[Senate Hearing 112-81]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 112-81

                       TARP OVERSIGHT: EVALUATING



                               before the

                              COMMITTEE ON
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION




                             MARCH 17, 2011


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

                                                         S. Hrg. 112-81




                               before the

                              COMMITTEE ON
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION




                             MARCH 17, 2011


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

                 Available at: http: //www.fdsys.gov/


67-400 PDF                WASHINGTON : 2011
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                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

                   Glen Sears, Senior Policy Advisor

                     Laura Swanson, Policy Director

                   Lisa Frumin, Legislative Assistant

                 Andrew Olmem, Republican Chief Counsel

                Hester Peirce, Republican Senior Counsel

              Michael Piwowar, Republican Senior Economist

                       Dawn Ratliff, Chief Clerk

        William Fields, Legislative Assistant and Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor


                            C O N T E N T S


                        THURSDAY, MARCH 17, 2011


Opening statement of Chairman Johnson............................     1
    Prepared statement...........................................    15

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     2
        Prepared statement.......................................    32


Ted Kaufman, former U.S. Senator from the State of Delaware and 
  Chairman, Congressional Oversight Panel........................     6
    Prepared statement...........................................    32
    Response to written questions of:
        Senator Shelby...........................................   320
Timothy G. Massad, Acting Assistant Secretary, Office of 
  Financial Stability, Department of the Treasury................     5
    Prepared statement...........................................   269
    Response to written questions of:
        Senator Shelby...........................................   581
Neil Barofsky, Special Inspector General, Troubled Asset Relief 
  Program........................................................     8
    Prepared statement...........................................   277
    Response to written questions of:
        Senator Shelby...........................................   583
        Senator Wicker...........................................   583
Thomas J. McCool, Director, Center For Economics, Applied 
  Research and Methods, Government Accountability Office.........    10
    Prepared statement...........................................   293
    Response to written questions of:
        Senator Shelby...........................................   584

              Additional Material Supplied for the Record

Prepared statement of John B. Taylor, Stanford University........   639
``How the Great Recession Was Brought to an End,'' by Alan S. 
  Blinder and Mark Zandi.........................................   645
Prepared statement on behalf of the National Multi Housing 
  Council and the National Apartment Association.................   668




                        THURSDAY, MARCH 17, 2011

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m. in room SD-538, Dirksen Senate 
Office Building, Hon. Tim Johnson, Chairman of the Committee, 


    Chairman Johnson. I would like to call to order this Senate 
Banking Committee hearing entitled ``TARP Oversight: Evaluating 
Returns on Taxpayer Investments.''
    Whenever the topic of TARP comes up, it is hard not to 
think back to the intensity and dramatic moments of the 
financial panic nearly 2 \1/2\ years ago. Treasury Secretary 
Paulson and the Federal Reserve were quickly running out of 
options, and legislators were faced with the difficult choice 
of whether to provide hundreds of billions of taxpayer dollars 
at Wall Street or possibly see the economy slide deeper into 
    However, as the Congressional Oversight Panel put it in 
their final report released yesterday:

        It is now clear that, although America has endured a wrenching 
        recession, it has not experienced a second Great Depression. 
        The TARP does not deserve full credit for this outcome, but it 
        provided critical support to markets at a moment of profound 

COP made another point in its report that bears repeating:

        TARP has become one of the most thoroughly scrutinized 
        Government programs in U.S. history . . . [and] in the midst of 
        a crisis, perfect solutions do not exist; every possible action 
        carries regrettable consequences, and even the best decisions 
        will be subject to critiques and second-guessing.

That said, the outcome of TARP was much more successful than 
many ever anticipated, averting a depression and with other 
emergency policies, saving 8.5 million [inaudible].
    I strongly believe that tough oversight was vital to TARP's 
success. Early estimates showed the program costing taxpayers 
over $350 billion. Now, thanks to effective oversight, the 
price tag has plummeted to $25 billion as estimated by the non-
partisan Congressional Budget Office. That's one-sixth the cost 
of the savings & loan crisis in the 1980s and 1990s. Taxpayers 
clearly win when oversight works.
    Today, some still criticize HAMP for its inability to help 
more homeowners. While I welcome a discussion of how to improve 
the program, simply ending foreclosure assistance will not make 
the problem go away and would limit the sustainable options for 
struggling homeowners who could save their homes. Over 530,000 
families have been helped through HAMP, which is not an 
insignificant number. Their neighbors have been helped as well, 
by preventing their home values from declining due to a nearby 
foreclosure. HAMP has also led the way on loan modifications 
that work, pushing the industry to follow suit and 
standardizing the process. The American people deserve better 
than the ``repeal everything but the kitchen sink'' approach to 
governance that they are offering.
    I look forward to learning more from our witnesses about 
what worked in TARP, what did not work, and why. Going forward, 
I believe these lessons prove the importance of tough oversight 
in implementing the Dodd-Frank Act. I also believe it can be 
instructive as we continue to work through the foreclosure 
crisis and as we consider reforms to the mortgage finance 
    Before I recognize Ranking Member Shelby for his statement, 
I want to note that at his request there is written testimony 
from Professor John Taylor of Stanford University that we will 
make part of the record.
    Chairman Johnson. I would also ask that the paper ``How the 
Great Recession Was Brought to an End'' by Professor Alan 
Blinder and Mark Zandi be made part of the record.
    Chairman Johnson. I will remind my colleagues that we will 
keep the record open for 7 days for statements, questions, and 
any other material you would like to submit.
    With that, I will turn to Ranking Member Shelby for his 
opening statement.


    Senator Shelby. Thank you, Mr. Chairman.
    In late 2008, Treasury Secretary Paulson and Federal 
Reserve Chairman Bernanke came to Congress demanding $700 
billion to buy so-called toxic assets from banks. They insisted 
at the time that we were on the verge of a worldwide financial 
meltdown. Their scare tactics worked. Congress passed 
legislation creating the Troubled Asset Relief Program, or what 
we call TARP. Although TARP was proposed by President Bush, his 
successor was a supporter of the program.
    I voted against TARP. I believed then, as I do today, that 
TARP was a serious policy mistake. And while many will try to 
claim it was a success, a thorough examination of TARP's record 
tells us a very different story.
    The design of TARP was so flawed that just weeks after the 
bill was passed, Treasury had to abandon its plan to purchase 
toxic assets. Purchasing assets proved to be a very difficult 
plan to implement. It was also a very risky way to stabilize 
the financial system.
    If Treasury purchased assets at too low a price, it could 
have threatened the solvency of financial institutions by 
forcing them to mark down the value of their assets to reflect 
the prices paid. And if Treasury paid too much, it would have 
given banks a taxpayer-funded windfall.
    But due to these inherent problems, right after TARP was 
passed, Treasury had to switch to a direct equity injection for 
banks. Accordingly, a vote for the original TARP was a vote for 
a flawed plan, I believe.
    And what price did we pay? Our credit markets froze and our 
equity markets tanked as they saw our policy leaders panicking 
and recognized that TARP would not solve our problems. I would 
like to submit for the record--I want to bring it up again 
because it is important, what the Chairman just did--testimony 
by former Under Secretary of the Treasury and the distinguished 
economist John Taylor which lays out in detail how the process 
of enacting TARP worsened our economic downturn. Mr. Chairman, 
I appreciate you putting that in the record.
    I fear myself that the long-term damage caused by TARP will 
be even more damaging to our financial system. TARP turned our 
already severe too-big-to-fail problem into official policy. 
Even TARP's Special Inspector General has said that perhaps, 
and I will quote:

        TARP's most significant legacy is the moral hazard and 
        potentially disastrous consequences associated with the 
        continued existence of financial institutions that are too-big-

    Perhaps as concerning was the fact that our regulators used 
TARP to keep even insolvent banks afloat. After TARP, 
creditors, investors, and big banks have every reason to expect 
that the U.S. Government will never allow these banks to fail. 
Even worse, the implicit Government guarantee will make big 
banks careless about the risks they take and will make the next 
financial crisis and even more severe.
    TARP, I believe, has created moral hazard with respect to 
financial regulation. By using TARP to bail out banks, our 
financial regulators were able to hide their regulatory 
failures--and there were many--leading up to the crisis. Going 
forward, our regulators will have reduced incentives to be 
tough with the big banks if they know that their work has 
little bearing on whether or not the bank fails.
    Moreover, TARP sets a new standard for Government 
intervention in our markets to achieve political ends. The 
sloppy drafting of TARP legislation gave the Treasury Secretary 
unfettered discretion on how he spent the $700 billion, and as 
a result, it was used to bail out politically powerful 
automakers and pour billions into a series of largely 
ineffective homeowner assistance programs.
    Some say that TARP is a success because TARP may yield a 
so-called profit. I am not persuaded. First, claims of TARP's 
profitability are premature. The taxpayer will likely still 
take losses on TARP's housing programs, and many financial 
institutions have yet to fully repay their TARP funds. 
Moreover, TARP used taxpayers' dollars for very risky 
investments. A proper evaluation of the returns on any 
investment must appropriately adjust for risk. I believe such 
an evaluation would show that the taxpayers were not adequately 
compensated for incurring such large risk.
    Second, what matters most is TARP's negative long-term 
impact on the overall economy which will dwarf any profit 
generated, if there is any.
    On that basis, TARP's record has not been good for American 
families. Since TARP was enacted, the unemployment rate has 
reached and stayed at record levels, lending remains stagnant, 
and millions of Americans are facing foreclosure. In light of 
the vast authority granted to the Treasury Department under 
TARP, I believe that this Committee had a responsibility to 
conduct extensive oversight of the program. Unfortunately, the 
majority once again decided to outsource the work of the 
Committee to outside parties.
    Today we will hear from three bodies charged by Congress 
with overseeing TARP. It is especially important for us to hear 
from Special Inspector General Barofsky before he leaves his 
post at the end of the month.
    Today we hope to learn how Treasury has managed TARP and 
how effective such an oversight body was at supervising 
Treasury. Were they able to obtain the information they needed 
from Treasury and our financial regulators to do their 
[inaudible]? What problems did they identify? How receptive 
were Treasury and our financial regulators to their 
recommendations? Hopefully today's hearing will help us better 
understand what actually happened in this very controversial 
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you.
    Timothy Massad serves as the Acting Assistant Secretary for 
Financial Stability. In such capacity, he heads the Office of 
Financial Stability which administers TARP. He joined the 
Treasury in May 2009 as the Chief Counsel for OFS and later 
became the Chief Reporting Officer for the office. Prior to 
joining Treasury, Mr. Massad was a partner with the law firm of 
Cravath, Swaine & Moore in New York and served as a special 
legal adviser to the Congressional Oversight Panel for its 
first report on TARP investments.
    Senator Ted Kaufman serves as the Chair of the 
Congressional Oversight Panel. He was appointed by Senate 
Majority Leader Reid last fall to replace Elizabeth Warren on 
the panel. Previously, Senator Kaufman was sworn in as the 
junior Senator from Delaware in January 2009, taking the seat 
of Vice President Joe Biden, whom he served 19 years as chief 
of staff. He served in the Senate until November 15, 2010.
    Special Inspector General Neil M. Barofsky was confirmed by 
the Senate on December 8, 2008, and was sworn into office on 
December 15, 2008. Prior to serving as SIGTARP, 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 and was a 
senior trial counsel who headed their mortgage fraud group.
    Thomas McCool is the Director of the Center for Economics, 
which is part of GAO's Applied Research and Business Group. He 
has served at the GAO since 1987 and previously taught 
economics at Vassar College and Georgetown University from 1977 
to 1987.
    Before we start the testimony, I want to note that COP 
issued its final report yesterday and closes its doors in a few 
weeks. Mr. Barofsky also recently announced his resignation 
effective at the end of the month. So I want to say a special 
word of thanks to Mr. Barofsky and Senator Kaufman for their 
public service as well as excellent service provided by all the 
staff from COP, SIGTARP, GAO, and Treasury.
    Mr. Massad, go ahead.


    Mr. Massad. Thank you, Mr. Chairman.
    Chairman Johnson, Ranking Member Shelby, and other Members 
of the Committee, thank you for the opportunity to testify 
about the Troubled Asset Relief Program, or TARP, as it is 
commonly known. As the Acting Assistant Secretary for Financial 
Stability, I am responsible for overseeing the program on a 
day-to-day basis.
    It is now 2 \1/2\ years since TARP was created, and it is 
clear that the program has been remarkably effective.
    First and foremost, TARP, in conjunction with other 
Government actions, helped prevent a catastrophic collapse of 
our financial system and economic. In the fall of 2008, we were 
starting into the abyss. We faced the very real risk of a 
second Great Depression.
    Now we are on the road to recovery. We no longer fear that 
our financial system will fail. Businesses are able to raise 
capital, and the credit markets on which consumers, and 
particularly small businesses, depend have reopened.
    TARP was not a solution to all of our economic problems, 
and much work remains to be done. Unemployment is still 
unacceptably high and the housing market is still weak. But the 
worst of the storm has passed.
    Second, we accomplished all this using much less money than 
Congress originally provided, and we are unwinding TARP far 
faster than anyone thought possible. Congress authorized $700 
billion, but we will spend no more than $475 billion. And we 
have already recouped two-thirds of what we have spent.
    Third, the ultimate cost of TARP will be far less than any 
expected. The total cost was initially projected to be 
approximately $350 billion. According to the latest estimates, 
both from Treasury and the Congressional Budget Office, the 
overall cost of TARP will be between $25 and $50 billion, and 
most of that will represent the money we spent to help 
responsible American families keep their homes.
    Based on current market prices, we expect that all the 
other TARP programs and investments taken as a whole will 
result in very little or no cost to the American taxpayers.
    Moreover, the overall cost of the Government's response 
efforts to this crisis is likely to be less than 1 percent of 
GDP, far less than the cost to resolve the S&L crisis and far 
less than the average cost of resolving other financial crises, 
according to an IMF study.
    Finally, our financial system is in much better shape today 
than before the crisis. Banks are better capitalized, and 
Congress has adopted the most sweeping overhaul of our 
regulatory structure in generations, which will give us tools 
we did not have in the fall of 2008 to mitigate and prevent 
financial crises and to address the too-big-to-fail problem, 
which you have noted. This work is not yet completed either, 
but great progress has been made since TARP's inception.
    We have moved quickly to reduce the dependence of the 
financial system on emergency support. We have already 
recovered from banks an amount equal to 99 percent of the funds 
invested in the banking system. And where this Administration 
provided funds to particular companies, we did so with tough 
conditions. Those companies are stronger today, and we already 
have begun to recoup those investments.
    For example, we provided assistance to the automotive 
industry on the condition that fundamental changes occur. Our 
actions helped prevent the loss of as many as 1 million jobs 
and have helped restore the industry to profitability. We 
completed a highly successful public offering of General Motors 
last November, and we are working to exit our investments in 
Chrysler and Allied Financial as well.
    I want to also address our efforts to help responsible but 
struggling American homeowners. By reducing mortgage rates and 
providing sensible incentives to prevent avoidable 
foreclosures, our policies have helped hundreds of thousands of 
families stay in their homes, and they have helped to change 
the mortgage servicing industry generally. We have also done so 
in a manner that uses taxpayer resources prudently.
    There is much more work to be done. The programs we have 
can continue to ease the pain of this terrible crisis, which is 
why we oppose the efforts to terminate them. In all of these 
efforts, TARP has been subjected to unprecedented oversight. 
When Congress created TARP, it also directed that four 
different oversight bodies carefully review our programs. 
Representatives of three of those entities are sitting with me 
today. To date, Treasury has responded to 75 reports from the 
GAO, the SIGTARP, and the Congressional Oversight Panel, and we 
have adopted more than 120 of their recommendations.
    TARP has also been subject to vigorous congressional 
oversight by this Committee and several others. We welcome this 
oversight. Individually and collectively, it has helped us to 
develop, implement, and improve our TARP programs.
    Mr. Chairman, in short, TARP succeeded in what it was 
designed to do: It helped stabilize the financial system and 
laid the foundation for economic recovery. And it did so at a 
fraction of the expected cost. Both political parties deserve 
credit for these achievements. Congress enacted the program at 
a time when the financial system was falling apart. In that 
moment, leaders from both parties stood up, stood together, and 
did what was best for this country.
    Thank you for the opportunity to testify, and I welcome 
your questions.
    Chairman Johnson. Thank you, Mr. Massad.
    Ted Kaufman.


