[JPRT, 111th Congress]
[From the U.S. Government Publishing Office]



 
                     CONGRESSIONAL OVERSIGHT PANEL

                       OCTOBER OVERSIGHT REPORT *

                               ----------                              

                      EXAMINING TREASURY'S USE OF
                 FINANCIAL CRISIS CONTRACTING AUTHORITY

[GRAPHIC] [TIFF OMITTED] 


                October 14, 2010.--Ordered to be printed

    * Submitted under Section 125(b)(1) of Title 1 of the Emergency 
        Economic Stabilization Act of 2008, Pub. L. No. 110-343
         CONGRESSIONAL OVERSIGHT PANEL OCTOBER OVERSIGHT REPORT





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                     CONGRESSIONAL OVERSIGHT PANEL

                       OCTOBER OVERSIGHT REPORT *

                               __________

                      EXAMINING TREASURY'S USE OF
                 FINANCIAL CRISIS CONTRACTING AUTHORITY

[GRAPHIC] [TIFF OMITTED] 


                October 14, 2010.--Ordered to be printed

    * Submitted under Section 125(b)(1) of Title 1 of the Emergency 
        Economic Stabilization Act of 2008, Pub. L. No. 110-343

                     CONGRESSIONAL OVERSIGHT PANEL
                             Panel Members
                        Sen. Ted Kaufman, Chair
                           Richard H. Neiman
                             Damon Silvers
                           J. Mark McWatters
                             Kenneth Troske
                                CONTENTS

                               __________
                                                                   Page
Executive Summary................................................     1
Section One:
    A. Background................................................     4
    B. Provisions that Govern TARP Contracts and Agreements......     6
        1. EESA..................................................     6
        2. Federal Acquisition Regulation........................     8
        3. Interim Final Rule on TARP Conflicts of Interest......     8
        4. Treasury's Internal Policies..........................    11
        5. Recommendations by Oversight Bodies...................    11
    C. How Treasury Decided What Functions to Outsource..........    13
        1. In-house vs. Outsourcing Determinations...............    13
        2. Distinctions Between Financial Agency and Contracting 
          Arrangements...........................................    14
        3. Additional Factors Affecting Initial Determinations...    15
        4. Unique Backdrop Weighed Heavily on Determinations.....    17
    D. Description of Contracts and Agreements...................    17
        1. Procurement Contracts.................................    19
        2. Financial Agency Agreements...........................    25
    E. Evaluation of Treasury's Contracting and Agreement 
      Procedures and Process.....................................    28
        1. Compliance with Legal Obligations.....................    29
        2. Compliance with Treasury's Internal Controls..........    31
        3. Evaluation of How Treasury Selects Contractors and 
          Agents.................................................    32
        4. Evaluation of Treasury's Post-Award Management of 
          Contracts and Agreements...............................    33
    F. Evaluation of Small Business Arrangements.................    39
    G. Evaluation of Transparency and Accountability.............    43
        1. Transparency..........................................    43
        2. Accountability........................................    46
    H. Discussion of Conflicts of Interest.......................    48
        1. Treasury Gives Preferential Treatment to a Retained 
          Entity.................................................    49
        2. Retained Entity Serves Its Own Interest and Not the 
          Public Interest........................................    52
        3. Retained Entity Serves its Clients' Interest and Not 
          the Public Interest....................................    53
        4. Retained Entity Uses Nonpublic Information to Benefit 
          Itself or its Clients..................................    54
        5. Does the IFR Alleviate Conflicts of Interest?.........    55
    I. Activities of Other Oversight Bodies......................    56
    J. Conclusion and Recommendations............................    57
Annex I: Fannie Mae and Freddie Mac: A Case Study................    60
    A. Role of Fannie Mae in HAMP................................    62
    B. Role of Freddie Mac in HAMP...............................    62
    C. Analysis of Treasury's Selection of Fannie Mae and Freddie 
      Mac........................................................    62
    D. Discussion of Conflicts of Interest.......................    66
    E. Evaluation of Small Business Contracting..................    70
    F. Evaluation of Treasury's Monitoring.......................    71
    G. Performance Assessment Made Challenging by Insufficient 
      Reporting..................................................    74
    H. Evaluation of Transparency................................    74
    I. Conclusion................................................    76
Annex II: Tables.................................................    78
Section Two: TARP Updates Since Last Report......................    95
Section Three: Oversight Activities..............................   121
Section Four: About the Congressional Oversight Panel............   122
======================================================================



