say that at meetings with 
the HPD department in the city of New York, they are very 
grateful, as are the 35,000 families that were able to stay in 
their homes because of the HAMP program.
    I would, with all respect, say that it is very easy to 
throw stones and criticize. It is harder to come up with a 
program that addressed this crisis, which a large part of it 
was the housing crisis. And for every person who stayed in 
their home, not only did it help that person, it helped their 
community, because vacant homes bring down the value of housing 
for their neighbors; it helped their communities, it helped 
their city, and it helped with the overall financial stability 
of our country.
    Mark Zandi and other economists have testified that housing 
is roughly 25 percent of our economy. So if we do not stabilize 
housing and grow in housing, we are not going to stabilize out 
of this great recession.
    Now, I am very concerned that the Republican majority in 
the past 3 weeks have eliminated four critical housing programs 
that helped people stay in their home, and I would say that it 
is very, very dishonest to criticize a program for not helping 
people that had no help to begin with, and they didn't get in 
the program because they did not meet the high criteria that 
the program had, that tax dollars would not be spent unless 
people had a job, had a credit record, and were believed to be 
able to meet that commitment going forward.
    So I want to congratulate the Treasury Department and 
really the Obama administration for not just criticizing and 
saying we have a problem, but getting out there and doing 
something, like FDR. When FDR had a problem, he didn't just 
look at it, he started working on it. And, granted, not every 
program works, but come in with some ideas of how to make it 
better. But to come in and criticize a program when you have no 
ideas of your own, when you haven't come forward with a 
program, when you haven't done anything to help the people and 
I would say the overall economy.
    So I want to congratulate you on the work that you have 
done. I support the HAMP program. I hope that President Obama 
has a lot of veto ink in his pen, and if the Republican bill 
gets to his desk, it is my hope that he will veto it.
    And I respectfully ask the if they will have a hearing 
where we can bring in HPD directors from across the country, 
people on the front line that were working with our government 
to help people stay in their home. In the city that I 
represent, the officials that do this every day, the not-for-
profits that are committed, and the banks that have voluntarily 
stepped up to the plate to help have said this program works.
    So instead of just being critical, come up with ways to 
improve it if you think there is a problem. But to criticize 
because people didn't get into the program because the criteria 
was so high--and I agree with the proposal from Treasury to 
keep that criteria in a way that protects taxpayers' money.
    Now, I would like to move on to the TARP workout. I really 
want to quote from an article that was written recently, 
October 20, 2010, in Bloomberg. It is one of our big papers and 
media experts there. They testified, and I would like your 
response to this, Mr. Massad, that TARP investments have 
actually provided taxpayers with ``higher returns than yields 
paid on 30-year Treasury bonds, enough money to fund the 
Securities and Exchange Commission for the next two decades.'' 
The article also states, ``The government has earned $25.2 
billion on its investment of $309 billion in banks and 
insurance companies, an 8.2 percent return over 2 years.''
    Now, that beat out U.S. Treasury's high yield savings 
accounts, money market funds, and certificates of deposit, am I 
correct?
    Mr. Massad. Congressman, you are correct that we have had 
some good returns on the programs. I am not familiar with those 
exact numbers, but the bank program is making a profit and some 
of the other----
    Mrs. Maloney. Well, could I ask could you describe 
generally the ways in which Treasury is seeking to maximize 
taxpayers' investment under TARP and ensure that our country 
and taxpayers are made whole?
    Mr. Massad. Certainly, Congresswoman. Let me first just say 
that, obviously, the purpose of TARP was to stabilize the 
system, not to make money. But it is terrific that this program 
will not cost the taxpayers very much, and we are looking to 
maximize the returns on the various programs. As I say, we have 
earned about, we estimate we will earn about $20 billion on the 
bank investments. AIG right now is at a profit. We will have 
some loss on the autos.
    Let me just note one other thing, though, going back to 
HAMP, and I apologize to the chairman; I misquoted the numbers. 