    Mr. Kaufman. Yes, thank you, Chairman Johnson, Ranking 
Member Shelby, and Members of the Committee. It is truly a 
pleasure to see my former colleagues, and it is a privilege to 
offer my perspective on the Troubled Asset Relief Program, 
    The Congressional Oversight Panel is, along with the GAO 
and SIGTARP, charged by law with overseeing the TARP. Since our 
former Chair testified before this Committee in September 2009, 
the Panel has issued nearly 20 reports examining issues such as 
TARP's support for the domestic automotive industry, the rescue 
of AIG, commercial real estate, small banks, Government 
contracting, executive compensation restrictions, as well as 
four reports on Treasury's foreclosure prevention efforts. In 
total, the Panel has authored 30 oversight reports, concluding 
with our March 2011 report issued to Congress just yesterday. 
By statute, the Panel will end on April 3, 2011.
    As the Congressional Oversight Panel concludes our work, we 
should recall where America stood when the TARP was enacted in 
2008. The stock market endured triple-digit swings. Major 
financial institutions had collapsed. The economy was 
hemorrhaging jobs. Foreclosures were escalating with no end in 
sight. In the words of Ben Bernanke, America was on a course 
for ``a cataclysm that could have rivaled or surpassed the 
Great Depression.''
    The good news is that America did not suffer another 
Depression. The TARP does not deserve full credit, but it 
provided critical support at a time of great uncertainty.
    The further good news is that the TARP's projected costs 
have fallen sharply. The Congressional Budget Office now 
projects taxpayers will lose $25 billion. Now, $25 billion is a 
lot of money, but down from the initial estimate of $356 
billion, which is mind-boggling.
    Unfortunately, while there is no question that the TARP 
rescued Wall Street, its programs for Main Street have been far 
less effective. Its main foreclosure prevention program, which 
was designed to help 3 to 4 million homeowners, is now on track 
to help fewer than 800,000. In fact, the TARP's failure to 
address foreclosures is one of the reasons why its costs are 
coming in so low. The TARP will cost less than expected in part 
because it will accomplish far less than envisioned for 
American homeowners.
    The TARP also distorted markets. It created profound moral 
hazard and led to a deep stigma, a sense among the public that 
policymakers cared more about bailing out Wall Street than 
helping ordinary families.
    Some degree of moral hazard and stigma was unavoidable. The 
Treasury clearly could have done more to rein in these 
    For example, many senior managers of TARP recipient banks 
maintained their jobs and their high salaries, and shareholders 
maintained significant ownership stakes. To the public, it 
looks as though Wall Street banks and bankers can retain their 
profits in boom years but shift their losses to taxpayers 
during a bust--an arrangement that cannot help but undermine 
our free market system.
    Finally, as the Panel has noted for over 2 years, the lack 
of transparency and clear goals has rendered the public unable 
to hold Treasury fully accountable. Most significantly, 
Treasury decided in the TARP's early stage to push tens of 
billions of dollars out the door to very large financial 
institutions without requiring banks to reveal how the money 
was being used. The TARP's transparency has improved 
dramatically, and it has improved dramatically since then. When 
it comes to these very early and very large type investments, 
the public will never know to what purpose this money was put.
    I would like to say a few words about the importance of 
oversight. The TARP has been, as expressed by the Members, one 
of the most thoroughly scrutinized Government programs in 
history, and there can be no doubt that oversight has improved 
the program and increased taxpayers' returns.
    For example, in July 2009, the Panel reported that 
Treasury's method for selling warrants purchased through TARP 
appeared to be recovering 66 percent of their estimated worth. 
Due in part to pressure generated by the Panel's work, Treasury 
changed its approach, and subsequent sales recovered 103 cents 
on the dollar, contributing to $8.6 billion in returns. Other 
substantial improvements in TARP--such as Treasury's heightened 
focus on second liens, the increased transparency of 
contracting, and the greater release of data--are all partly 
the result of pressure exerted by the Panel and the other 
oversight bodies.
    Clearly, careful scrutiny is an indispensable step to 
preserving the public trust and ensuring the effective use of 
taxpayers' money.
    Thank you again. I genuinely thank you for the opportunity 
to testify. I would be happy to answer any questions you may 
have. As Chair of the Panel, I will endeavor to convey the 
views of the Panel; however, ultimately my words are my own.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Kaufman.
    Mr. Barofsky.

                      ASSET RELIEF PROGRAM

    Mr. Barofsky. Thank you, Mr. Chairman, Ranking Member 
Shelby, Members of the Committee. It is a privilege to appear 
before you once again and to testify today about the role of 
oversight in the Troubled Asset Relief Program. In that vein, 
it is also a pleasure for me today to be testifying alongside 
my oversight colleagues--Senator Kaufman of the Panel and Tom 
McCool of GAO.
    As has been noted, TARP has been a historic program in many 
respects, but one has been the unprecedented oversight assigned 
to this program by Congress as embodied by the three 
representative organizations for oversight present here today. 
By working together closely and coordinating our activities, I 
believe that collectively we have well served the American 
people by making sure that we could cover the broadest coverage 
possible and ensuring unprecedented transparency and 
accountability in the 13 different programs that make up TARP.
    At SIGTARP, as the lone oversight body with law enforcement 
authority, part of our focus has been on policing and 
investigating TARP-related criminal activity. And in our short 
timeframe, we have had a major impact. Fifty-two different 
individuals and 18 different entities have been the subject of 
civil and criminal actions, and perhaps more significantly, 18 
defendants have already been convicted of TARP-related frauds, 
including just yesterday a senior official from Colonial Bank.
    Colonial had applied for and received conditional approval 
for more than $550 million in TARP funds before SIGTARP 
investigators stopped a massive, ongoing, multi-billion-dollar 
accounting fraud dead in its track. All told, SIGTARP's 
investigations have led to the recovery of funds and the 
avoidance of loss from fraud of more than $700 million, making 
sure that SIGTARP as an agency over its lifetime will more than 
pay for itself.
    Another example of the collective benefits of our oversight 
actions, as the Senator just mentioned, have been the tangible 
results from one of the pieces of good news from TARP: the 
lowering expectations of the financial costs of the program. As 
the Senator mentioned, my oversight colleagues deserve credit 
for those lowering numbers, as does Treasury for its efficient 
management of its portfolio of assets.
    At SIGTARP, our approach to limiting losses has been 
focusing on limiting the amount of losses from fraud, and we 
have done that in two areas: deterring criminals from making 
applications to TARP in the first place, and working with 
Treasury to develop strong anti-fraud provisions within the 
program itself. For a program the size and scope of TARP, one 
would normally expect a loss from fraud in the area of 8 to 12 
percent, in the neighborhood of $50 billion. I am very proud to 
say today that we will come nowhere close to that number, in no 
small part thanks to the willingness of Treasury and the 
Federal Reserve, particularly in the early days of this 
program, to work with SIGTARP to put in effective anti-fraud 
provisions that help limit the vulnerability of the programs to 
    As for deterrence, I recall a conversation I had in late 
2009 with Secretary Geithner. After a somewhat heated 
discussion on another topic, he took me aside and told me that 
he believed that SIGTARP has scared away many banks and others 
from participating in the TARP program. And after a pause, he 
told me he thought that was a good thing because it meant that 
some bad actors did not apply for TARP funds. And he was right. 
Strong deterrence and better program design have been 
instrumental in tamping down potential TARP losses.
    On a final note, as Members have noted, today is likely my 
last time testifying before the U.S. Senate as Special 
Inspector General. And I remember one of the initial times I 
appeared before this Committee. I think it was my confirmation 
hearing, and, Ranking Member Shelby, you gave me some advice 
and a warning, and you told me that this was a great 
opportunity and that if I did my job well, I would never be 
able to work again.
    Mr. Barofsky. And you told me you thought it was a good 
thing, which my wife disagreed.
    Senator Shelby. I meant work with some people you do not 
need to work for.
    Mr. Barofsky. I am very happy to say that in this very, 
very limited circumstance, Senator, circumstances have proven 
you wrong, and I have been able to get a job. And I will be 
working--I am very thrilled to be joining New York University's 
School of Law as an adjunct professor and senior fellow at its 
Center on the Administration of Criminal Law. And I thank you, 
Ranking Member Shelby, I thank you, Mr. Chairman, and I thank 
all of the Members of this Committee for your strong, 
unwavering, continuous, and bipartisan support of SIGTARP. We 
would not have been able to come close to achieving the 
successes that we have had on behalf of the American taxpayer 
without that support.
    I thank you, and I thank you for the opportunity to testify 
today, and I look forward to answering any questions that you 
may have.
    Chairman Johnson. Thank you, Mr. Barofsky. We will miss 
    Mr. McCool.


    Mr. McCool. Thank you, Chairman Johnson, Ranking Member 
Shelby, Members of the Committee, for inviting us here to talk 
about TARP, and I am pleased to be here to do that.
    Under TARP, a broad range of activities have been 
initiated, from injecting capital into key financial 
institutions to addressing securitization, market problems, 
providing assistance to the automobile industry and to AIG, and 
offering incentives to modify residential mortgages. As TARP 
passes its 30-month mark, U.S. financial markets appear to be 
less volatile than they were in 2008, but certain areas of the 
economy still face significant challenges, especially the 
mortgage markets and, to a lesser extent, small business 
    While many programs have ended and begun winding down, some 
participating institutions have repaid part or all of their 
TARP funds, the prospect of repayment from other institutions, 
large and small, remain somewhat uncertain.
    Some TARP programs have been terminated. Others, like the 
Capital Purchase Program, have closed and are winding down 
operations. And several programs that focus on preserving home 
ownership and providing assistance to auto companies and AIG 
remain active. The Capital Purchase Program, of course, we know 
a lot of that has been repaid. Thirty-point-eight billion still 
remains outstanding. And one of the issues that we have tried 
to focus Treasury's attention on, and they have responded, is 
that there are a number of institutions that are still in the 
Capital Purchase Program who have potential issues. Almost 200 
of them have missed at least one dividend payment and there are 
issues, again, with some other institutions that may not be as 
sound as they were thought to be when they initially applied 
for the program. This just means that they require continued 
    The Home Affordable Modification Program, or HAMP, remains 
Treasury's primary program to assist homeowners facing 
foreclosure. The program had a slow start and some of its newer 
programs are having even a slower start getting off the ground, 
and so far, as we have already stated, it has not spent much 
money, but that is not necessarily a sign of success.
    There are issues with HAMP going forward. We issued a 
report just today that will look at the programs that go beyond 
the firstly modification program, and particularly the Second 
Lien Modification Program, the Foreclosure Alternative Program, 
and the Principal Reduction Program. And again, there have been 
some movements in the right direction, but we still have some 
areas where we think Treasury can improve those programs.
    The Automotive Industry Financing Program has an 
outstanding balance of just a little over $44 billion. 
Approximately $29 billion has been repaid, and clearly, the 
auto industry, at least GM and Chrysler in particular, are 
doing much better than they were back in 2008 and early 2009. 
But whether they will be able to fully repay the Treasury 
investment is still up in the air. It is going to depend a lot 
on what the share price of GM does, and because of the IPO, 
which was a success by many standards, the fact that they sold 
below their break-even price means that their remaining shares 
are going to have to bring in an even higher price to actually 
make the program break even. So the Treasury has gone from a 60 
percent owner to a 33 percent owner, and that is probably a 
good thing, but it needs to make a lot of money in future sales 
to be able to make the program actually break even.
    AIG has continued to receive assistance over the last year 
from an equity capital line. It has repaid $6.9 billion just 
last week, and this reduced the Treasury's balance to about 
$58.7 billion. Treasury owns 92 percent of AIG, and again, the 
extent to which it is going to be able to be repaid is going to 
depend very much on its ability to sell shares in AIG over time 
at a reasonable price, and there is, I think, a lot of 
uncertainty to that.
    And last, just let me point out that one of the 
recommendations we made in our most recent report, which we 
issued in January, is to try to focus Treasury's attention on 
staffing going forward. Currently, it is in very good shape in 
terms of staffing, has great, qualified people under term 
contracts. Our concern is as the programs wind down, it may be 
harder and harder to retain staff, especially if the job market 
gets any better, and so we just think that there is the need 
for them to update their workforce plan and take into account 
alternative scenarios for retaining staff as the program winds 
    I would like to thank you and appreciate the opportunity to 
testify and I am happy to answer any questions you might have.
    Chairman Johnson. Thank you, Mr. McCool. Thank you for your 
    As we begin questioning the witnesses, I will have the 
Clerk put 5 minutes on the clock for each Member's questions.
    Mr. Barofsky, you recently testified on HAMP, saying we 
have advocated tirelessly that Treasury should fix the program. 
So if we should not repeal the program, how do we fix it? Is 
one option to have Treasury focus on the earlier part of the 
process, encouraging servicers to reach out to homeowners 
    Mr. Barofsky. I think that HAMP is a fundamentally broken 
program and does need--if it is going to be permitted to 
continue, Treasury needs to finally stop defending the status 
quo of the program, as it continues to do, and lay out a plan 
on how to fix the program. And there are a number of, I think, 
good ideas out there.
    I think you start with something that Secretary Geithner 
has acknowledged before the Senate a couple weeks ago, that the 
very incentive structure of the program is broken. This whole 
program is a voluntary program. It is designed by encouraging 
services to participate by making incentive payments. So it is 
largely a carrot program where discipline would presumably be 
provided by sticks and financial penalties, and initially, 
Treasury announced that it would impose financial penalties on 
servicers for not complying with the guidelines. They issued a 
press release in late 2009.
    But now, with Secretary Geithner acknowledging that the 
incentives are insufficient, not powerful enough to overcome, I 
think the word he used, the muck, I will say the conflicts of 
interest that the servicers operate under. And Treasury's 
refusal to impose a single sanction on the servicers, is it 
really all that surprising that the program has been a failure?
    So I think the place to start is let us address what 
Secretary Geithner acknowledged was a problem, the incentive 
structure, and what is universally regarded as a problem, the 
lack of penalty, lack of financial penalties on servicers whose 
performance that Secretary Geithner and Mr. Massad have both 
acknowledged has been abysmal under the program. I think that 
is a starting point.
    I think they need to be far more transparent. I think for 
those who are seeking to defend the existence of the HAMP 
program, one of the most basic pieces of information that I 
think that you need to have is what is Treasury's projection of 
how many people it is going to help through permanent 
modifications over the life of this program. I have been 
calling for this for more than a year. The COP panel has been 
calling for it more than a year. GAO has been calling for this 
for more than a year. Members of Congress have been doing that. 
The Congressional Oversight Panel went so far as to have to 
give its own analysis and its own estimate of 700,000 to 
800,000. Moody's has provided an estimate. CBO has provided an 
estimate. They will not. And I think at a certain point, for 
those who are criticizing the program, have every right to 
conclude that the reason why they will not provide a number is 
that their internal projections must be so abysmal and so 
terrifying that they will not provide this level of 
    So I think to have an informed debate, Treasury needs to 
finally be transparent about its expectation, not putting out a 
number of the total number of people potentially eligible, not 
the total number of offers that they intend to make. How many 
people when this program ends are going to be in sustained 
permanent modifications? And their failure to do so is 
inexplicable, and, frankly, indefensible.
    Chairman Johnson. Mr. McCool, do you agree that servicers 
should reach out to homeowners sooner? And another suggestion, 
should Treasury explore creating a single point of contact so 
that borrowers know who to communicate with?
    Mr. McCool. Well, we have made recommendations and some of 
them have actually been at least either implemented or 
partially implemented on the front of having Treasury issue 
better guidance about how servicers deal with customers, how 
they deal with complaints, and I think that there has been some 
improvement in that arena, but I think there is still work to 
be done.
    Sort of to echo Mr. Barofsky's point, I think what we have 
been pushing for from the very beginning is performance 
standards, and in particular, performance standards for the 
servicers, that we think the Treasury needs to come up with 
performance standards, hold the servicers accountable to those 
performance standards, and until they do that, again, we think 
some of the problems are going to continue to fester.
    Chairman Johnson. Mr. Massad, what is your response to 
these suggestions?
    Mr. Massad. Thank you, Mr. Chairman. I would be happy to 
respond. First, on the issue of performance standards, that is 
precisely what we have done. Let us remember, first of all, 
this is a crisis that was a decade in the making and for 2 
years nothing was done. When we launched this program, no 
modifications were occurring. We launched the program on a 
voluntary basis. It had to be that way under the law.
    In terms of performance standards, we have forced the 
servicers to do a lot of things they simply were not doing. 
Those include a whole range of borrower protections, like the 
issue on dual track, for example, the practice where servicers 
were discussing a modification or considering a modification at 
the same time as they were proceeding to a foreclosure sale. We 
stopped that. We put in other borrower protections, as well.
    Now, we agree, as the Secretary has said, that there is a 
need for national servicing standards. This is a servicing 
model that was set up to collect payments on performing loans. 
It was not equipped to deal with this crisis. And far more is 
needed than the HAMP program to fix that. The regulators are 
now paying attention to it. The FHFA, the conservator of the 
GSEs is paying attention to it. And I think we will see that.
    Second, in terms of estimates, it is very difficult to make 
estimates as to how many we will ultimately serve, but the 
facts are that, number one, the cost of this program is 
directly related to how many we serve. So it is not a matter 
that we will spend the same amount of money regardless.
    Number two, we publish reams of information about this 
program, including how many people we are reaching every month 
in permanent modifications, in trial modifications, how many 
fall out of that, how many redefault. We publish information by 
servicer. Anybody can see how this program is doing. It is not 
a matter of not being able to evaluate it. It is a matter of 
the fact that this is a very difficult housing market to fix 
and this program is at least helping fix it. It is not enough, 
but it needs to be continued so that we can try to ease the 
pain for millions of American families.
    Chairman Johnson. Senator Shelby?
    Senator Shelby. Thank you, Mr. Chairman.
    Mr. Barofsky, first of all, I want to thank you for a great 
job you have done as Inspector General. I remember when you 
were up for confirmation and I told you, among other things, 
right here in this Committee, that I hoped that you would do 
something very good for the American people and that you would 
stand up for the American people, and you have and I am glad 
that you are employable. My reference then was probably that 
you did not need to be employed by some of the people that you 
were going after, and they would never hire you anyway, thank 
God. But you will leave that post with a lot of help, a lot of 
thanks from the American people for the job you have done and 
you will always do well, I know that.
    I would like to ask you a couple of questions, if I could. 
In your written testimony, you state, ``Unfortunately''--I am 
quoting you--``TARP's most significant legacy may be the 
exacerbation of the problems posed by too-big-to-fail.'' You go 
on to quote Secretary Geithner from a December 2010 hearing 
before the Congressional Oversight Panel in which he states 
that ``in the future, the Federal Government may have to do 
exceptional things,'' he says, ``again if we face a large 
shock.'' In your view, do financial markets still believe that 
the Federal Government will not allow big banks to fail?
    Mr. Barofsky. Senator, first of all, thank you for your 
comments. I really do appreciate them. They mean a lot to me 
and my family, so thank you.
    Senator Shelby. Thank you.
    Mr. Barofsky. The answer to your question, absolutely and 
unambiguously, the financial markets believe more than ever 
that the United States Government will step in and save the 
too-big-to-fail institutions should there be another financial 
    Senator Shelby. Is that not what helped bring the GSEs to 
where they are today, sitting in the Government's lap? In other 
words, that was the implicit guarantee that we would never let 
    Mr. Barofsky. It is nearly the identical toxic cocktail of 
implicit guarantees and market distortions that the too-big-to-
fail banks have today as Fannie and Freddie did leading into 
the financial crisis, yes.
    Senator Shelby. Let me, if I can, some of your words, I 
just want to read it into the record and share it with you, and 
this is on page six of your testimony, and I will quote you:

        Regardless of whether all the required regulations are properly 
        calibrated and fully implemented, the ultimate success of the 
        Dodd-Frank Act depends to a certain degree on market 
        perception. Thus far, the Act has clearly not solved the 
        perception problem. Reflecting on Secretary Geithner's candid 
        assessment of the likely limits of Dodd-Frank in the event of 
        another full-blown financial crisis, the largest institutions 
        continue to enjoy access to cheaper credit based on the 
        existence of this implicit Government guarantee against 

And I will quote you again:

        Standard and Poors and Moody's Investors Services, two of the 
        world's most influential credit rating agencies, recently 
        reinforced this significant advantage for those institutions. 
        In January of this year, S&P announced its intention to make 
        permanent the prospect of Government support as a factor in 
        determining a bank's credit rating, a radical change from pre-
        TARP practice, stating its expectation, quote, `this pattern of 
        banking sector boom and bust and Government support to repeat 
        itself in some fashion regardless of Government's recent 
        emergency policy response.' Similarly, Moody's stated its 
        belief that the proposed resolution regime, quote, `will not 
        work as planned, posing a contagion risk and most likely 
        forcing the Government to provide support in order to avoid a 
        systemic risk . . . '

and so forth.
    And I want to quote former Secretary of the Treasury and 
National Economic Counsel Director Lawrence Summers, what he 
said a number of years back, and I will quote: ``A healthy 
financial system cannot be built on the expectation of 
bailouts.'' Do you disagree with that?
    Mr. Barofsky. No, I do not, Senator.
    Senator Shelby. Thank you for that.
    Mr. Massad, I would like to direct a question to you with 
my time. In October 2010, in an editorial, Secretary Geithner 
stated, quote, ``The TARP is over.'' The TARP Inspector 
General's, who we have here, most recent quarterly report 
clarifies that although no new TARP funds may be obligated, 
$59.7 billion remain obligated and available to be spent, and 
$149.4 billion in TARP funds remain outstanding. Do you have 
differences with those figures?
    Mr. Massad. Thank you, Senator Shelby. I think what the 
Secretary was referring to in October of 2010 was that the 
purchase authority, the authority to make new commitments under 
TARP, expired. We do still have about $150 billion in 
investments outstanding, which we are working every day to get 
back, and we do still have commitments, particularly with 
respect to our housing program, that will allow us to disperse 
money for the housing program. Those are the programs we want 
to continue.
    If I could, Senator, I would also like to respond to the 
too-big-to-fail issue, if you would let me. Would that be all 
    Senator Shelby. Absolutely.
    Mr. Massad. First of all, I share your concern about the 
issue. We obviously have to have a financial system where 
companies fail when they take excessive risks----
    Senator Shelby. The too-big-to-fail doctrine is a flawed 
doctrine from the beginning, is it not?
    Mr. Massad. Well, it is an unfortunate doctrine, that is 
for sure, but----
    Senator Shelby. Well----
    Mr. Massad.----let us remember, TARP did not create the 
problem. It existed before TARP.
    Senator Shelby. We know.
    Mr. Massad. And we needed TARP because we did not have the 
tools to fix it, and I do think Dodd-Frank has given us some 
tools to address it and now the task is to implement those.
    Senator Shelby. Mr. Barofsky, in an editorial in the Wall 
Street Journal, two current members and one former member of 
the Congressional Oversight Panel explained why TARP was not a 
win for taxpayers. They criticize the Administration's claim 
that TARP was successful because the money may be repaid. They 
state, and I quote:

        The focus on repayment of TARP is deceptive because it fails to 
        consider the huge taxpayer cost from non-start programs that 
        directly and indirectly enable many of the large banks to repay 
        their TARP funds.

    They list several programs that provided significant aid to 
banks, including the Federal Reserve's purchase of $1 trillion 
of GSE-guaranteed MBSs, Treasury's $150 billion bailout of the 
GSEs, and other Fed and FDIC programs which place another $2 
trillion in taxpayers' money at risk. Do you disagree with that 
    Mr. Barofsky. No. I think it is very important to view TARP 
in the context of the broader scope of the Government's 
response to the financial crisis, and each July, SIGTARP 
publishes a comprehensive overview of all those programs. And 
what we saw this past summer was an actual increase in the 
total amount of outstanding commitments year over year, from $3 
trillion to $3.7 trillion. So our job here at SIGTARP is to 
focus on the TARP, but, of course, the TARP does not exist in 
isolation and any overall accounting would necessarily have to 
include those other things. That is outside the scope of our 
jurisdiction, but we always do try to put it in context. I 
think that is important.
    Senator Shelby. Thank you. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman. I 
was listening closely to the recollections of both you and the 
Ranking Member about September 2008 because I was also there. 
What I recall in the room was not so much scare tactics but 
palpable fear that we were on the cusp of a significant 
financial collapse, that the tools available had been 
exhausted, and that we needed to provide assistance, and that 
in the context of the legislative debate, which was a 
bipartisan debate and ultimately with bipartisan support, we 
crafted something that, as the Ranking Member pointed out, it 
was not the initial proposal of Secretary Paulson to acquire 
assets and securities in the marketplace but it gave Secretary 
Paulson the flexibility to make essentially equity injections. 
I think so far this has proven to at least stabilize the 
situation, and in fact, I would argue, has probably avoided a 
significant financial deterioration which would still be 
plaguing us.
    And Mr. Barofsky, I am just going to ask, because you have 
done remarkably good work--and let me join my colleagues in 
saluting you as you leave. You have been not only thoughtful, 
but your independence and your integrity and your commitment 
has been so clear, indeed, inspiring.
    But let me ask you, putting aside too-big-to-fail and all 
those discussions, if we had not acted decisively in September 
of 2008, where would we be today, basically? Do you have a 
sense of the magnitude that we were facing?
    Mr. Barofsky. Senator, thank you for your comments earlier. 
I think I could best report on the extensive work we have done 
of interviewing all of the major participants, and I think 
there was universal agreement that we were on the brink of a 
cataclysmic failure and that this was a very significant crisis 
that we had not seen since the Great Depression and that there 
was certainly a sense of widespread panic among regulators and 
that the reaction was a kitchen sink response, not just with 
TARP, but with the FDIC's programs, the Federal Reserve's 
programs, the trillions and trillions of dollars that were 
thrown at the situation. And I think that accurately reflects 
the deep level of panic that was felt by the regulators and the 
market participants, as well, to the severity of the problem.
    Senator Reed. But having done all this work, that reaction 
was not irrational, given what they were seeing in the 
marketplace, given the contagion, given the fear. In fact, 
frankly, I think, particularly for Chairman Bernanke, his 
studies of the Great Depression and the lead-up to it, the very 
tentative response in the 1920s and 1930s to an evolving 
international crisis prompted him and others to say this is the 
only way we can do it, and he has been very clear about this, 
let us go all out, let us hit it hard, let us hit it fast.
    Mr. Barofsky. No, and I think there is no doubt that 
financial crises are, in part, psychological, and that fear was 
universal and it was widely held. What specific--and one of the 
things I think the Congressional Oversight Panel really hits 
the nail right on the head is that while we do believe that 
TARP was a very important component of calming the markets, it 
is, of course, impossible to say which one of the myriad 
programs was responsible for helping calm the markets 
    Senator Reed. Right.
    Mr. Barofsky.----and which ones did not. But we believe, 
and we have long been an advocate for the position that the 
broad statement by Secretary Paulson, and then later in the 
spring an almost identical statement by Secretary Geithner that 
they would not let these large financial institutions fail and 
they had the TARP funds to back it up, while it certainly then 
caused a lot of the problems, Senator Shelby, that you were 
discussing about moral hazard and too-big-to-fail, it was an 
instrumental tool in calming the markets and avoiding that 
cataclysmic potential second Great Depression.
    Senator Reed. Thank you. I also have to salute Senator 
Kaufman for his service, both here in the Senate, for putting 
up with a lot of my bad jokes as we traveled around the world, 
and many other things, so thank you, Senator.
    In the process of taking the proposal that Secretary 
Paulson and Chairman Bernanke offered a one-page sketchy kind 
of outline--we did some things that I think not only gave them 
the flexibility to respond, but there is also one critical 
aspect which is often overlooked. This is the inclusion of the 
warrants provision, which I insisted on being included with the 
support of my colleagues because I knew that if any Wall Street 
investment bank was going to do this, they would not only take 
preferred stock, but they would also insist on warrants, which 
we did. Those warrants to date, and for those who may not be 
familiar with this, it is essentially a right to buy their 
stock at a fixed price, and as they improved and the stock 
price went up, we got a second payback, which is about $8.6 
billion, which might be seen as another dividend from the 
improving banks to the taxpayers. Can you comment on that, 
Secretary Massad?
    Mr. Massad. Thank you, Senator, for the question, and thank 
you for your push for that provision. It was very, very 
important, and you are absolutely right on your figures and 
your analysis of it. We have today recovered about $9 billion 
from the warrants, because we had a recent repurchase this 
week. That is from about 15 or 20 auctions as well as about 45 
repurchases, and we still have more positions that we will sell 
over time. So it was an excellent provision and I thank you for 
    Senator Reed. Thank you.
    Just to, if I may, Mr. Chairman, a quick and very brief 
comment from Senator Kaufman and Mr. Barofsky is that this 
issue of moral hazard is not unique to this time and this place 
in financial history. It seems to be any time a Government 
provides support--we do it through Federal Deposit Insurance. I 
know in the 1930s there was a great debate on this. Franklin 
Roosevelt did not like deposit insurance because it was a moral 
hazard, et cetera. But, it has proven to be effective.
    And I think one of the reasons it has been effective, even 
though there is an issue of moral hazard, is it has been very 
well regulated, and the sense of Dodd-Frank, I hope, is that if 
we accurately and aggressively and with the resources regulate, 
understanding that moral hazard is implicit, we will do a lot 
to avoid a potential crisis, and Senator Kaufman, please 
respond just very briefly, because my time has expired.
    Senator Kaufman. No, and I think it is really quite 
extraordinary. This panel that I am on has five members, two 
appointed by Republican members and three by Democrats. But 
there was a consensus, and this is a very difficult issue, it 
is a very political issue, but there was a solid consensus that 
the TARP with the other pieces that went through it stopped 
what could have been a very bad situation, number one.
    And number two is that moral hazard was one of the 
decisions. When you sat there and made the decision whether you 
were going to go ahead with the TARP, you were faced with the 
fact of moral hazard. And I think the moral hazard part, you 
see it now in terms of what is going on with the rating 
agencies. If you are running an organization and you know that 
if there is a sine curve of this is positive and this is 
negative and you know you cut that negative section off, and 
you know that if you increase your risk, there is no price to 
be paid, then you can increase the risk because we know return 
is directly related to risk. The higher the risk, the higher 
the return. You just go for the moon with the understanding 
that if you fail, the taxpayers are there to bail you out.
    So this is not some theoretical economic business school 
analysis. I think the real concern, as stated, is the rating 
agencies are now saying essentially they believe that there are 
firms who are too-big-to-fail, and very big firms that are too-
    Senator Reed. Mr. Barofsky, please take this for the 
record, because my time expired. The Chairman has been very 
gracious. Thank you.
    Chairman Johnson. Senator Moran.
    Senator Moran. Mr. Chairman, thank you very much.
    Perhaps this is directed to Mr. Barofsky, but I am not 
certain. I am troubled by the long-time assertion that the 
success of TARP is determined by the return of taxpayer dollars 
as if that is the criteria by which we can judge success or 
failure. And I am troubled by that because I think it fails to 
take into account other consequences. Even if all the money is 
repaid to the Treasury, there were consequences of TARP not 
accounted for in that accounting. And I think of things in your 
testimony that the Ranking Member indicated about large 
institutions continuing to enjoy access to cheaper credit. 
There is a consequence to that. My small community banks in 
Kansas feel a consequence of that occurrence, particularly when 
you couple that with Dodd-Frank and increasing regulations. So 
larger institutions have cheaper access to credit and a better 
ability to spread the costs of additional regulation among 
larger economies of scale. My smaller banks are disadvantaged 
in both instances. As Congress responds by providing money to 
large institutions and increasing regulations on all 
institutions, there is a consequence, an economic consequence 
certainly in places like Kansas for our community banks.
    So if the criteria is the money got repaid, I think we have 
failed to take into account that and many other consequences of 
this legislation. It also fails to take into account was there 
a better way to do it than what we did. Could there have been a 
greater return? So the fact that--and Mr. Reed talked about the 
warrants. I wonder--and I have heard several in your testimony 
talk about the--as compared to the credit union--I am sorry. 
Forgive me, to the credit unions--for the savings and loan 
bailout. That was the criteria in which we are judging success 
today, and the indication was, well, this is better than--we 
are going to lose less money than we did then.
    But I wonder about Continental Illinois, for example. Was 
that not a better example where we were able to reap return and 
prohibit investors from getting a return as well?
    One of the things that I think was a consequence of TARP is 
that those who invested in these institutions, they were held a 
lot less accountable for their investment than, for example, in 
Continental. And so my question is, I suppose, a broad one, but 
my assertion is that I am not satisfied when I hear that just 
because the money has been repaid this was a good idea.
    Mr. Barofsky. Nor should you be, and I think that a tunnel 
vision focus on financial costs and a declaration of mission 
accomplished because of the return to profitability and 
strength of Wall Street ignores the important non-financial 
costs of TARP, which are just as important and may in time 
prove to be more important. So it includes, as you identified, 
Senator, the moral hazard and the legacy of too-big-to-fail 
that TARP has left. It includes the very real harm to 
Government credibility through mismanagement of this program. 
It includes the failure of TARP to meet its very important Main 
Street goals as well as Wall Street goals, including, as we 
have discussed earlier, the very important goal and very 
prominent reason why many Members of Congress voted for TARP--
the goal of preserving homeownership.
    So I think that you have good reason to say that this is 
not a simple black-and-white answer, did it work, did it not 
work, and that financial costs are the only determinant of its 
success. It is a much deeper issue.
    Mr. Kaufman. The one thing to keep in mind is that while we 
talked about a $356 billion cost estimate, the original number 
in the legislation was $700 billion, and I will guarantee you 
that 80 percent of the news articles that talk about TARP talk 
about the $700 billion. I totally agree with what you said. I 
totally agree with what the member said, and I totally agree 
with the rest of the panel. Clearly, there are a lot of 
concerns, moral hazard being one of the really gigantic causes. 
But the thing that is amazing is, according to a recent 
Bloomberg poll, 60 percent of Americans think we lost it all. 
Sixty percent think we lost all $700 billion.
    So I think spending a little bit of time saying, OK, we had 
a problem here, clearly this was all part of a big thing, 
clearly all the questions you raised are legitimate concerns. 
But let us start out with the fact that we did not lose $700 
billion; it looks like it was $25 to $50 billion. Now, $25 to 
$50 billion is a lot of money. But, part of running a 
Government is the perception of the Government. You have a 
perception out there that the Government lost $700 billion on 
TARP, again, not talking about the Fed and all the other things 
the Ranking Member has raised and the Chair has raised. But it 
actually turns out to be $25 to $50 billion. That is an 
important point to make, I think.
    Senator Moran. Senator, thank you. Is there any analysis by 
those of you who are doing oversight in regard to was there a 
better way to do it? Was there a greater opportunity for return 
as compared to the way that TARP was structured?
    Mr. Kaufman. Well, we have got 30 reports you can take a 
look at, but the best thing is we have a final report in terms 
of lessons learned, and you can look through that.
    Now, again, remember, we are all oversight so we do not 
write the rules. We start with the basic premise that Congress 
has passed a law and we have oversight on that law. But I think 
you would find, if you go back and read our reports and others, 
there is a rich area to ask: on a calm day, without the panic, 
without the concern that everyone has raised, could we have 
done this a little differently? And are there things we could 
have done as we went along? There is a lot of meat in those 30 
    Senator Moran. I appreciate that only a former Senator 
would attribute the responsibility back to Congress.
    Chairman Johnson. Senator Hagan.
    Senator Hagan. Thank you, Mr. Chairman, very much, and I 
want to welcome all of you here today and thank you for your 
    Senator Kaufman, it is certainly a pleasure to see you 
again. You were certainly instrumental during the debate of the 
Dodd-Frank bill, and you certainly added so much to the work 
that has taken place in that situation. We certainly do thank 
you for your oversight in this new position, also, and I am 
thrilled to hear you are going to be back at Duke University 
Law School doing your good work there. So it is great to see 
you again.
    One of the things that you talked about in your testimony 
is the reference to the higher cost of funds for our small and 
community banks relative to the larger banks, and sort of what 
Senator Moran was talking about, too, is that the smaller 
community banks in North Carolina consistently are very 
concerned about, one, their capital requirements, the 
regulation, sort of their inability to do so much of the 
lending that they have done in the past, and it is so adversely 
affecting so many of the smaller communities where these banks 
have been the mainstay in those areas.
    One of my concerns is what can we be doing in Congress to 
reverse this trend, and here I guess I am talking primarily 
about the higher cost of funds that you mentioned to ensure 
that we maintain a vibrant network of community banks in our 
Main Street communities.
    Mr. Kaufman. I think you have just got to stay on the 
regulator and Dodd-Frank and make sure we do not have too-big-
to-fail. I mean, it is very, very difficult to compete in a 
market if some of the people in the market have lower credit 
ratings, and if they know when they go into it they can compete 
in businesses. So really the key thing is we have got to get 
away from this too-big-to-fail. It is bad in so many different 
ways in terms of the concept. And we have done a lot, and there 
are a lot of things in Dodd-Frank, and a lot of things in the 
hands of the regulators. But, look at our local banks, small 
banks right now. It was really interesting being on the Panel 
and finding out how many small banks are now in commercial real 
estate. We have a real problem, the commercial real estate 
overhang over there on our small banks. Why are our small banks 
in commercial real estate? They are in commercial real estate 
because the big banks now come in and can do all the other 
services that they used to do--the checking accounts, all the 
rest of this stuff. They can come in there and do it at a much 
lower price than they can because of the advantages that they 
have. The small banks never want to get up and say, you know, 
the big banks really are not treating me as well as I might 
like to be treated, and they are causing me competitive 
problems, and they are keeping me in businesses that I do not 
want to be in. They kind of all hang together. But I think it 
is time for the small banks in candor to come out and point out 
what some of the problems there are when you have these major, 
major, major banks that feel like they are too-big-to-fail, 
and, therefore, they can get rates at a low rate. And I think 
it is up to Congress and I think it is up the Treasury and I 
think it is up to the other regulators to make sure that the 
Dodd-Frank provisions in there--to make sure that we do not 
have too-big-to-fail, you know, that the capital requirements 
and the rest of it that we have to do so we do not have too-
big-to-fail. Because how are small and medium banks going to 
survive when they have got these giants coming to town with 
lower interest rates. It is very, very difficult to have a 
positive picture unless you go into things like commercial real 
estate, and now we see what happens. They are so heavily into 
commercial real estate that it makes it tough for them to make 
money, and they are in danger and they are failing at an 
incredible rate of speed.
    Mr. Massad. If I may, yes, thank you, Senator, if I may add 
to that. We agree very strongly that we have to have a thriving 
community bank, small bank industry in this country. That is 
why when the Obama administration took office, we did not 
provide any additional funds to the largest banks in the 
country. We provided funds to about 400 very small banks. Most 
of the funds under the Republican administration were provided 
to the large banks.
    Now, I agree with the decisions they made. They were 
necessary to prevent the collapse of our system. But we have 
tried to work with the smaller banks.
    I also would point out that while we have had some weakness 
in that sector, those banks are getting stronger, and actually 
those banks that took the TARP money overall are in a much 
better place than the industry average.
    Finally, I would agree with Senator Kaufman that the task 
now is to implement the tools under Dodd-Frank. You know, you 
have to distinguish between what you have to do in a crisis to 
put the fire out and then what you do to look at what were the 
causes of the fire, how do we prevent this from happening 
again. And that is the phase now that we are in with Dodd-
    Senator Hagan. Well, it appears that some of the smaller 
banks are having trouble paying some of the TARP money back. 
Are we setting them up for problems by continuing to ask them 
to pay at a higher rate?
    Mr. Massad. That is a very good question, Senator. First of 
all, they are not obligated to pay it, and they have to have 
the approval of their regulators in order to pay it. And as a 
result, many of the regulations have said you should not pay 
this, you need to conserve your capital, and that is fine with 
    I would point out again, though, that while we do have a 
number of banks who have not been paying the dividend, when we 
looked at the rate at which banks that are in the program are 
paying dividends on preferred stock versus those outside of the 
program, to the extent there is data--and there is not data for 
all the banks--what we found was that 11 percent of the banks 
in the program were not able to pay the dividends. The rate 
among those banks outside of the program who were not paying 
dividends on preferred stock was 43 percent.
    Senator Hagan. I wanted to turn to the HAMP program, and I 
know several of you all have talked about how it has not been 
operating the way you would have liked it to, and I would just 
like, Mr. Barofsky, could you speak a little bit on what you 
would see changes going forward in that program to certainly 
help the homeowner at this point in time?
    Mr. Barofsky. Well, again, I think the important thing is 
there has to be initially an acknowledgment from Treasury that 
this program is failing and the cessation of continuing to 
defend the status quo.
    Senator Hagan. Well, aside from that, going forward what 
can we be doing?
    Mr. Barofsky. Well, again, as an example, as I mentioned 
before to the Chairman, I would say you start with reassessing 
the incentive structure and the penalty structure. So if the 
current system is not working, as the Secretary has 
acknowledged, revisit that structure with both penalties as 
well as taking a look at the incentive structure.
    We have made other recommendations as well as fixing the 
program, recommendations regarding principal reduction and the 
approach to principal reduction, which appears to not be 
working; increasing transparency. There are a number of 
things--we have a number of recommendations. GAO, the 
Congressional Oversight Panel, there is a whole host of 
recommendations that could help improve this program, but it 
starts with an acknowledgment that there is a problem. And as 
long as there is this continued defense of the status quo, it 
is not going to happen.
    Senator Hagan. Senator Kaufman, do you have some thoughts 
on that?
    Mr. Kaufman. Obviously the program is over, you cannot do 
things, but I think you have got the reality of the situation. 
It started out with the idea that borrowers and lenders, like 
it used to be, sit across the table from each other and modify 
a loan. That is pretty simple. Now you have got the servicers 
in there, and one of the things that is very difficult to deal 
with and it is very difficult for Treasury to deal with--but we 
have to deal with it--and that is, there are two really big 
elephants in the room. One is some servicers get higher 
incentives by going to foreclosure. And, remember, these 
servicers are not--some people have this view that servicers 
are these third parties or whatever else. The servicers are the 
big banks. They are the servicers. So the first thing is you 
have a conflict of interest. How do you get a bank that really 
is going to make more money doing a foreclosure not to do 
    The second big one, which the Treasury addressed in, I 
think it was, April of 2009, is the second lien. So think about 
it. If you are a first servicer on a bank and you have a second 
lien on a mortgage, and the first mortgage is with someone 
else, do you want to modify that first mortgage? Because when 
you modify that first mortgage, your second lien goes to zero 
or very close to zero.
    So those are two gigantic conflicts that have got to be 
overcome if you are going to deal with the program, and 
Treasury has a second lien modification program.
    And the third piece, of course, is the whole thing was 
designed for the subprime problem. In fact, really it became 
quickly a prime unemployed problem. And Treasury also has a 
program for unemployed.
    So I think, you know, it is trying to catch up with all the 
different things, and I think it is pretty well identified, and 
we have pretty well identified it. We have had four reports on 
HAMP and one report just on the irregularities. We have 
identified what the changes are. But it has to be a program 
that recognizes the realities of what is out there.
    Mr. Massad. Thank you, Senator. First of all, I think we 
have implemented most of the specific suggestions that have 
been made by the oversight bodies with respect to the program. 
As far as the basic structure, which Mr. Barofsky has alluded 
to, that is determined by the law and the powers that we had. 
It had to be a voluntary program.
    I do not think it is a matter of acknowledging that it is 
failing. I do not consider the fact that we have gotten 600,000 
people into permanent modifications or the fact that we have 
helped another 1.4 million at least get some breathing room 
through a temporary modification, many of whom then went on to 
get other forms of modifications outside of our program--very 
few went to foreclosure--or the fact that this program has 
resulted in significant changes in the industry is a failure. 
And since he and I testified before the House Oversight 
Committee, we have gotten in about another 40,000 families. In 
the time that this hearing is running, we will have a couple 
hundred more.
    Now, that is not enough. We need to do more. One of the 
things we have done in response to the Congressional Oversight 
Panel's suggestions was we did implement programs that 
addressed unemployment and falling house prices, negative 
equity. In particular, we set up the hardest-hit program where 
we are sending money to a number of States hardest hit, 
including North Carolina. And those programs take time to ramp 
up, but, again, I think the important thing is to keep at it. 
This is, again, a crisis that took a long time to develop, so 
it is not going to be fixed overnight.
    Chairman Johnson. The Senator's time has expired.
    Mr. Barofsky, can you elaborate about the HAMP program and 
what you advise us to do with the penalties?
    Mr. Barofsky. Sure, and I think the numbers just presented 
by Mr. Massad are potentially misleading, to use no better 
word. There may have been 40,000 initial permanent 
modifications, but how many--is that really a net number? I 
mean, how many of those ongoing permanent modifications have 
dropped out in the period since we last testified? To suggest 
that 1.4 million people have been assisted by this program 
frankly demeans the real harm that many of those people who got 
failed trial modifications have suffered. We have documented 
it, and it has been documented time and time again.
    Chairman Johnson. But can you come up with some examples of 
    Mr. Barofsky. Absolutely. I think that one place where we 
can start is by Treasury living up to its commitment that it 
made in late 2009 about imposing financial penalties by 
withholding payments to mortgage servicers under the terms of 
their agreement. This is what they said in late 2009:

        Recently Treasury has been saying, well, we do not have that 
        ability legally under the contracts that we negotiated with the 
        servicers. We did not give ourselves the ability to impose 
        financial penalties for failures in conduct.

--conduct that they have described as being abysmal.
    So we sent a letter, and we asked them to detail to us the 
changes in their legal position. So far they have ignored that. 
But I think going back to the agreements and trying to withhold 
payments and impose some financial penalty, that would be the 
easiest thing to do to work within the contracts. And, frankly, 
if it is, as they suggest, ambiguous, try it. Let us go to 
court. Let us have servicers sue Treasury under the idea that 
they are allowed to willfully violate the terms of their 
agreement with no consequences.
    So I think that is a good starting point. I think that here 
in Congress, as far as financial penalties, encouraging--and if 
Mr. Massad believes that he does not have the necessary tools 
under these agreements, he should tell you what tools he needs 
in order to compel servicers to abide by the terms of their 
agreement. If the complaint is that Congress has not given them 
the tool, well, tell them what tools that they--tell you what 
tools they need so that they can have those tools and bring 
about servicer accountability.
    Chairman Johnson. Mr. Massad?
    Mr. Massad. I am happy to respond. Thank you, Senator.
    Let me just say there is always more that can be done with 
respect to compliance. This is an industry that was not 
working. Particularly it was not equipped to deal with this 
    Number two, we have not changed our legal position. We have 
the ability to withhold payments. What we have always said and 
what is the law is we cannot impose fines and penalties in the 
manner a regulator would for violations of the law.
    Number three, our compliance efforts have been extremely 
aggressive. We have over 200 people working on compliance. We 
are in the servicers' shops all the time. Frankly, the things 
we have made a lot of them do, they would have preferred to 
write a check. We have made, for example, servicers go back and 
solicit 150,000 people--one servicer in particular solicit 
150,000 people that they had overlooked. We made them go back, 
not just do telephone calls and letters but door knocking. We 
made them go back and re-evaluate people that they wrongly 
evaluate for HAMP mods.
    Is there more we can do? Yes. I think you will see us 
withhold more payments. But what we were working on initially 
was getting the servicers' systems in a place where they could 
implement this program.
    Chairman Johnson. Senator Menendez.
    Senator Menendez. Well, thank you, Mr. Chairman. Sorry, I 
had another hearing, but I have been reading the testimony in 
advance, so I thank you all for your testimony.
    Let me start off with a question that I am happy to have 
any one of you answer, and I am thrilled to see my former 
colleague here sitting at the table. Now I get to ask you all 
those questions that you would not answer for me when you were 
on the other side here. No, I am just kidding.
    If we did not do TARP, as some suggested we should not 
have, what would have been the consequences?
    Mr. Massad. I am happy to answer. I think we would have 
faced the very real risk of a Great Depression, as has been 
noted by many economists and others. It was not just TARP. It 
was all the Federal Government interventions. It was a broad-
based action, and the keys to it were it was coordinated, it 
was powerful, and it was swift.
    I think all the oversight agencies have recognized that, 
and, you know, I was chatting the other day with Elizabeth 
Warren, who obviously had plenty of criticism for how we did 
things, but she put it rather simply. She said, ``Well, it is 
obvious. If we had not done these things, we would have been 
back in the Stone Age.''
    Mr. Kaufman. The Congressional Oversight Panel never came 
up with an answer specifically, but what they did say and what 
is in an op-ed today--and I think Neil Barofsky had the perfect 
metaphor, and that is, when you were faced with a situation, 
they threw everything but the kitchen sink at it, and I think 
the kitchen sink, too. I think trying to find out, you know, 
whether TARP specifically stopped terrible things, go back to 
the Stone Age, I believe that, and I believe that this was the 
kind of financial crisis that would have taken up back to 
``Grapes of Wrath,'' at least, if not the Stone Age.
    And so, you know, the Panel agreed, which is a bipartisan 
panel, that TARP in conjunction with a bunch of other things 
that were done--by the Fed, by FDIC, by everybody else--really 
did stop a panic and keep us from a complete, absolute 
financial meltdown.
    Clearly, the Panel also points out a number of negative 
things we have talked at length today and we should talk about 
at length and even more length and even more length about the 
moral hazard with the Government getting involved in this and 
the fact that--I think it is not just a perception. The reality 
is that Wall Street came out a lot better than Main Street in 
terms of the program. But in terms of the Panel felt as a group 
of things that the Federal Government did at that time helped 
us avoid a major problem.
    Senator Menendez. I wonder if it is not moral hazard to 
allow a nation to go into a depression?
    Mr. Kaufman. Absolutely. I was on a show today, and they 
asked me about what lessons were learned, and we have got a 
great report we just came out with that I recommend to 
everybody. It is over 200 pages, and we have lessons learned in 
each section. You know the one lesson I have learned from this, 
Senator? Prevention. Everybody can sit here and we can talk 
about if we had done this or we had done that, or it worked 
here, we shot this, or who did that or how did we do that, and 
the rest of that stuff, and I will sit right with them on the 
panel and discuss what we could have done. But when you get 
faced with the ultimate Hobson's Choice, which is the moral 
hazard of putting people back in the street, losing their homes 
on a scale like the Great Depression, and the moral hazard of 
creating institutions too-big-to-fail, there is no win in that 
one. What you have got to do is you have to make sure you just 
never have to face that again.
    Senator Menendez. I raise those questions because when I go 
back home to New Jersey, I often have average citizens stop me 
and say, ``Senator, I do not get it. When I make a mistake, I 
have to pay for my mistakes. And when they make a mistake''--
meaning these financial institutions--``I have to pay for their 
mistakes.'' And explaining systemic risks and the consequences 
to their savings, their livelihood, and their opportunities is 
a tough proposition. But that is the essence of what we face, 
because I do not--I am not thrilled with TARP as it was both 
devised and executed. But by the same token, having listened to 
Ben Bernanke in 2008 coming to Members of this Committee and 
members of the leadership and largely describe the series of 
events that were unfolding that would have had a series of 
financial institutions collapse, and if they collapsed, create 
systemic risk to the entire country's economy. And I will never 
forget the answer to the question.

        Well, surely you must have enough tools at the Federal Reserve 
        to get us through this period of time so we can think more 
        proactively about how we respond and how we do it.

And the answer: ``If you do not act in the next 2 weeks, we 
will have a global financial meltdown.'' And basically the 
response to that, ``That would mean a new depression.'' And in 
essence the answer to that was, ``Yes, if we allow it to 
    So I think, you know, back home in New Jersey and across 
the country, as we talk about an economy that is coming out of 
a deep recession, we were really on the verge of a new 
depression. And had market forces just been allowed to act on 
their own without any governmental intervention, I think we 
would be--not because of any of my expertise but Ben Bernanke, 
while, you know, I may not always agree with him, his expertise 
is in Depression Era economics, how this country got into the 
last depression, what worked for Roosevelt to get out of it. He 
is not a politician. He is an academician. And so I think it 
had some weight to it, and I think that sometimes we need a 
little bit of a sobering understanding of where we started, 
what we had to face, the timeframe in which we had to face it 
in order to understand where we have been and where we have 
come from.
    Now, that does not mean there are not a series of things 
that I hope we have learned that we can prevent, as Senator 
Kaufman suggests, for the future but also understand that when 
we need to act, how we need to do it in a more effective and 
efficient way.
    But I just wanted to take this opportunity to just put this 
in the right frame because I think it is very easy, people 
gloss over that moment in history, and it was a tipping point 
in terms of how we responded to what would have happened to 
this country.
    Thank you, Mr. Chairman, for the opportunity.
    Chairman Johnson. Senator Shelby?
    Senator Shelby. Mr. McCool, if you would, walk us back 
through what happened at AIG, what we got in--what we did to 
get into it, where we are today. You alluded to it earlier in 
your testimony, and----
    Mr. McCool. Yes. Yes, Senator.
    Senator Shelby.----because we hear all kind of reports that 
everything is over with, everything is great. I do not believe 
that is true, but go ahead.
    Mr. McCool. Well, I mean, what I alluded to in my testimony 
is that, at least in the recent past with the recapitalization 
program that has been announced, there is at least some chance 
of us exiting AIG, and we will see whether we----
    Senator Shelby. How much money have we put into AIG?
    Mr. McCool. Well, umm----
    Senator Shelby. Directly and indirectly, roughly.
    Mr. McCool. I think it was as high as $150 billion at one 
point. There was a----
    Senator Shelby. Have they paid that back yet?
    Mr. McCool. They paid a fair amount of it back.
    Senator Shelby. What is a fair amount?
    Mr. McCool. Well, as I said, I think we are down to about 
$96 billion----
    Senator Shelby. So they paid----
    Mr. McCool. Something like $50 or $60 billion, primarily by 
paying back----
    Senator Shelby. A little over a third, they have paid back.
    Mr. McCool. Yes, by paying back----
    Senator Shelby. So they owe about two-thirds, more or less?
    Mr. McCool. More or less. More or less.
    Senator Shelby. So they still owe a substantial amount of 
money, nearly $100 billion.
    Mr. McCool. If you include the assets in the Maiden Lanes--
    Senator Shelby. Sure.
    Mr. McCool.----as well as the money----
    Senator Shelby. OK. Tell us where we are today.
    Mr. McCool. Well, I am just saying that the key is going to 
be, since the Treasury owns 92 percent of the common stock, 
what kind of a price they are going to be able to get as they 
sell that stock over time----
    Senator Shelby. That is a lot of money, is it not?
    Mr. McCool. It is a lot of money, and there are a lot of 
questions about just how deep the market is going to be and 
things like that. I mean, we are actually doing some work to 
look at that, but that is an ongoing issue for the future----
    Senator Shelby. To recoup $90-something-billion in a sell, 
you are going to have to have a pretty good stock price there, 
are you not?
    Mr. McCool. Well, no, I mean, it is not $96 billion for 
equity. There is about $25 billion of that that is financing 
for the troubled assets----
    Senator Shelby. OK.
    Mr. McCool.----that the Fed has put in the Maiden Lanes. 
But there is about $60 billion worth----
    Senator Shelby. Sixty.
    Mr. McCool.----of equity that they have to sell.
    Senator Shelby. Still, you are going to have to have a 
pretty good stock price.
    Mr. McCool. Exactly. Exactly.
    Senator Shelby. And when do you think that might happen, if 
it will?
    Mr. McCool. Well, I think they are going to be starting to 
sell, or at least they cannot start to sell until, is it May, I 
think, Tim? Tim can actually----
    Mr. Massad. Happy to respond. Today, there is the following 
outstanding. Under TARP, there is about $60 billion, which is 
represented by common stock and preferred.
    Senator Shelby. OK.
    Mr. Massad. The preferred is about $10 billion and it is 
secured by assets that exceed that value, so we fully expect 
that we will----
    Senator Shelby. Is that all part of that $60 billion?
    Mr. Massad. That is part of that 60.
    Senator Shelby. All right.
    Mr. Massad. And then the common, about $50 billion or so 
    Senator Shelby. OK.
    Mr. Massad.----and I am including all of the AIG shares.
    Senator Shelby. Sure.
    Mr. Massad. There is a little bit of technicality there, 
but today, the stock price is above the value of our 
    In addition to that, there is about $32 billion that Mr. 
McCool referred to of the Maiden Lane vehicles. Those are 
technically not obligations of AIG today. Those are special 
purpose vehicles. They are secured by assets that exceed the 
value of the Federal Reserve's loans today. So they are in the 
money, if you will. AIG has also offered to take the Fed out of 
one of those vehicles.
    So as of today, current market prices, we expect to recover 
the entire investment. Now, that represents--sorry.
    Senator Shelby. When will this happen, generally? When do 
you expect that to happen?
    Mr. Massad. It will take some time----
    Senator Shelby. Two years, five?
    Mr. Massad. We do not have a specific time table, but I 
would think a couple of years.
    Senator Shelby. Mr. McCool, it is my understanding that on 
several occasions, the GAO has asked Treasury to release their 
internal projections for the number of mortgages they expect to 
be successfully modified under the TARP Mortgage Modification 
Programs. Have you received all the internal projections from 
Treasury that you requested?
    Mr. McCool. Yes, we have. [Mr. McCool subsequently expanded 
on his response.]