                        OCTOBER OVERSIGHT REPORT

                                _______
                                

                October 14, 2010.--Ordered to be printed

                                _______
                                

                          EXECUTIVE SUMMARY *

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    * The Panel adopted this report with a 5-0 vote on October 13, 
2010.
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    The Troubled Asset Relief Program (TARP) is a public 
program in design and purpose: created by Congress, paid for by 
taxpayers, and intended to stabilize the American economy. Yet 
private companies today perform many of the TARP's most 
critical functions, operating under 96 different contracts and 
agreements worth a total of $436.7 million. These private 
businesses do not take an oath of office, nor do they stand for 
election. They may have conflicts of interests, are not 
directly responsible to the public, and are not subject to the 
same disclosure requirements as government actors. As such, it 
is critical that Treasury scrupulously oversee its contractors 
and agents.
    The TARP employs private agents through two means: 
procurement contracts, which are utilized across the federal 
government and are governed by the Federal Acquisition 
Regulations (FAR), and financial agency agreements, which are 
used only by Treasury and which allow businesses to perform 
inherently governmental functions on behalf of the United 
States. Under the law authorizing the TARP, Treasury has 
extraordinary discretion in using both instruments. For 
example, the law explicitly allowed Treasury to waive any 
provision of the FAR, and it arguably allowed Treasury to hire 
financial agents for a broader range of duties than previously 
permitted. Such broad authority helped Treasury to establish 
the TARP in great haste during a moment of crisis, but this 
expansive discretion must necessarily be accompanied by strict 
oversight.
    In general, Treasury has taken significant steps to ensure 
that it has used private contractors appropriately, and indeed 
some experts have praised Treasury for going above and beyond 
the usual standards for government contracting. Treasury 
provided for competitive bidding for most of its contracts, and 
it has established several layers of controls to monitor 
contractor performance and to prevent conflicts of interest. 
Further, despite the pressing needs of the financial crisis, 
Treasury complied with the FAR, although it could have waived 
its provisions.
    This praise must be viewed in context, however. The 
government contracting process is notoriously nontransparent, 
and although Treasury appears to have performed well on a 
comparative basis, significant transparency concerns remain. 
For example, contractors and agents are immune to requests 
under the Freedom of Information Act. Contractors may hire 
subcontractors, and those subcontracts are not disclosed to the 
public. Important aspects of a contractor's work may be buried 
in work orders that are never published in any form. Further, 
Treasury publishes no information on the performance of 
contractors during the life of the contract. In short, as work 
moves farther and farther from Treasury's direct control, it 
becomes less and less transparent and thus impedes 
accountability.
    The contracting process has also created confusion about 
the role of small businesses in administering the TARP. In one 
case, Treasury awarded a contract to a ``small disadvantaged 
business,'' which in turn delegated roughly 80 percent of the 
contract to a ``large business.'' Thus, although on the surface 
it appears that the contract is being performed by a small 
business, in actuality a large business is essentially 
responsible for performance. Additionally, the Panel is 
concerned by the lack of outreach by Treasury to find qualified 
minority-owned businesses to participate in the TARP. Although 
several minority-owned businesses have received TARP financial 
agency agreements, only one prime TARP contract has been 
awarded to a minority-owned business.
    The largest TARP financial agency agreements were those 
with Fannie Mae and Freddie Mac to provide administration and 
compliance services for Treasury's foreclosure mitigation 
programs. As described in detail in the case study accompanying 
this report, these agreements raise significant concerns. Both 
Fannie Mae and Freddie Mac have a history of profound corporate 
mismanagement, and both companies would have collapsed in 2008 
were it not for government intervention. Further, both 
companies have fallen short in aspects of their performance, as 
Fannie Mae recently made a significant data error in reporting 
on mortgage redefaults and Freddie Mac has had difficulty 
meeting its assigned deadlines.
    The largest TARP contracts have gone to law firms, 
investment management firms, and audit firms. The nature of 
these firms' relationship to the financial system inevitably 
gives rise to a wide range of potential conflict issues, 
including the potential for conflicts of interest with these 
firms' other clients, self-interested behavior in the 
management of TARP contracts, and the misappropriation of 
sensitive market information. Treasury has taken these concerns 
seriously and performs regular reviews to prevent or mitigate 
any potential conflicts of interest, but the process relies 
primarily on contractors and agents to self-disclose their 
potential conflicts. As a result, the public has only limited 
assurance that all potential conflicts have been disclosed and 
addressed. Treasury should develop an independent mechanism for 
monitoring conflicts that makes it less reliant on contractors 
and agents for information.
    Concerns about private contracting are of particular 
significance given the scale of the involvement of contractors 
and agents in the TARP. Fannie Mae alone currently has 600 
employees working to fulfill its TARP commitments. By 
comparison, Treasury has only 220 staffers working on all TARP 
programs combined. In other words, the vast majority of people 
working on the TARP today receive their paychecks from private 
companies, not the federal government. Although Treasury 
deserves credit for its efforts toward improving the 
contracting process, given the extensive involvement of private 
actors in a program of critical public significance, further 
improvements can and should be made.
                              SECTION ONE:


                             A. Background

    Treasury's use of its contracting authority in the 
execution of its duties under the Troubled Asset Relief Program 
(TARP) has not caught the public's imagination to the same 
degree as some other TARP-related topics. But Treasury has 
expended significant amounts of money on obtaining important 
services from nongovernmental entities, and, in doing so, has 
raised important questions with respect to the extent to which 
such services should be outsourced and the best way to monitor 
non-governmental entities' performance of those services. These 
questions are not unique to Treasury and the TARP, and indeed 
some experts praise Treasury's performance in comparison to 
other government actors. While Treasury should be pleased with 
the praise it has received for its efforts, further 
improvements can and should be made in TARP contracting 
practices.
    The Emergency Economic Stability Act of 2008 (EESA) 
authorizes Treasury to enter into financial agency agreements 
and procurement contracts in order to fulfill its duties under 
EESA.\1\ Financial agency agreements allow Treasury to retain 
private companies to perform ``inherently governmental'' 
functions, while contracts are used to procure all other 
outside services Treasury requires to implement EESA.\2\ This 
report examines Treasury's use of financial agency agreements 
and contracts to obtain services that Treasury cannot, or has 
chosen not to, perform itself. It evaluates the process by 
which Treasury decides to obtain services from others, the 
procedures Treasury has in place to fulfill its oversight 
responsibilities, and whether Treasury has the infrastructure 
to oversee its agreements and contracts properly. Additionally, 
this report considers in more detail the agreements with Fannie 
Mae and Freddie Mac for the Home Affordable Modification 
Program (HAMP), in light of the significant dollar amounts of 
those agreements and their centrality to that program, which 
the Panel has examined in several previous reports.\3\
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    \1\ 12 U.S.C. Sec. 5211(c).
    \2\ The adoption of EESA introduced an element of legal uncertainty 
as to whether financial agency agreements must be used only for 
``inherently governmental'' functions or if they can be used for a 
broader range of duties as well. For a more complete discussion of this 
uncertainty, see Sections B.1.b and E.1.b, infra.
    \3\ See Congressional Oversight Panel, March Oversight Report: 
Foreclosure Crisis: Working Toward a Solution (Mar. 3, 2009) (online at 
cop.senate.gov/documents/cop-030609-report.pdf) (hereinafter ``March 
2009 Oversight Report''); Congressional Oversight Panel, October 
Oversight Report: An Assessment of Foreclosure Mitigation Efforts After 
Six Months (Oct. 9, 2009) (online at cop.senate.gov/documents/cop-
100909-report.pdf) (hereinafter ``October 2009 Oversight Report''); 
Congressional Oversight Panel, April Oversight Report: Evaluating 
Progress on TARP Foreclosure Mitigation Programs (Apr. 14, 2010) 
(online at cop.senate.gov/documents/cop-041410-report.pdf) (hereinafter 
``April 2010 Oversight Report'').
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    Other TARP oversight bodies are auditing performance under 
agreements and contracts entered into by Treasury, and this 
report does not duplicate that audit work.\4\ The Special 
Inspector General for the Troubled Asset Relief Program 
(SIGTARP) is also currently conducting an audit of professional 
services contract prices and recently completed a detailed 
examination of the Public-Private Investment Program (PPIP).\5\
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    \4\ The Government Accountability Office (GAO) will release a two-
year report on TARP in early November, which will include a section on 