In terms of those who were in trials and didn't make permanent 
mods, they were actually about half of what I said. The 
foreclosure completions are only 28,000 and the foreclosure 
starts at only 84,000.
    Mr. McHenry. The gentlelady's time has expired and, with 
that, I gave the gentlelady 6 minutes and I will give the 
ranking member 6 minutes, since I went well over my time, out 
of fairness to all that are here. I am sorry, I will give the 
ranking member, I am sorry, Mr. Cummings, 6 minutes now.
    Mr. Cummings. Very well, Mr. Chairman. Thank you very much.
    I do want to associate myself with every syllable that Mrs. 
Maloney just said. I think part of the frustration, Mr. Massad, 
and I think you are well aware of this, we want even more 
people to be helped because there are so many people suffering.
    Mr. Massad. Absolutely.
    Mr. Cummings. And I guess the reason for the criteria was 
the dilemma that people didn't want a program--I mean Congress 
didn't want a program that standards would be so low that there 
would be a lot of people failing. Is that part of the reason?
    Mr. Massad. Well, I think it is a few things. You know, we 
did have what we felt were very prudent eligibility criteria. 
We don't, for example, provide modifications for vacation 
homes, for vacant homes; we don't provide assistance for those 
people who can afford their mortgage without it; we don't 
provide assistance for those who need to move on to another 
situation. And we make sure that the modification economically 
makes sense.
    And as a result of that, the pool of people that we 
currently estimate are eligible, as you probably know, is about 
1.4 million today. That is a pool of families. We have reached 
a lot of those. We want to continue to reach more of them. But 
it is a very difficult problem. We have had a lot of people 
looking at whether there are other ways we can do this. Our 
authority to implement new programs, as you know, has expired. 
We did take funds and reallocate them to the States so that the 
States can come up, particularly those States that are hardest 
hit by these problems, so those States can innovate with some 
programs that in particular address the needs of the unemployed 
and the problem of falling house prices.
    Mr. Cummings. Now, early on much has been made with regard 
to the whole issue that it was projected by the President that 
more people would be helped by HAMP than was. Is there 
something that happened along the way that caused you all to 
look at this thing and say, wait a minute, maybe we cannot 
accomplish those numbers that we really wanted to accomplish? 
And, if so, what was that?
    Mr. Massad. We recognized that, No. 1, the eligibility pool 
wasn't as big as we originally thought it might be; it was very 
hard to know when the program was launched. And, again, we were 
in a crisis; people had no sort of historical basis to say, 
well, you know, this is how you should do it. That was No. 1.
    No. 2 was servicers were not equipped to deal with this 
crisis; their business model was set up to basically collect 
payments on performing loans, so it was very, very difficult to 
implement. We have tried to take a lot of actions to improve 
that. As we discussed earlier, we need more. We need national 
servicing standards. There is a lot of work going on a lot of 
fronts to address the servicer performance.
    And No. 3 was it is hard to reach people sometimes. People 
don't necessarily want to talk on the phone when they get a 
call from their mortgage servicer; they don't even want to hear 
what it is about. It was hard to reach people.
    Mr. Cummings. And so going back to this issue of the trial 
modifications, so that we will have a clear picture, so you are 
saying--and this is a very important point--that a lot of the 
people who did not end up with permanent modifications were 
able to resolve their problems in other ways, is that right?
    Mr. Massad. That is absolutely true, and it is important to 
remember that before we launched our program there were no, 
there were very, very few modifications getting done by the 
industry, and many of those that were being done increased 
people's payments. HAMP set standards that the industry then 
largely adopted in its proprietary programs, what we call the 
affordability standard in terms of the ratio of the payment to 
one's income.