        Although it is true that Treasury has provided GAO the internal 
        projections used to establish funding caps for servicers 
        participating in the Making Home Affordable Program, these 
        internal projections are not used as goals or benchmarks to 
        hold servicers accountable for their performance. According to 
        Treasury, these projections are not the best measures for 
        holding servicers accountable. As we reported in July 2009, 
        June 2010, and March 2011, Treasury must establish specific and 
        relevant performance measures that will enable it to evaluate 
        HAMP and its other TARP-funded housing programs success against 
        stated goals in order to hold itself and servicers accountable. 
        Treasury does measure performance of servicers participating in 
        the first lien program. It measures conversion rates and 
        redefault rates, for example. But it has not established goals 
        to indicate what would be acceptable conversion and redefault 
        rates. Further, as we reported last June, Treasury has neither 
        established performance measures for the second-lien, 
        foreclosure alternative, and principal reduction programs nor 
        established benchmarks or goals, including benchmarks or goals 
        for the number of homeowners these programs are expected to 
        help. We continue to believe that it is important for Treasury 
        to develop benchmarks for performance measures under the first-
        lien modification program, and develop measures and benchmarks 
        for other HAMP-funded homeowner assistance programs, as we 
        recommended in June 2010.

    Senator Shelby. You have. And Mr. Massad, I assume in his 
answer that you provided that information to them.
    Mr. Massad. Yes.
    Senator Shelby. How can we measure the success of the 
Mortgage Modification Program now? How can we measure it, Mr. 
    Mr. McCool. Well, again, I think that, as some of us have 
been saying, I think we have not seen benchmarks for some of 
the programs, and that is one of the things I think we would 
like to see. The fact that they have given us the analysis they 
have done does not mean that they have necessarily done all the 
analysis that we would like them to do. And so the question, I 
think, is, you know, to try to come up with benchmarks for the 
programs in terms of how many homeowners you think you are 
going to be able to help or not going forward, and again, 
releasing that to the public so the public can actually be able 
to hold them accountable.
    Senator Shelby. Well, you have to do the metrics. You have 
got to measure this, have you not?
    Mr. McCool. Mm-hmm.
    Senator Shelby. And you are in the process of doing that?
    Mr. McCool. We are not currently in the process of doing 
that, no.
    Senator Shelby. When will you do that?
    Mr. McCool. Well, I do not know that we had plans to do 
that, but maybe we will look forward to doing that in the 
future. But again----
    Senator Shelby. And what does the future mean? Do you 
    Mr. McCool. Well, we have ongoing work on this program----
    Senator Shelby. OK.
    Mr. McCool. Until the program goes away, we are not going 
    Senator Shelby. OK. All of you have made recommendations to 
the Administration during the course of your oversight of TARP. 
Mr. Barofsky, how many recommendations have you made to the 
Administration regarding TARP, or let us say the top three. 
What would they be?
    Mr. Barofsky. Those that have not yet been implemented, are 
you referring to, Senator?
    Senator Shelby. Yes.
    Mr. Barofsky. Well----
    Senator Shelby. Are not implemented yet.
    Mr. Barofsky. Not implemented. I would go back to some of 
the ones we were talking about today. What is ongoing today and 
what is the biggest failure so far right now as we are speaking 
is related to HAMP. So I would go back to our HAMP 
modifications, publishing realistic estimates, stop accepting 
the status quo, fix the incentive structure, impose financial 
claw-backs or penalties. If they have the power to do so, why 
on earth have they not done so yet given the abysmal 
    Senator Shelby. Have you heard from Treasury, why they have 
not done that yet?
    Mr. Barofsky. They have several explanations, but they have 
not implemented these recommendations.
    Senator Shelby. Mr. Massad, do you want to respond to that? 
Why have you not worked on these recommendations?
    Mr. Massad. Certainly. First of all, I think we have 
implemented their recommendations with respect to the structure 
of the program, by and large.
    Number two, with respect to the compliance issue, we have 
withheld payments in some cases. All we can do is withhold the 
payments that the servicers are entitled to when they actually 
enter into the permanent modifications. Our problem--the 
problem for the first year and a half was the servicers were 
not getting the permanent modifications done, so we were in 
their shops forcing them to take corrective action because we 
felt that was a better result. I think you will see us impose 
more financial withholding where we feel it is appropriate in 
the future.
    Senator Shelby. OK. Thank you, Mr. Chairman.
    Chairman Johnson. One more quick question. Senator Kaufman, 
before HAMP, when servicers were left to their own devices, 
what kind of modifications were servicers offering to 
struggling homeowners?
    Senator Kaufman. That is out of our jurisdiction. What they 
were doing outside of HAMP is something that we have not looked 
into. I know that this is a systemic problem, a systemic 
problem regarding the servicers due to the fact that the 
servicers have these incredible conflicts of interest. It is 
true whether they are in the HAMP program or any other program.
    If you are a servicer and you also hold a lot of mortgages, 
like the big servicers do, there are conflicts. The main two 
conflicts we talked about were: one, they may make more money 
out of foreclosure than any kind of incentive that we had 
offered them. And two is they are very concerned about 
modifying a primary mortgage where they hold a second lien.
    Chairman Johnson. Mr. Massad?
    Mr. Massad. Thank you, Senator. That is a very good 
question and a very important issue. Prior to the launch of the 
HAMP program, there were very, very few modifications that were 
occurring, and this was a crisis that had been acute for 2 
years and very little had been done. The few modifications that 
were happening generally did not reduce people's payments.
    One of the things HAMP accomplished was it set standards as 
to how to go about modifying mortgages. It set what we called 
an affordability standard as well as a calculation of where it 
makes sense to modify the mortgage. We do not try to prevent 
every foreclosure. We do not pay for every modification. We do 
it where, based on an economic analysis, it makes sense to do 
as the alternative to foreclosure.
    What we have seen since is the servicers have now done a 
lot of what we call proprietary modifications outside of the 
HAMP program using many of our standards. So that volume of 
modifications has increased dramatically as a result of this 
    Senator Kaufman. Mr. Chairman, can I say one other thing?
    Chairman Johnson. Yes.
    Senator Kaufman. It has to do with potential Congressional 
action, which I did not realize when I was here. I voted for 
cram down. But I was talking to someone who was in merger and 
acquisitions and he said to me, I do not understand why there 
is a problem here. He said, if this was a commercial deal, the 
lender would reduce the price of the asset, in this place the 
house, because they know as soon as they go into bankruptcy, 
the bankruptcy judge is going to lower their price. The reason 
why the lenders do not reduce the price and come in for a loan 
modification is because they know that if they go into 
bankruptcy, the bankruptcy judge cannot put the real asset.
    One of the real problems we have, systemic problems we have 
in getting lenders to actually go ahead with this is they know 
they do not have to make a deal. If it was a commercial loan, 
they would deal because they know the first thing the 
bankruptcy judge would do is say, hey, what is the real value 
of your asset, and that is what the value it is. So it is just 
something for you to think about in terms of legislation.
    I know cram down is a very political issue and that there 
are a lot of other things. But the biggest difference between 
commercial and residential, and one of the biggest reasons why 
we have a problem reaching a modification with a lender is 
because they know when they go into bankruptcy, the house price 
cannot be reduced. Thank you.
    Chairman Johnson. Well, there are many lessons we can take 
from TARP, but one of the key ones is that oversight, when done 
aggressively and responsibly, improves outcomes.
    As Chairman, I intend to follow that example and push for 
tough oversight in all that we do, whether it is Dodd-Frank 
implementation, monitoring the foreclosure crisis, housing 
finance reform, and other key issues, so that we can better 
protect consumers, investors, and taxpayers while promoting 
economic growth.
    Thanks again to my colleagues and our panelists for being 
here today.
    This hearing is adjourned.
    [Whereupon, at 11:39 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
    I'd like to call to order this Senate Banking Committee hearing 
entitled: ``TARP Oversight: Evaluating Returns on Taxpayer 
    Whenever the topic of TARP comes up, it's hard not to think back to 
the intensity and dramatic moments of the financial panic nearly 2 \1/
2\ years ago. Treasury Secretary Paulson and the Federal Reserve were 
quickly running out of options, and legislators were faced with the 
difficult choice of whether to provide hundreds of billions of taxpayer 
dollars at Wall Street or possibly see the economy slide deeper into 
    I did not support the legislation because I was concerned there 
were too few strings attached, and it sent a message that the 
Government would always step in and save large financial institutions 
from their own bad decisions. However, as the Congressional Oversight 
Panel put it in their final report released yesterday: ``It is now 
clear that, although America has endured a wrenching recession, it has 
not experienced a second Great Depression. The TARP does not deserve 
full credit for this outcome, but it provided critical support to 
markets at a moment of profound uncertainty.''
    COP (pronounced ``cop'') made another point in its report that 
bears repeating: ``TARP has become one of the most thoroughly 
scrutinized Government programs in U.S. history . . . [and] in the 
midst of a crisis, perfect solutions do not exist; every possible 
action carries regrettable consequences, and even the best decisions 
will be subject to critiques and second-guessing.'' That said, the 
outcome of TARP was much more successful than many ever anticipated, 
averting a depression and with other emergency policies, saving 8.5 
million jobs.
    I strongly believe that tough oversight was vital to TARP's 
success. Early estimates showed the program costing taxpayers over $350 
billion. Now, thanks to effective oversight, the price tag has 
plummeted to $25 billion as estimated by the non-partisan Congressional 
Budget Office. That's one-sixth the cost of the Savings & Loan crisis 
in the 80s and 90s. Taxpayers clearly win when oversight works.
    Today, some still criticize HAMP for its inability to help more 
homeowners. While I welcome a discussion of how to improve the program, 
simply ending foreclosure assistance won't make the problem go away and 
would limit the sustainable options for struggling homeowners who could 
save their homes. Over 530,000 families have been helped through HAMP, 
which is not an insignificant number. Their neighbors have been helped 
as well, by preventing their home values from declining due to a nearby 
foreclosure. HAMP also led the way on loan modifications that work, 
pushing the industry to follow suit and standardizing the process. The 
American people deserve better than the ``repeal everything but the 
kitchen sink'' approach to governance the Republicans are offering.
    I look forward to learning more from our witnesses about what 
worked in TARP, what did not work, and why. Going forward, I believe 
these lessons prove the importance of tough oversight in implementing 
the Dodd-Frank Act. I also believe it can be instructive as we continue 
to work through the foreclosure crisis and as we consider reforms to 
the mortgage finance system.
             Former Senator from the State of Delaware and
              Chairman, Congressional Oversight Committee
                              May 5, 2011
     Thank you, Chairman Johnson, Ranking Member Shelby, and Members of 
the Committee for inviting me to testify today. It is a pleasure to see 
so many former colleagues, and it is a privilege to offer my 
perspective on the Troubled Asset Relief Program (TARP).
    I am the chairman of the Congressional Oversight Panel, which was 
established by the Emergency Economic Stabilization Act of 2008 (EESA). 
The Panel is one of three organizations, along with the Government 
Accountability Office and the Special Inspector General for TARP, 
charged by law with overseeing the TARP. In particular, Congress 
instructed the Panel to oversee Treasury's actions, assess the impact 
of spending to stabilize the economy, evaluate market transparency, 
ensure effective foreclosure mitigation efforts, and guarantee that 
Treasury acted in the best interests of the American people. The Panel 
has pursued these goals through 30 oversight reports, including our 
March 2011 report, which we issued to Congress just yesterday.
    Our former chair last testified in front of this committee in 
September 2009. Since then, much has changed in the financial markets 
and in TARP itself. The Panel has issued nearly 20 reports in the 
ensuing months, including four reports on Treasury's foreclosure 
mitigation efforts. Additionally, the Panel has looked at issues such 
as TARP support for the domestic automotive industry, the rescue of 
AIG, commercial real estate, small banks and small business lending, 
Government contracting, and executive compensation restrictions under 
the TARP.
    Treasury's authority under the TARP expired on October 3, 2010. By 
statute, the Panel terminates 6 months after the expiration of the 
TARP. Thus, the Panel's most recent report concludes our oversight 
    I believe that, in order to evaluate the TARP's impact, one must 
first recall the extreme fear and uncertainty that infected the 
financial system in late 2008. The stock market had endured triple-
digit swings. Major financial institutions, including Bear Stearns, 
Fannie Mae, Freddie Mac, and Lehman Brothers, had collapsed, sowing 
panic throughout the financial markets. The economy was hemorrhaging 
jobs, and foreclosures were escalating with no end in sight. Federal 
Reserve Chairman Ben Bernanke has said that the Nation was on course 
for ``a cataclysm that could have rivaled or surpassed the Great 
    It was in this climate that the Congressional Oversight Panel began 
its oversight work. The unprecedented financial crisis and the 
corresponding Government intervention left many questions. What steps 
would be taken to ensure accountability from TARP recipients? How would 
Treasury make certain that its actions were transparent and that the 
taxpayer would be fairly compensated for the risk they were taking? 
What steps would Treasury take to stem the tide of foreclosures that 
was having a debilitating effect on American families and 
neighborhoods? These questions have informed all of our work.
    It is now clear that, although America has endured a wrenching 
recession, it has not experienced a second Great Depression. The TARP 
does not deserve full credit for this outcome, but it did provide 
critical support to markets at a moment of profound uncertainty. It 
achieved this effect in part by providing capital to banks but, more 
significantly, by demonstrating that the United States would take any 
action necessary to prevent the collapse of its financial system.
    The Cost of the TARP. The Congressional Budget Office (CBO) today 
estimates that the TARP will cost taxpayers $25 billion--an enormous 
sum, but vastly less than the $356 billion that CBO initially 
estimated. Although this much-reduced cost estimate is encouraging, it 
does not necessarily validate Treasury's administration of the TARP. 
Treasury deserves credit for lowering costs through its diligent 
management of TARP assets and, in particular, its careful restructuring 
of AIG, Chrysler, and GM. However, a separate reason for the TARP's 
falling cost is that Treasury's foreclosure prevention programs, which 
could have cost $50 billion, have largely failed to get off the ground. 
Viewed from this perspective, the TARP will cost less than expected in 
part because it will accomplish far less than envisioned for American 
homeowners. In addition, non-TARP Government programs, including 
efforts by the FDIC and the Federal Reserve, have shifted some of the 
costs of the financial rescue away from the TARP's balance sheet. 
Further, accounting for the TARP from today's vantage point--at a time 
when the financial system has made great strides toward recovery--
obscures the risk that existed in the depths of the financial crisis. 
At one point, the Federal Government guaranteed or insured $4.4 
trillion in face value of financial assets. If the financial system had 
suffered another shock on the road to recovery, taxpayers would have 
faced staggering losses.
    ``Too Big To Fail.'' The Panel has always emphasized that the 
TARP's cost cannot be measured merely in dollars. Other costs include 
its distortion of the financial marketplace through its implicit 
guarantee of ``too-big-to-fail'' banks. At the height of the financial 
crisis, 18 very large financial institutions received $208.6 billion in 
TARP funding almost overnight, in many cases without having to apply 
for funding or to demonstrate an ability to repay taxpayers. In light 
of these events, it is not surprising that markets have assumed that 
``too-big-to-fail'' banks are safer than their ``small enough to fail'' 
counterparts. Credit rating agencies continue to adjust the credit 
ratings of very large banks to reflect their implicit Government 
guarantee. Smaller banks receive no such adjustment, and as a result, 
they pay more to borrow relative to very large banks.
    By protecting very large banks from insolvency and collapse, the 
TARP also created moral hazard: very large financial institutions may 
now rationally decide to take inflated risks because they expect that 
if their gamble fails, taxpayers will bear the loss. These inflated 
risks may create even greater systemic risk and increase the likelihood 
of future crises and bailouts.
    In addition, Treasury's intervention in the automotive industry, 
rescuing companies that were not banks and were not particularly 
interconnected within the financial system, extended the ``too-big-to-
fail'' guarantee and its associated moral hazard to non-financial 
firms. The implication was that any company in America can receive a 
Government backstop, so long as its collapse would cost enough jobs or 
deal enough economic damage.
    Stigma. As the TARP evolved, Treasury found its options 
increasingly constrained by public anger about the program. The TARP is 
now widely perceived as having restored stability to the financial 
sector by bailing out Wall Street banks and domestic automotive 
manufacturers while doing little for the 13.9 million workers who are 
unemployed, the 2.4 million homeowners who are at immediate risk of 
foreclosure, or the countless families otherwise struggling to make 
ends meet. As a result of this perception, the TARP is now burdened by 
a public ``stigma.''
    Because the TARP was designed for an inherently unpopular purpose--
rescuing Wall Street banks from the consequences of their own actions--
stigmatization was likely inevitable. Treasury's implementation of the 
program has, however, made this stigma worse. For example, many senior 
managers of TARP-recipient banks maintained their jobs and their high 
salaries, and although shareholders suffered dilution of their stock, 
they were not wiped out. To the public, this may appear to be evidence 
that Wall Street banks and bankers can retain their profits in boom 
years but shift their losses to taxpayers during a bust--an arrangement 
that undermines the market discipline necessary to a free economy.
    Transparency, Data Collection, and Accountability. Beginning with 
its very first report, the Panel has expressed concerns about the lack 
of transparency in the TARP. In perhaps the most profound violation of 
the principle of transparency, Treasury decided in the TARP's earliest 
days to push tens of billions of dollars out the door to very large 
financial institutions without requiring banks to reveal how the money 
was used. As a result, the public will never know to what purpose its 
money was put.
    In some cases, public understanding of the TARP has suffered not 
because Treasury refused to reveal useful information but because 
relevant data were never collected in the first place. Without adequate 
data collection, Treasury has flown blind; it has lacked the 
information needed to spot trends, determine which programs are 
succeeding and which are failing, and make necessary changes. A related 
concern is Treasury's failure to articulate clear goals for many of its 
TARP programs or to update its goals as programs have evolved. For 
example, when the Home Affordable Modification Program was announced in 
early 2009, the Administration said that it would prevent three to four 
million foreclosures. The program now appears on track to help only 
700,000 to 800,000 homeowners, yet Treasury has never formally 
announced a new target. Absent meaningful goals, the public has no 
meaningful way to hold Treasury accountable, and Treasury has no clear 
target to strive toward in its own deliberations.
    On the Role of Oversight. Between the efforts of the Congressional 
Oversight Panel, SIGTARP, the GAO, the U.S. Congress, and many 
journalists and private citizens, the TARP has become one of the most 
thoroughly scrutinized Government programs in U.S. history. Such close 
scrutiny inevitably begets criticism, and in the case of the TARP--a 
program born out of ugly necessity--the criticism was always likely to 
be harsh. After all, in the midst of a crisis, perfect solutions do not 
exist; every possible action carries regrettable consequences, and even 
the best decisions will be subject to critiques and second-guessing.
    Yet there can be no question that oversight has improved the TARP 
and increased taxpayer returns. For example, in July 2009, the Panel 
reported that Treasury's method for selling stock options gained 
through the CPP appeared to be recovering only 66 percent of the 
warrants' estimated worth. Due in part to pressure generated by the 
Panel's work, Treasury changed its approach, and subsequent sales 
recovered 103 cents on the dollar, contributing to $8.6 billion in 
returns to taxpayers. Other substantial improvements in the TARP--such 
as Treasury's heightened focus on the threat to HAMP posed by second 
liens, the increased transparency of the TARP contracting process, and 
the greater disclosure of TARP-related data--are all partly the result 
of pressure exerted by the Panel and other oversight bodies.
    Thus, an enduring lesson of the TARP is that extraordinary 
Government programs can benefit from, and indeed may require, 
extraordinary oversight. This lesson remains relevant in the context of 
the Government's extraordinary actions in the 2008 financial crisis: 
The public will continue to benefit from intensive, coordinated efforts 
by public and private organizations to oversee Treasury, the FDIC, the 
Federal Reserve, and other Government actors. Careful, skeptical review 
of the Government's actions and their consequences--even when this 
review is uncomfortable--is an indispensable step toward preserving the 
public trust and ensuring the effective use of taxpayer money.
    Before I close, I would like to take a moment to acknowledge my 
fellow Panel members. We were three Democrats and two Republicans, 
often coming from very different directions in thinking about the 
issues surrounding TARP. Yet we worked hard to negotiate through our 
differences, without compromising on our principles, and as a result 
produced many unanimous reports. It was a pleasure working with such 
thoughtful, principled, and smart colleagues.
    I also want to pay tribute to our excellent bipartisan staff. Their 
determination to help us reach bipartisan agreements was critical to 
the success of our work. They worked many, many late nights to help the 
Panel produce in-depth reports every 30 days, and they did so with 
tremendous professionalism in their dealings with each other and 
Treasury. I want to commend them for their deep and varied knowledge, 
for their attention to detail, and for the dedication they brought to 
our oversight mandate. Our work would not have been possible without 
    Thank you again for the opportunity to testify. I would be happy to 
answer any questions you may have. As the chair of the Panel, I will 
endeavor to convey the views of all the Panel members; however, 
ultimately, my words are my own.

       Acting Assistant Secretary, Office of Financial Stability,
                       Department of the Treasury
                             March 17, 2011
    Chairman Johnson, Ranking Member Shelby, and other Members of the 
Committee, thank you for the opportunity to testify about the Troubled 
Asset Relief Program (``TARP''). As the Acting Assistant Secretary for 
Financial Stability, I am responsible for overseeing the program on a 
day-to-day basis. I would like to provide you today with Treasury's 
assessment of the impact of TARP on the U.S. economy and financial 
    Two and a half years after Congress created TARP through the 
Emergency Economic Stabilization Act (``EESA''), it is clear that this 
program has been remarkably effective by any objective measure.
    First, TARP, in conjunction with the other emergency programs 
initiated by the Government and the Federal Reserve, helped prevent a 
catastrophic collapse of our financial system and helped pave the way 
for an economic recovery. Today, banks are better capitalized, and the 
weakest parts of the financial system no longer exist. The credit 
markets on which small businesses and consumers depend--for auto loans, 
for credit cards, and other financing--have reopened. Businesses can 
raise capital, and mortgage rates are at historic lows. There is still 
more work ahead, of course. TARP was not a solution to all our economic 
problems, nor was it designed to be. Unemployment remains unacceptably 
high and the housing market remains weak. But the worst of the storm 
has passed and our economy is on the road to recovery.
    Second, we accomplished all this with fewer funds than were 
originally appropriated, and we are unwinding TARP faster than anyone 
thought possible. Congress originally authorized $700 billion for the 
program. We will spend no more than $475 billion. Of the $411 billion 
disbursed to date, we have already received back a total of $287 
billion. Taxpayers have now recovered an amount equal to 70 percent of 
total TARP disbursements, and I am hopeful that we will recover most of 
the outstanding amount within the next few years, market conditions 
    Third, the ultimate cost of TARP will be far less than ever 
contemplated. The total cost was initially projected to be 
approximately $356 billion. That number has steadily declined over the 
past 2 \1/2\ half years. The latest estimates, both from Treasury and 
from the Congressional Budget Office (``CBO''), are that the overall 
cost of TARP will be between $25 and $50 billion. The TARP investment 
programs taken as a whole--including financial support for banks, AIG, 
the domestic auto industry, and targeted initiatives to restart the 
credit markets--are expected to result in very little or no cost to the 
    And finally, our financial system is in better shape today than 
before the crisis. Congress has adopted the most sweeping overhaul of 
our regulatory structure in generations, which will give us tools we 
did not have in the fall of 2008. This work is not yet completed 
either, but great progress has been made since TARP's inception.
Overview of the Government's Actions
    Before I review in more detail the impact of TARP and the results 
of our actions, I think it is helpful to go back to where we were in 
the fall of 2008 and review the actions taken.
    In September 2008, we faced the risk of a second Great Depression. 
The forces that led to that moment had been building for years, but had 
accelerated in the preceding 6 months. As the crisis spread, the Bush 
administration and the Federal Reserve took a series of unprecedented 
steps to stabilize a financial system that teetered at the edge of 
catastrophic collapse. These steps included:

    Provision of broad-based guarantees to the financial system 
        through programs such as the Federal Deposit Insurance 
        Corporation's (``FDIC'') Temporary Liquidity Guarantee Program 
        and the Treasury Money Market Fund guarantee program;

    Initiation of extraordinary facilities through the Federal 
        Reserve to support liquidity across the financial system; and

    Support for Government-Sponsored Enterprises (``GSEs'') 
        pursuant to the Housing and Economic Recovery Act.

But, the severe conditions required additional resources and 
authorities. Therefore, the Bush administration proposed EESA, which 
created TARP. It was enacted into law on October 3, 2008, with 
bipartisan support in Congress.
Actions Taken by the Bush Administration Under TARP
    The Bush administration originally proposed TARP as a mechanism for 
the Government to buy mortgage loans, mortgage-backed securities, and 
certain other ``troubled assets'' from banks. By early October 2008, 
lending between banks had practically stopped, credit markets had shut 
down, and many financial institutions were under severe stress. It was 
clear that there was insufficient time to implement a new program in 
order to buy mortgage-related assets. The Bush administration 
determined that the financial system required immediate capital 
injections in order to stabilize the banks and to avert a potential 
catastrophe. EESA provided this authority because Congress had 
broadened the statute during the legislative process.
    During the fall and winter of 2008, the Bush administration 
employed approximately $300 billion of TARP authority as follows:

    $234 billion was invested in banks and thrifts, including 
        $165 billion in eight of the largest financial institutions 
        (plus commitments of additional funds to two of those banks);

    $40 billion was invested in American International Group 
        (``AIG'') along with additional funds from the Federal Reserve; 

    Approximately $20 billion was provided to the domestic auto 

    The combined effect of the actions taken by Treasury, the Federal 
Reserve, and the FDIC helped to stop the panic and to slow the 
financial crisis. Despite these efforts, when President Obama took 
office in early 2009, the financial system remained paralyzed and the 
economy continued to contract at an accelerating rate.
    The nation had already lost 3.5 million jobs in 2008, and was 
losing additional jobs at the rate of 750,000 per month. Home prices 
were falling and foreclosures were increasing. Household wealth had 
fallen by 20 percent from December 2007 to December 2008, more than 
five times the decline in 1929. Businesses were cutting back on 
investments and could not raise capital. For individual families who 
needed credit--to buy a house or a new car--it was more difficult to 
borrow money than at any time since the Great Depression.
Actions Taken by the Obama Administration Under TARP
    Against this backdrop, the Obama administration, working alongside 
the Federal Reserve, adopted a broad strategy to restore economic 
growth, free up credit, and return private capital to the financial 
system. The Administration's strategy combined the American Recovery 
and Reinvestment Act (``Recovery Act''), a powerful mix of targeted tax 
measures and investments, with a comprehensive plan to repair the 
financial system.
    The Administration's Financial Stability Plan had three central 

    To recapitalize and rebuild confidence in the banking 

    To restart the credit markets that are critical to 
        borrowing for businesses, individuals, and State and local 
        governments; and

    To stabilize the crisis in the housing market.

The Financial Stability Plan represented an important change in 
strategy. It shifted the focus from supporting individual institutions 
to restarting the broad markets for capital and credit that are 
critical for economic growth. It was designed to maximize the chance 
that private capital would bear the burden of solving the crisis. To 
facilitate broader economic recovery, we provided support for the 
housing market and for homeowners. And when we provided extraordinary 
assistance to individual firms, it came with tough conditions.
Recapitalizing the Banking System
    Our financial system needed to be recapitalized. But private 
capital could not be raised until the condition of the major financial 
institutions was made clear. Treasury worked with the Federal banking 
regulators to conduct the Supervisory Capital Assessment Program 
(``SCAP''), a comprehensive, forward-looking ``stress test'' for the 19 
largest U.S.-owned bank holding companies. The stress test determined 
which institutions would need more capital to remain well-capitalized 
if economic conditions deteriorated significantly more than expected. 
It was conducted with unprecedented openness and transparency, which 
helped restore market confidence in our financial system. Treasury 
allowed banks needing capital to reapply for further assistance under 
TARP, but only one did so. Since completion of the stress test, these 
banks have raised $150 billion in private capital, saving hundreds of 
billions of TARP dollars, restoring market confidence, reopening credit 
markets, and laying the groundwork for recovery and economic growth.
Jumpstarting the Credit Markets
    A second key aspect of the Financial Stability Plan was to commit 
resources to restart critical channels of credit to households and 

    Through the Term Asset-Backed Securities Loan Facility 
        (``TALF''), a joint program with the Federal Reserve, we helped 
        to restart the asset-backed securitization markets that provide 
        credit to consumers and small businesses. Since TALF was 
        launched in March 2009, new issuances of asset-backed 
        securities have averaged $10.5 billion per month, compared to 
        less than $2 billion per month at the height of the crisis.

    Through the Public-Private Investment Program (``PPIP'') 
        for legacy securities, we matched TARP funds with private 
        capital to purchase legacy mortgage-related securities. This 
        program returned liquidity to key markets for financial assets 
        and cleaned up the balance sheets of major financial 
        institutions. Since the announcement of PPIP in March 2009, 
        prices for eligible residential and commercial mortgage-backed 
        securities have increased by as much as 75 percent. The program 
        continues to mature. Each of the Public-Private Investment 
        Funds are now approximately halfway through their investment 
        periods and have each generated positive returns to the 
        taxpayer to date.

    Through the SBA 7(a) Securities Purchase Program, we 
        unlocked credit for small business by purchasing securities 
        backed by small business loans. Markets for these securities 
        have since returned to healthy levels.
Easing the Housing Crisis
    Finally, the Administration took aggressive steps to address the 
crisis facing many American homeowners. Our strategy has focused on 
providing stability to housing markets and giving Americans who are 
struggling but, with a little help, could afford to stay in their homes 
a chance to do so. TARP provided sensible incentives for mortgage 
modifications to prevent avoidable foreclosures, and Treasury and the 
Federal Reserve worked to keep interest rates at historic lows. 
Together, these policies have put a floor under housing prices and have 
enabled millions of Americans to stay in their homes.
The Economic Impact of Our Policies
    In any assessment of a response to a financial crisis, there are 
several important measures of success. What is the effect on 
availability of credit and economic growth? How quickly is the 
Government able to return the financial system to private hands? What 
was the direct financial cost of the interventions? Has the response 
left the financial system able to support--rather than impede--economic 
growth? On all of these measures, I believe TARP and the Government's 
other emergency actions have succeeded.
Macroeconomic Impact
    Treasury has discussed various measures of the effectiveness of 
these programs in the TARP Retrospective that we published on the 2-
year anniversary of the program, as well as in recent testimony. Let me 
briefly recap our views, and then review in more detail the impact of 
the major TARP programs.
    At the peak of the crisis, banks were not making new loans to 
businesses, or even to one another. Businesses could not get financing 
in our capital markets. Municipalities and State governments could not 
issue bonds at reasonable rates. The asset-backed securitization 
markets, which provide financing for credit cards, auto loans, and 
other consumer financing, had stopped functioning. And where credit was 
available, it was prohibitively expensive.
    Due to the combined actions under TARP and the other Government 
interventions, the cost of credit has fallen dramatically. For 
businesses, the cost of long-term investment grade borrowing has fallen 
from a peak of approximately 570 basis points to just 125 basis points 
over benchmark Treasury securities today.\1\ Non-investment grade 
corporate bond spreads have fallen from approximately 2,200 basis 
points to 440 basis points over benchmark Treasuries.\2\
    \1\ Based upon 10-year Treasury yield and FINRA/Bloomberg 
Investment Grade U.S. Corporate Bond Index yield as of February 25, 
2011 according to Bloomberg LP.
    \2\ Based upon 10-year Treasury yield and FINRA/Bloomberg High 
Yield U.S. Corporate Bond Index yield as of February 25, 2011 according 
to Bloomberg LP.
    American families are spending less on mortgage payments. At the 
peak of the crisis, a family with an average 30-year, $180,000 mortgage 
was borrowing at approximately 6.40 percent a year.\3\ Today, that 
family is borrowing at approximately 4.85 percent, saving about $2,100 
each year.\4\
    \3\ The U.S. average mortgage balance was $181,225 in 2007 
according to the Federal Reserve Bank of Kansas City.
    \4\ The U.S. 30-year fixed mortgage average rate was 4.85 percent 
as of February 25, 2011 according to BankRate (www.bankrate.com).
    The securitization markets have also restarted. Although volumes 
have not reached pre-crisis levels, auto lending in particular has 
recovered, with spreads now below pre-crisis levels.
    The economy as a whole has made substantial progress since the 
recession ended last summer. Real GDP has risen for six straight 
quarters, and GDP growth was stronger in the fourth quarter of 2010 
than in the fourth quarter of 2007. Private sector firms have started 
hiring again. The housing market remains weak, although certain 
measures are stabilizing.
    Although we can never be sure where we would have been today 
without these emergency policies, one of the most comprehensive 
independent analyses of the overall impact of our response, by 
economists Mark Zandi and Alan Blinder, concluded that without the 
Recovery Act, TARP, and other Government actions, GDP would have 
contracted further in 2010 at the astonishing rate of 3.7 percent, 
unemployment would have reached 16.5 percent, and we would be 
experiencing deflation. In short, they say, ``this dark scenario 
constitutes a 1930s-like depression.''
Impact of Particular TARP programs
    Let me now turn to review the status of the major programs and 
initiatives taken under TARP.
Support for the Banking System
    We have moved very quickly to reduce the dependence of the 
financial system on emergency support and to return our financial 
institutions to private hands as quickly as possible. Under the Capital 
Purchase Program (``CPP'') and the Targeted Investment Program 
(``TIP''), Treasury invested $245 billion in our financial 
institutions, including $165 billion in eight of the largest financial 
institutions and an additional $80 billion in another 700 banks. 
Treasury further committed to guarantee certain assets of Bank of 
America and Citigroup under the Asset Guarantee Program (``AGP'').
    We have already recovered a total of $243 billion from banks, 
including $211 billion in repayments and $32 billion in additional 
income. From today on, practically every dollar we recover from banks 
will constitute a positive return to the taxpayer-one that we estimate 
will ultimately total around $20 billion. When President Obama took 
office, the U.S. Government had made investments in financial 
institutions representing 75 percent of the entire banking system by 
assets. Today, our remaining investments in banks represent only about 
10 percent of the banking system.
    The stress test in particular was critical to facilitating this 
recapitalization. The 19 banks subject to the stress test have raised 
$150 billion in new equity, and 13 of the institutions that received 
TARP assistance have fully repaid.
    Citigroup was one of the largest recipients of TARP assistance; we 
invested a total of $45 billion. At the time, many doubted whether 
Citigroup would survive and be able to repay the Government. As of last 
December, we recovered the entire $45 billion, and we realized a 
positive return in excess of $12 billion on our overall investment. As 
a recent report by the Special Inspector General for TARP concluded, 
the Government assistance provided to Citigroup was carefully designed 
and achieved its primary goal of restoring market confidence.
    I want to address in particular the status of the smaller banks 
which have received TARP funds. While Treasury under the Obama 
administration made no further investments in the nation's largest 
banks, Treasury did invest an additional $11 billion in more than 400 
other banks and thrifts, most of which were small and community banks. 
The Obama administration focused on small banks not only because EESA 
required that assistance be made available to financial institutions 
regardless of size, but also because of the critical role small banks 
play in our nation's communities. Small banks finance small businesses, 
which generate a large percentage of our private sector jobs, as well 
as serve the needs of many families. While it may ultimately take 
longer for Treasury to recoup its investment in these small banks, the 
fact remains that without TARP, many more of these institutions, and 
the communities they serve, would have been in jeopardy.
    Today, Treasury maintains investments in 539 small banks and 
thrifts. Their path to recovery is longer because these institutions 
have less access to the capital markets and greater exposure to the 
commercial real estate (``CRE'') market. Although these institutions 
continue to face challenges, there are signs that the sector is 
strengthening. Over the past year, the CRE market and credit conditions 
have shown signs of stabilization and, in some areas, modest signs of 
improvement. With the launch of the Small Business Lending Fund 
(``SBLF''), which is outside of TARP, Treasury will provide capital to 
qualified small banks. Treasury has received many applications from 
small banks across the country including from eligible TARP recipients 
who wish to refinance into SBLF. Treasury plans to announce the first 
round of SBLF investments in the coming weeks.
Stabilizing the Auto Industry
    The Bush administration provided loans to old GM and old Chrysler 
in December 2008 to prevent their uncontrolled liquidations and the 
loss of as many as one million jobs. The Obama administration 
thereafter provided additional assistance, but only on the condition 
that fundamental changes occur.
    These changes involved sacrifices from all stakeholders--
shareholders, unions, auto dealers, and creditors--and they enabled the 
industry to become more competitive. This assistance also helped the 
many suppliers and ancillary businesses that depend on the automotive 
industry. Our actions saved jobs across the country--as many as one 
million, by one estimate--and created many new ones.
    Our strategy is helping to restore the domestic auto industry to 
profitability, and we have already begun to recoup our investments. 
Recently, General Motors reported net income of $4.7 billion for 2010. 
Old GM had not reported an annual profit since 2004. Chrysler reported 
four consecutive quarters of operating profit in 2010 totaling $763 
million. Ford's 2010 net income reached $6.6 billion, its best level in 
more than 10 years.
    To date, we have recovered a total of almost $30 billion of the $80 
billion invested in the domestic auto industry (including the recently 
sold Ally securities). We completed a highly successful initial public 
offering of General Motors in November of last year, and the Government 
has recovered almost half of its $50 billion investment and has reduced 
its stake in GM from 60.8 percent to 33.3 percent. We now have a 
pathway for exiting the remaining investment. We also are working to 
exit our investments in Chrysler and Ally Financial.
Restructuring AIG
    One of the most controversial actions taken by the Government in 
response to the crisis in the fall of 2008 was the assistance provided 
to AIG. That assistance was provided because the failure of AIG, in the 
circumstances we faced in September of 2008, would have been 
catastrophic to our financial system and our economy. Many doubted 
whether we would ever recover those funds. Now, 2 \1/2\ years later, we 
have not only helped restructure the company but the Government is 
potentially in position to recover every dollar we invested.
    Over the last 2 years, Treasury and the Federal Reserve have worked 
with AIG as it has taken aggressive steps to stabilize its business and 
sell its non-core assets. As part of this effort, Treasury and the 
Federal Reserve worked with AIG to recruit an almost entirely new board 
of directors and several new members of senior management, including 
the Chief Executive Officer. The management team, in turn, has taken a 
variety of steps to reduce risk and to focus on AIG's core insurance 
    In January, AIG, the Treasury, and the Federal Reserve Bank of New 
York closed a major restructuring plan, which represented the 
culmination of 2 years of efforts to resolve AIG. This plan will 
accelerate the repayment of U.S. taxpayer funds and puts us in a 
position to recover our entire investment. AIG has since repaid the 
Federal Reserve $47 billion, converted Treasury's preferred stock 
investment into common shares, and repaid Treasury $9.1 billion.
    Since market prices will fluctuate, there is no guarantee of what 
the ultimate returns will be. However, if we are able to sell our 
investments in AIG at current market values, including the AIG shares 
that Treasury received from the trust established by the Federal 
Reserve, taxpayers will get back every dollar put into AIG and will 
realize a positive return. This is a dramatic turnaround, and a result 
that stands in sharp contrast to what most observers expected in the 
fall of 2008.
Helping Responsible but Struggling Homeowners
    We acknowledge that our housing programs have not been without 
criticism, and that housing is an area where there is still much work 
to be done. It should be remembered, however, that the forces that 
created this housing crisis had been building for nearly a decade. In 
particular, when the Obama administration took office in January 2009, 
home prices had fallen for 30 consecutive months. Home values had 
fallen by nearly one-third and were expected to fall by another 5 
percent by the end of 2009. Stresses in the financial system had 
reduced the supply of mortgage credit and crippled the ability of 
Americans to buy homes. Fannie Mae and Freddie Mac had been in 
conservatorship for over 4 months. Millions of American families could 
not make their monthly mortgage payments--having lost jobs or income--
and were unable to sell, refinance, or find meaningful modification 
    The Obama administration took several actions to confront this 
situation, including: the purchase of agency mortgage backed securities 
in order to help keep mortgage rates low; efforts to provide 
refinancing opportunities to homeowners; and the launch, under TARP, of 
the Making Home Affordable (``MHA'') Program to help responsible 
homeowners avoid foreclosure. The Home Affordable Modification Program 
(``HAMP''), the largest MHA program, has helped more than 600,000 
struggling homeowners secure permanent modifications of their mortgages 
and stay in their homes. HAMP has reduced these homeowners' mortgage 
payments by a median of more than $500 each month, bringing their total 
savings to approximately $5 billion. Currently, an average of 25,000 to 
30,000 additional homeowners receive assistance from HAMP permanent 
modifications each month. Beyond direct assistance, many more 
homeowners have been helped by the standards that HAMP has catalyzed 
across mortgage modifications industry-wide.
    As the housing crisis evolved, Treasury responded with additional 
actions, including several at the suggestion of our oversight bodies. 
The suggestion that we focus more on the problems of unemployed 
homeowners and negative equity were particularly valuable. We expanded 
MHA to: address the problem of second liens; provide incentives for 
other alternatives to foreclosure, such as short sales; provide 
additional help to the unemployed; and encourage targeted principal 
reduction. In addition:

    Treasury launched the Housing Finance Agency Hardest Hit 
        Fund to help State housing finance agencies provide additional 
        relief to homeowners in the States hit hardest by unemployment 
        and house price declines.

    Treasury and the Department of Housing and Urban 
        Development created the FHA Short Refinance program to enable 
        homeowners whose mortgages exceed the value of their homes to 
        refinance into more affordable mortgages.

Many have criticized HAMP because it will not achieve 3 million to 4 
million permanent modifications. It is important to remember that the 
program was not intended to prevent all foreclosures. Today, there are 
approximately 5 million delinquent mortgages. Yet, about 1.4 million 
seriously delinquent homeowners are currently eligible for HAMP because 
the program's eligibility requirements exclude:

    High cost mortgages in excess of $729,750;

    Mortgages on vacation, second homes or investor-owned 

    Mortgages on vacant homes;

    Homeowners who can afford to pay their mortgage without 
        Government assistance; and

    Homeowners with mortgages that are unsustainable even with 
        Government assistance.

    To further protect taxpayer resources, HAMP and most of our other 
housing initiatives have pay-for-success incentives: funds are spent 
only when transactions are completed and continue only for as long as 
those modifications remain in place. Accordingly, most of the funds 
have not yet been disbursed.
    Beyond those immediately helped, TARP housing programs also have 
had a positive impact on mortgage servicing. At the outset of the 
crisis, we faced a mortgage industry that was ill-equipped and 
unwilling to respond to the foreclosure crisis. Mortgage servicers 
lacked sufficient resources to meet the needs of a market reeling from 
increasing foreclosures. In addition, their servicing expertise and 
infrastructure were focused on overseeing collections and foreclosing 
on those who failed to pay. HAMP provided servicers with standards that 
could be applied to all modifications, such as the need to make 
modifications affordable for the homeowner. As a result, these 
standards soon became national, industry-wide models that also have 
been applied to many servicers' own proprietary modifications.
    Over the past 2  \1/2\ years, we developed policies and procedures 
in the MHA program to ensure that responsible homeowners who meet the 
eligibility criteria are offered meaningful modifications, or where 
appropriate, other alternatives to foreclosure. To address servicer 
shortcomings, we urged servicers to increase staffing and to improve 
customer service. We developed specific guidelines and certifications 
on how and when homeowners must be evaluated for HAMP and other options 
before foreclosure. We developed a defined process for escalating 
homeowner complaints to be resolved promptly and fairly. We also have a 
comprehensive compliance program to ensure that homeowners are fairly 
evaluated for HAMP, and that servicer operations comply with Treasury 
    We faced many challenges in developing and implementing these 
programs. We often must balance conflicting policy goals--such as how 
to design programs that encourage the participation of struggling 
borrowers and help them get back on their feet, while minimizing the 
cost to the Government, moral hazard, adverse selection, and 
operational and financial risks and complexity. Implementation has been 
difficult, and much work remains to ease the housing crisis. But that 
should not obscure the importance of what has been accomplished, nor 
the fact that these programs can continue to help ease the pain of this 
terrible crisis. Struggling families from around the country have 
avoided the intense pain, cost, and disruption of losing their homes 
because of these programs. Their neighbors and their local communities 
have also benefited, since a vacant home is dangerous and costly to a 
    Congress is considering legislation to end HAMP. We strongly oppose 
any efforts to end our necessary housing programs. Terminating HAMP 
would prevent us from helping tens of thousands of additional families 
each month, relax the pressure on mortgage companies to offer better 
assistance to struggling homeowners, and damage the prospects of 
recovery in our still-fragile housing market. In addition, the House 
has already passed bills that would terminate the FHA Refinance 
Program, and the Emergency Homeowners' Relief Program, and is scheduled 
to vote on a bill to terminate the Neighborhood Stabilization Program 
this week. Ending these essential programs would further destabilize an 
already weak housing market.
    It is important to also take stock of the fact that our financial 
system is stronger today. The weakest parts no longer exist, the system 
has substantially higher levels of capital relative to risk than before 
the crisis, and our financial institutions are better capitalized than 
their international competitors. Moreover, Congress has enacted a 
comprehensive overhaul of financial industry regulation. The Dodd-Frank 
Act provides the Government with critical tools that will help us fix 
the fundamental failures that led to this crisis. These include 
consolidated supervision of the largest, most inter-connected financial 
companies and the ability to liquidate in an orderly manner firms that 
pose a significant threat to our financial system.
TARP Achieves Results at Fraction of Anticipated Costs
    In terms of direct financial cost, TARP will rank as one of the 
most effective crisis response programs ever implemented. Independent 
observers, such as the CBO, initially estimated that TARP would cost 
$356 billion or more. Now, because of the success of the program, TARP 
is likely to cost only a fraction of that amount. Most recently, CBO 
estimated that the cost of the program would be as little as $25 
    The cost of TARP is likely to be roughly equal to the amount spent 
on the program's housing initiatives--expenditures that were necessary 
to prevent even greater losses and hardships to American families and 
local communities and that were never intended to be returned. The 
remainder of the programs under TARP--the investments in banks, AIG, 
credit markets, and the auto industry--likely will result in very 
little or no cost.
    Furthermore, the cost of the Government's broader response efforts 
is remarkably low when compared to past systemic crises. An 
International Monetary Fund study found that the average net fiscal 
cost of resolving roughly 40 banking crises since 1970 was 13 percent 
of GDP. The Government Accountability Office (``GAO'') estimates that 
the cost of the U.S. Savings and Loan Crisis was 2.4 percent of GDP. In 
contrast, the direct fiscal cost of all our interventions, including 
the actions of the Federal Reserve, the FDIC, and our efforts to 
support the GSEs, is likely to be less than 1 percent of GDP. The true 
cost of this crisis to the economy, however--the jobs, wealth, and 
growth that it erased--is much higher than previous crises, but that 
damage would have been far worse without the Government's emergency 
Robust and Effective Oversight
    TARP has been subjected to unprecedented oversight since its 
inception. ESSA established four separate oversight avenues for TARP: 
the Financial Stability Oversight Board (``FinSOB''); specific 
responsibilities for the GAO; the Special Inspector General for TARP 
(``SIGTARP''); and Congressional Oversight Panel (``COP'').
    Treasury cooperates with each oversight body's efforts to review 
TARP programs and to produce periodic audits and reports. To date, 
Treasury has responded to 75 reports from GAO, COP, and SIGTARP; and 
Treasury has participated in at least 25 Congressional hearings on 
TARP. Individually and collectively, the work performed by TARP's 
oversight bodies has made, and continues to make, important 
contributions to the development, strength, and transparency of TARP 
programs. Treasury welcomes this oversight and, to date, has adopted 
more than 120 of the recommendations made by the oversight bodies.
    In addition, Treasury has taken many steps that have made TARP one 
of the most transparent programs in the Federal Government. Pursuant to 
EESA, Treasury prepares separate, audited financial statements for 
TARP. In its first 2 years of operations, TARP's financial statements 
received unqualified (``clean'') audit opinions from the GAO, and 
separate reports on internal control over financial reporting were 
unqualified and found no material weaknesses-unprecedented achievements 
for a startup operation with an extraordinary emergency mission. As a 
result of these efforts, the Office of Financial Stability received a 
Certificate of Excellence in Accountability Reporting (``CEAR'') award 
from the Association of Government Accountants.
    In addition, Treasury has published hundreds of comprehensive 
reports and other information about TARP, so that the public knows how 
its money was spent, who received it, and on what terms. This includes:

    A monthly report to Congress that details how TARP funds 
        have been used, the status of recovery of such funds by 
        program, and information on the estimated cost of TARP;

    A monthly housing report containing detailed metrics on the 
        housing programs;

    A quarterly report on the PPIP program that provides 
        detailed information on the funds, their investments, and 

    A report on each transaction (such as an investment in or 
        repayment by an institution) within two business days of its 

    A quarterly report that details all dividend and interest 

    Periodic reports on the sale of warrants, including 
        information on auctions as well as on how the sale price was 
        determined in the case of any repurchase of warrants by a TARP 

    Monthly lending and use-of-capital surveys that contain 
        detailed information on the lending and other activities of 
        banks that have received TARP funds;

    A list of all the institutions participating in TARP 
        programs and of all the investments Treasury has made; and

    Publishing every contract and financial agency agreement it 
        has entered into.

    In a further commitment to transparency, Treasury publishes 
valuations of the TARP investments in its annual financial statements 
and periodically during the year. Treasury has introduced new 
disclosures in its monthly reports that make it easier to track TARP 
funds and the current cost of the programs. These disclosures allow the 
public to understand the value of the investments that Treasury has 
    TARP succeeded in what it was designed to do: it brought stability 
to the financial system and laid the foundation for economic recovery. 
And it did so at a fraction of the expected cost. TARP was not designed 
to solve all our economic problems. The damage from this financial 
crisis has not yet been completely repaired, and many American families 
are still struggling in its aftermath. We will continue to manage our 
exit from our remaining investments in the interest of the taxpayer and 
the recovery. Nevertheless, today, thanks to a comprehensive and 
careful strategy to address the financial crisis, we are in a much 
stronger position to address remaining economic challenges.


Q.1. Did you ask the Treasury Department to submit a 
comprehensive analysis of its legal authority to bail out 
automobile companies with TARP funds? If so, please provide any 
analysis you received.

A.1. Yes, the Panel requested on several occasions that 
Treasury provide a comprehensive analysis of its legal 
authority to use TARP funds to intervene in the domestic 
automotive industry. For example, in his questions for the 
record for Secretary Geithner following the Panel's September 
10, 2009 hearing, former Panel member Jeb Hensarling requested 
``a formal written legal opinion justifying the: (i) use of 
TARP funds to support Old Chrysler and Old GM prior to their 
bankruptcies; [and] (ii) use of TARP funds in the Chrysler and 
GM bankruptcies.''
    The Secretary responded; in relevant part:

        We believe the Secretary had the authority under the Emergency 
        Economic Stabilization Act (EESA) to make the investments in 
        the auto industry, both with respect to old Chrysler and old GM 
        and in connection with the new companies that acquired their 

        The purpose of EESA was to provide the Secretary of Treasury 
        with the flexibility to take the actions necessary to restore 
        U.S. financial stability. Congress provided the Secretary broad 
        authority by including broad definitions of ``troubled'' assets 
        and financial institution.'' Providing assistance to the auto 
        companies at the time the determinations were made was 
        consistent with both the language and intent of the statute. 
        The auto companies were and are interrelated with entities 
        extending credit to consumers and dealers and because of the 
        effects a disruption in the industry would have had at such 
        time to financial stability employment and the market as a 

        The GAO noted in testimony before the Senate Banking Committee 
        last December that the authority was sufficient to permit the 
        purchase of troubled assets from the auto companies.

    In addition to Congressman Hensarling's request, the Panel 
recommended in its September 2009 oversight report ``that 
Treasury provide a legal opinion justifying the use of TARP 
funds for the automotive bailout.'' As the Panel reported in 
March 2011; ``In response, Treasury directed the Panel to 
certain materials associated with the automotive companies' 
bankruptcies. These materials did not provide a sufficiently 
robust analysis of Treasury's legal justification and so 
constitute, at most, only a partial response to the Panel's 
    I should note that I joined the Panel in October 2010, so I 
did not participate in any of the Panel's deliberations prior 
to that date.

Q.2. Were members of the Congressional Oversight Panel afforded 
the opportunity to hire a dedicated staff member paid for out 
of the Panel's budget? If not, did any Panelist ask to hire a 
dedicated staff member? If so, what was the process by which 
the decision was made not to allow panelists to hire a staffer 
to assist them with their work on the Panel?

A.2. Although the Panel adopted its procedural rules before my 
appointment my understanding is that the Panel considered it a 
priority to ensure that all members had access to the staff 
resources required to ensure that their needs were met and 
their ideas were reflected in the Panel's work. As such, the 
Panel's final rules state:

        The Panel's Executive Director shall assign to each Panel 
        member an existing member of the Panel staff acceptable to the 
        Panel member who, as part of his or her Panel responsibilities, 
        shall serve as a liaison with and as a source of support for 
        the assigned Panel member. The staff member's support to the 
        Panel member shall include responding to the member's requests 
        for information, seeking the member's views on the matters to 
        the staff and representing the Panel member at external 
        meetings where requested by the member.

In accordance with this rule, each Panel member had ready 
access upon request to a member of the staff able to assist 
with his or her needs.
    My understanding is that prior to the adoption of this 
rule, the Panel's staff consulted with the staff of nearly a 
dozen past Federal or Congressional commissions and panels to 
learn about their practices. The Panel's approach was in 
keeping with the model followed by virtually all of the bodies 
consulted. This approach I believe, greatly contributed to the 
Panel's success in reaching a bipartisan consensus in the vast 
majority of its oversight reports.

Q.3. Please provide minutes of all Congressional Oversight 
Panel meetings and conference calls.