    And as a result of that, and as a result of other borrower 
protections we have put in place, HAMP's effect has also been 
very indirect in terms of helping a lot of people. There have 
been about two million modifications done outside of HAMP since 
we launched this program, and I think our standards helped 
cause that. We have put in, as you know, a number of 
protections that now the industry is following in terms of 
prohibitions on dual track, where someone who is in the process 
of being considered for a modification could otherwise be 
foreclosed upon; other types of appeal processes for people who 
are rejected. And we require the servicers to not only evaluate 
someone for HAMP; we require them to then look at other types 
of assistance, to make sure that person can't qualify for 
something else, before they are allowed to foreclose upon them.
    Mr. Cummings. Now, I don't know whether you have--I assume 
you do--have some type of access to information or maybe you 
are a part of these negotiations with the Attorney Generals. 
Are you a part of that?
    Mr. Massad. I am not directly.
    Mr. Cummings. Not you, but do you have access?
    Mr. Massad. I am aware of what is going on, yes.
    Mr. Cummings. And I am not trying to get into any 
confidentiality on the part of those negotiations, might HAMP 
be affected by anything that comes out that?
    Mr. Massad. Well, it certainly will be. What is going on in 
that, and again I appreciate the question. As you know, I can't 
comment on the details of it because it is an enforcement 
matter, but clearly this is another example of the fact that 
this industry is broken. It didn't have the standard that we 
needed and it didn't have the ability to cope with this crisis, 
and we saw that through HAMP, we saw that through what they 
were doing on foreclosures, which was outside of HAMP. And I 
think what is emerging from this is clearly a push to get 
national servicing standards. And, yes, those will have an 
effect across the whole industry, and that is what we need.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. McHenry. I appreciate the ranking member's questions, 
especially the last question is of interest. So it is a push 
for national servicing standards.
    Mr. Massad. Mr. Chairman, what I said was I think what we 
need, what is evident by what has been found as to foreclosures 
and what we found as to HAMP is that we do need national 
servicing standards.
    Mr. McHenry. OK. Thank you.
    Mr. Massad. As to what comes out of----
    Mr. McHenry. Go right ahead, go ahead and finish your 
sentence.
    Mr. Massad. As to what exactly would be in a settlement, I 
wasn't commenting on that.
    Mr. McHenry. Oh, OK.
    Mr. Massad. That would be determined by the various parties 
to the settlement.
    Mr. McHenry. OK. Well, thank you for your testimony. Thank 
you for being here today.
    At this time, I ask unanimous consent to submit for the 
record three written testimonies of what would have been a 
panel today, testimony by Joshua Rosner, testimony by the 
Independent Community Bankers, and, finally, testimony by 
Anthony B. Sanders. I ask unanimous consent they be submitted 
for the record. Without objection, so ordered.
    [The information referred to follows:]



    
    Mr. McHenry. Today's hearing was certainly interesting; we 
had two oftentimes dramatically different views of the facts, 
views of the lay of the land, but certainly stimulating and 
interesting for us to inform Congress's thinking on how the 
implementation of Dodd-Frank is progressing, the impact of the 
TARP program and the bailouts, and whether or not bailouts 
continue to be the rule of the day.
    A couple of interesting points in terms of Mr. Barofsky's 
testimony. He refers to HAMP as a broken promise, as well as it 
being poorly designed and executed, and that the Main Street 
goals of TARP were not followed through with. Finally, he also 
testified that what he said was ``resolution authority is a 
joke,'' and that goes to the heart of really what many of us 
here, in terms of Congress, believe is one of the lasting 
impacts of Dodd-Frank, is that we have codified the bailouts in 
terms of calling it resolution authority.
    Now, that was Mr. Barofsky's testimony. Now, Mr. Massad did 
an able job of defending the administration's actions, in 
particular HAMP. We simply disagree on the impact it has in 
terms of those that it is hurting. I appreciate your testimony 
and your willingness to be here. Thank you.
    This meeting is adjourned.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Gerald E. Connolly 
follows:]




                                 