A.3. Minutes of all of the Panel's internal meetings and 
conference calls are attached. These minutes have also been 
provided, along with other Panel materials, to the National 

Q.4. Many of the duties of the Congressional Oversight Panel 
required panel members to have access to sensitive financial 
information from financial institutions as well as the auto 
Companies. While participating on the panel however, many of 
the panelists continued to work in areas where conflicts may 
have arisen. For example, a Bloomberg article stated that 
Elizabeth Warren was paid $90,000 to be an expert witness in a 
class action lawsuit against several major TARP banks. Senator 
Kaufman, what is the COP's recusal policy for conflicts of 

A.4. Panel members are generally subject to the Senate Code of 
Official Conduct including the strict prohibition against 
providing compensated or uncompensated service to outside 
entities when such service creates a conflict with an 
individual's official duties. To further ensure public trust 
and confidence in the Panel's work, the Panel employed a full-
time Ethics Counsel to examine all potential or apparent 
conflicts of interest, and the Panel consulted regularly with 
the Senate Select Committee on Ethics. In cases where a 
conflict of interest was determined to exist, Panel members 
were required to recuse themselves from all related official 
    It is important to note that, due to the fact that Panel 
members were part-time Congressional employees who were 
expected to continue their outside employment, the Senate 
Select Committee on Ethics chose to waive very specific 
provisions of the Senate Code of Official Conduct that would 
otherwise create significant, if not insurmountable, obstacles 
to the service of Panel members. In a letter dated December 31, 
2008, Chairman Barbara Boxer and Vice Chairman John Cornyn 
notified the Panel of a limited waiver to:

        Senate Rule 36 (limiting outside earned income); Senate Rule 
        37, paragraphs 5 (a), (b), and 6 (prohibiting affiliation with 
        a firm, providing compensated professional services, and 
        serving as an officer or board member for compensation); and 
        Senate Rule 41, paragraphs 4 and 6 (agreeing to comply with the 
        Code of Official Conduct and reporting on individuals who 
        perform Senate services) . . . This decision reflects the 
        Committee's recognition that the Panel members are individuals 
        with special expertise and the task at hand is one that needs 
        to be undertaken expeditiously and will be of a limited 
        duration. Furthermore, the Committee considered the fact that 
        the services provided by the Panel are not solely to the 
        Senate, but to Congress as a whole.

    I should note that I joined the Panel in October 2010, so I 
did not participate in any deliberations related to Panel 
activities prior to that date.


Q.1. How many mortgages do you expect to be successfully 
modified under TARP mortgage modification programs?

A.1. Your question asks about all TARP mortgage modification 
programs. As you know, Treasury has implemented a variety of 
different housing programs to help responsible homeowners avoid 
foreclosure and keep their homes. These programs are affected 
by many factors outside of Treasury's control, and some were 
launched only recently. As a result, we do not believe it is 
possible to provide a meaningful estimate of the total number 
of mortgages that will be modified under all of Treasury's 
housing programs. Nonetheless, I am happy to describe the 
various programs and the status of our respective efforts.
    As an initial matter, the Making Home Affordable Program 
(``MHA'') includes Treasury's most well-known program, the Home 
Affordable Modification Program (``HAMP''). As of the end of 
February 2011, over 630,000 permanent HAMP mortgage 
modifications had been completed; and, for the past 6 months, 
approximately 28,000 new permanent modifications were completed 
each month.
    It is difficult to predict whether the general ``run rate'' 
for HAMP will continue, because it will depend upon numerous 
variables, including the overall state of the economy and the 
housing market, the performance of participating mortgage 
servicers, and the impact of any future changes to program 
terms and procedures. For example, if the economy continues to 
improve, we expect that the number of homeowners delinquent on 
their mortgages will decline. This in turn will decrease the 
pool of eligible homeowners, which may result in a lower number 
of additional permanent modifications. On the other hand, if 
servicers improve their performance--particularly in soliciting 
and promptly evaluating homeowners--the overall number of 
permanent HAMP modifications could increase. Treasury is trying 
to encourage such improvements by making certain changes to the 
program, such as mandating that all HAMP servicers adopt a 
single point of contact model.
    Despite these uncertainties, if one assumes that the recent 
HAMP ``run rate'' continues until the end of the program in 
2012, the total number of additional permanent modifications 
using simple math would equal about 500,000, resulting in 
approximately 1 million permanent modifications for the 
program. Again, this is not a prediction or an official 
Treasury estimate, because we cannot predict whether the run 
rate will continue for the reasons noted above.
    MHA includes not only HAMP, but also the Second Lien 
Modification Program, the Home Affordable Foreclosures 
Alternative Program, and the Home Affordable Unemployment 
Program. These programs provide additional assistance to 
homeowners and should be included in any overall measurement of 
how many homeowners are assisted by TARP housing programs. 
However, these programs were implemented more recently, and we 
do not have sufficient data to estimate their future run rates.
    In addition to MHA, Treasury's TARP housing programs also 
include the Hardest Hit Fund and the Federal Housing 
Administration (``FHA'') Short Refinance Program. The Hardest 
Hit Fund provides assistance to 18 States and the District of 
Columbia to support programs designed to help homeowners in the 
States hit hardest by the housing crisis. State housing finance 
agencies administer these programs, and each agency has 
estimated the maximum number of people that could receive 
assistance under that State's Hardest Hit Fund programs. 
Treasury has published these plans on FinancialStability.gov. 
The FHA Short Refinance Program is administered by the FHA and 
provides incentives to refinance underwater mortgages. As with 
some of the MHA programs, however, it is still in the early 
stages of implementation and it is difficult to estimate how 
many homeowners it ultimately will help. Our goal for all these 
program has been--and continues to be--to help as many 
struggling, responsible homeowners as possible.
    In evaluating Treasury's housing programs, it is important 
to emphasize two final points. First, taxpayer dollars are 
spent only for success--i.e., for permanent modifications, as 
long as homeowners continue to make their monthly payments, and 
for other successful forms of homeowner assistance. Treasury 
provides cost data on all of its TARP housing programs in a 
monthly report to Congress, which is available on 
FinancialStability.gov. Second, Treasury's housing programs 
have helped to create new industry-wide standards for how 
mortgage servicers evaluate and assist struggling homeowners. 
These new standards have led the industry to modify the 
mortgages of about two million additional homeowners, at no 
cost to taxpayers.

Q.2. The SIGTARP's most recent quarterly report discussed how 
Treasury may attempt to move some of these banks off the TARP 
books and into the Small Business Lending Fund. Will Treasury 
follow all of the SIGTARP's recommendations with respect to 
moving financial institutions out of TARP and into the Small 
Business Lending Fund? If not, why not?

A.2. As you know, Treasury's Small Business Lending Fund 
(``SBLF'') is not a TARP program, and the Office of Financial 
Stability is not responsible for standing up or implementing 
the SBLF. Nonetheless, I am generally familiar with the 
program, especially as it relates to institutions that received 
TARP funding.
    The SBLF is a $30 billion fund created by Congress that 
encourages lending to small businesses by providing capital to 
qualified community banks with assets of less than $10 billion. 
The Small Business Jobs Act of 2010, which created the SBLF, 
expressly directs Treasury to allow TARP recipients to 

        The Secretary shall . . . issue regulations and other guidance 
        to permit eligible institutions to refinance securities issued 
        to Treasury under [TARP programs] for securities to be issued 
        under the Program.

    To receive SBLF funds, TARP recipients must satisfy all of 
the eligibility criteria that apply to non-TARP recipients. 
Moreover, Treasury has established various additional 
requirements that apply only to TARP recipients. For example, 
TARP recipients will be eligible for SBLF only if they have 
satisfied their existing TARP obligations, and they will be 
subject to a special ``lending incentive fee'' if they fail to 
increase their small business lending. Treasury will break out 
and report separately any TARP investments repaid using SBLF 
    In response to your specific question, SIGTARP made one new 
recommendation regarding SBLF in its January 2011 Quarterly 
Report. Treasury has agreed to adopt this recommendation and 
already has begun providing SIGTARP with the names of 
institutions that participated in TARP programs and have 
applied for SBLF funding. SIGTARP previously made three other 
recommendations regarding SBLF. Treasury responded to these 
recommendations in a detailed letter dated January 18, 2011, 
which is included in SIGTARP's January 2011 Quarterly Report.


Q.1. Did you ask the Treasury Department to submit a 
comprehensive analysis of its legal authority to bail out 
automobile companies with TARP funds? If so, please provide any 
analysis you received.

A.1. We have not requested a comprehensive analysis of the 
Treasury Department's legal authority to use TARP funds to bail 
out automobile companies. SIGTARP's audit on Factors Affecting 
the Decisions of GM and Chrysler to Reduce Their Dealership 
Networks focused on the Treasury Auto Task Force's view about 
the need for GM and Chrysler to reduce their dealership 
networks rapidly, but did not focus on the Treasury 
Department's use of TARP funds for the auto manufacturers.


Q.1. Last year, Speaker Boehner and I initiated an ongoing GAO 
audit into the treatment of Delphi employees. In specific, we 
asked GAO to investigate whether Delphi union members received 
preferential pension treatment over their non-union 
counterparts with TARP funds. I understand that the GAO is 
coordinating parts of their investigation with your office. Can 
you please tell me the status of the investigation and what you 
have learned thus far?

A.1. Under the Emergency Economic Stabilization Act of 2008 
(``EESA''), SIGTARP is responsible for coordinating audits and 
oversight with other oversight entities to ensure that there is 
not a duplication of effort and that the full playing field is 
covered. Pursuant to that coordination, the oversight entities 
agreed that the Government Accountability Office (``GAO'') 
would take the lead on pension issues, given its historical 
expertise. SIGTARP agreed, in coordination with GAO, to examine 
issues related to the ``topping up'' of the Delphi hourly 
retiree pension plans and announced the commencement of the 
audit in November 2010. Specifically, we are reviewing:

  (1) LTreasury's role in General Motors' (``GM'') decision to 
        top up the pension plan for hourly workers, and

  (2) LWhether the Administration or the Automotive Task Force 
        pressured GM to provide additional funding for the 

    We are still in the stages of collecting information and 
conducting interviews with various stakeholders, including the 
Treasury Department, the Pension Benefit Guaranty Corporation, 
GM, Delphi, the United Auto Workers (``UAW''), and other 
unions. We are not in a position currently to offer conclusions 
or findings at this time. We will be in a far better position 
to respond to your questions once the audit is further underway 
and will work with GAO in developing a coordinated response.

Q.2.-1. I understand that some unions had preexisting pension 
agreements with General Motors in the event of a Delphi 
bankruptcy. In essence, the agreements said that if the Delphi 
Corporation failed, GM would take over the pension obligations 
under certain conditions.
    Would you agree that one of the largest expenses for GM is 
their pension obligations?

Q.2.-2. Would it make sense for a company restructuring itself 
through the bankruptcy process to restructure its pension 

Q.3.-3. Are preexisting pension agreements routinely altered 
during bankruptcies?

A.2.1.-3. Pension obligations represent a large financial 
obligation for GM. In its most recent annual report, filed with 
the SEC on March 1, 2011, GM made cash contributions of $4.0 
billion in December 2010 to its U.S. hourly and salaried 
pension plans, consisting of a $2.7 billion contribution to the 
hourly plan and a $1.3 billion contribution to the salaried 
plan. In January 2011, GM also contributed 61 million shares of 
its common stock to the U.S. hourly and salaried pension plans 
valued at $2.2 billion for funding purposes. (GM 10-K, p. 30). 
Overall, GM reported liabilities and equity from pensions and 
post-retirement benefits of $36.6 billion in 2009 and $31.8 
billion in 2010. (GM 10-K, p. 80). GM's total liabilities in 
2009 and 2010 were $107.3 billion and $101.7 billion, 
respectively. We are not in a position to offer conclusions or 
findings related to the structuring of pension obligations or 
pension agreements in bankruptcy generally. However, as we 
collect information from various stakeholders, we will be 
better able to answer these questions as they relate to GM's 
decision to ``top up'' the Delphi hourly retiree pension plan.

Q.3. Are there any indications that political considerations 
played a role in the Government protecting Delphi union 
pensions while their non-union counterparts lost nearly 

A.3. As part of our audit, we will review whether the 
Administration or the Automotive Task Force pressured GM to 
provide additional funding for the hourly workers' pension 
plan. However, we are not in a position currently to comment or 
to offer conclusions or findings on this objective. We will be 
in a better position to respond to your question once the audit 
is further underway.


Q.1. Did you ask the Treasury Department to submit a 
comprehensive analysis of its legal authority to bail out 
automobile companies with TARP funds? If so, please provide any 
analysis you received.

A.1. The Treasury Department has in several instances provided 
a detailed analysis of its legal authority under the Emergency 
Economic Stabilization Act of 2008 (EESA) to use TARP funds to 
support the Automotive Industry Financing Program (AIFP), and 
GAO has obtained and examined these analyses as part of our 
continuing oversight responsibilities. In general, Treasury 
concluded that the loans provided to the automakers were 
authorized by EESA because they consisted of the ``purchase'' 
of ``troubled assets from any financial institution.'' 12 
U.S.C. 5211(a)(1). EESA broadly defines the term ``troubled 
assets''\1\ and the term includes any financial instrument 
whose purchase the Secretary of the Treasury, after 
consultation with the Chairman of the Federal Reserve Board, 
determines is ``necessary to promote financial market 
stability,'' provided that the Secretary first transmits his 
determination in writing to appropriate congressional 
committees. 12 U.S.C.  5202(9)(B). Treasury has noted its 
compliance with this consultation and reporting requirement; 
Former Treasury Secretary Paulson made such a determination for 
GM and Chrysler in December 2008 and transmitted his 
determination to Congress later that month. Treasury Secretary 
Geithner issued a second determination in April 2009. EESA also 
broadly defines ``financial institution''\2\ and lists 
traditional institutions such as banks and insurance companies 
as examples, but the term is expressly not limited to those 
examples: it also includes ``any institution'' established and 
regulated under Federal or State law that has ``significant 
operations in the United States.'' Finally, Treasury has noted 
that its guidelines for the AIFP are consistent with the 
purposes of EESA: to ``restore liquidity and stability to the 
financial system of the United States,'' and to ensure that the 
expenditure of taxpayer funds ``protects home values, college 
funds, retirement accounts and life savings.'' 12 U.S.C.  
5201. See, e.g., Statement of the United States of America Upon 
the Commencement of General Motors Corporation Chapter 11 Case, 
at 9-12 (December 19, 2008); In re Chrysler LLC, 576 F. 3d 108, 
121-22 (2d Cir. 2009), judgment vacated on other grounds as 
moot, 130 S. Ct. 1015 (2009); Guidelines for Automotive 
Industry Financing Program (copies enclosed).
    \1\ ``Troubled assets'' is defined as ``(A) residential or 
commercial mortgages or any securities, obligations, or other 
instruments that are based on or related to such mortgages, that in 
each case was originated or issued on or before March 14, 2008, the 
purchase of which the Secretary determines promotes financial market 
stability; and (B) any other financial instrument that the Secretary, 
after consultation with the Chairman of the Board of Governors of the 
Federal Reserve System, determines the purchase of which is necessary 
to promote financial market stability, but only upon transmittal of 
such determination, in writing, to the appropriate committees of 
Congress.'' 12 U.S.C.   5202(9).
    \2\ ``Financial institution'' is defined as ``any institution, 
including, but not limited to, any bank, savings association, credit 
union, security broker or dealer, or insurance company, established and 
regulated under the laws of the United States or any State, territory, 
or possession of the United States, the District of Columbia, 
Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, 
Guam, American Samoa, or the United States Virgin Islands, and having 
significant operations in the United States, but excluding any central 
bank of, or institution owned by, a foreign government.'' 12 U.S.C.  

Q.2. Has Treasury prepared and provided to GAO internal 
metrics, benchmarks, or projections by which Treasury, GAO, and 
other outside observers can assess the HAMP program's 
effectiveness? What types of metrics, benchmarks, and 
projections would be useful for an objective assessment of 
HAMP's effectiveness?

A.2. Treasury's lack of performance measures that can be used 
to assess HAMP's program effectiveness has been an issue that 
GAO has raised in our July 2009, June 2010, and March 2011 
reports. Treasury reports some aspects of HAMP performance in 
its public monthly servicer performance reports, such as 
numbers of trial and permanent numbers made, redefaults of 
permanent modifications, and the median amount of payment 
reduction borrowers have received. However, Treasury has not 
provided GAO with benchmarks, or goals for these measures, nor 
has it provided performance measures or benchmarks for the more 
recently announced Making Home Affordable Programs such as the 
Second-Lien Modification Program, Home Affordable Foreclosure 
Alternatives, and the Principal Reduction Alternative. For 
example, Treasury has not established a goal for the total 
number of permanent HAMP first-lien modifications that it 
expects to be successfully completed under the program or the 
rate of redefault for loans that have been permanently modified 
that it would not find acceptable on a program or servicer-
specific basis. According to Treasury, measures such as 
redefault rates for those with second-lien modifications would 
be evaluated once data are available, but Treasury has not 
provided GAO with goals for these measures. Treasury noted that 
the programs were launched under challenging circumstances, 
making it extremely difficult to predict how many homeowners 
will respond to servicer solicitations, provide requisition 
documentation, or accept the modification when offered. In 
addition, Treasury noted that if it focused only on numbers of 
borrowers in programs, there may be a misdirected incentive to 
get borrowers into programs at the expense of ensuring 
sustainable results for those borrowers. However, as we, the 
Congressional Oversight Panel, and Special Inspector General 
for the Troubled Assets Relief Program have previously noted, 
establishing key performance metrics and reporting on 
individual servicers' performance with respect to those metrics 
are critical to the transparency and accountability of HAMP. 
While we have not specified the measures and benchmarks 
Treasury should use to assess the effectiveness of HAMP, we 
noted in July 2009 that annual performance goals are the major 
means for gauging progress toward accomplishment of longer-term 
goals. We further noted that in developing performance 
measures, it will be important for Treasury to be able to 
evaluate HAMP's progress toward its goals, including preserving 
homeownership, and to define outcome measures that are 
objective, measurable, and reflective of the goals and mission 
of HAMP. In particular, it is important that Treasury establish 
performance measures that have numerical targets to allow for 
easier comparison with actual performance. As we noted in our 
June 2010 and March 2011 reports, without pre-established 
performance measures and goals, Treasury will not be able to 
effectively assess the outcomes of its Making Home Affordable 
programs or hold servicers accountable for their performance.