contracting; for a more detailed discussion of SIGTARP's activities, 
see Section I, infra.
    \5\ Office of the Special Inspector General for the Troubled Asset 
Relief Program, Selecting Fund Managers for the Legacy Securities 
Public-Private Investment Program (Oct. 7, 2010) (online at 
www.sigtarp.gov/reports/audit/2010/
Selecting%20Fund%20Managers%20for%20the%20Legacy%20Securities%20Public-
Private%20Investment%20Program%2009_07_10.pdf) (hereinafter ``SIGTARP 
Report on PPIP''). PPIP arrangements are, strictly speaking, recipient 
funding under a TARP program. Agreements and contracts involve the 
expenditure of money in return for services, whereas recipient funding 
is an investment from which Treasury expects a return.
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    In light of the pressing urgency of the financial crisis in 
the fall of 2008, EESA allowed the Secretary of the Treasury to 
waive any provision of the Federal Acquisition Regulations 
(FAR), which normally would govern Treasury's exercise of its 
contracting authority, and also arguably expanded Treasury's 
authority to designate financial agents.\6\ There is some legal 
uncertainty as to whether EESA broadened Treasury's authority 
to execute financial agency agreements, discussed in more 
detail below.\7\ As of September 30, 2010, Treasury had used 
its authority to enter into 15 financial agency agreements and 
81 contracts, together worth $436.7 million in terms of 
obligated value.
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    \6\ 12 U.S.C. Sec. 5211(c); 12 U.S.C. Sec. 5217(a).
    \7\ For a more complete discussion of this uncertainty, see 
Sections B.1.b and E.1.b, infra.
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    These agreements and contracts range from the mundane 
purchasing of office chairs, to hiring asset managers to 
oversee Treasury's TARP investments, to the wholesale 
delegation of the administration of multi-billion dollar 
programs to outside entities.\8\ Duties under the agreements 
and contracts are performed by private actors, who may be 
subject to conflicts of interests, who are not directly 
responsible to the public, and whose actions are not subject to 
the same disclosure requirements as government actors. Without 
the traditional accountability mechanisms available to the 
public for government actions, it is critical that Treasury 
scrupulously oversee its contractors and agents.
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    \8\ See U.S. Department of the Treasury, Listing of Procurement 
Contracts and Agreements Under EESA (online at 
www.financialstability.gov/impact/contractDetail2.html) (accessed Oct. 
12, 2010) (hereinafter ``List of Procurement Contracts and Agreements 
Under EESA'').
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    This report examines Treasury's use of the two instruments 
discussed earlier: financial agency agreements and procurement 
contracts (which the report refers to collectively as 
``arrangements'').
      Financial agency agreements allow private 
companies to perform inherently governmental functions.\9\ 
These agreements, permitted to Treasury since the National Bank 
Acts of 1863 and 1864, create an agency relationship between 
Treasury and a private company. The company acts on behalf of 
Treasury and is a fiduciary of the United States.\10\ For 
example, the agreement between Treasury and AllianceBernstein 
L.P. to manage TARP investments is a financial agency 
agreement.\11\
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    \9\ But see discussion of whether such agreements must necessarily 
be for ``inherently governmental'' functions at Section E.1.b, infra.
    \10\ U.S. Department of the Treasury, Procurement Contracts and 
Agreements (Jan. 29, 2010) (online at www.financialstability.gov/
impact/procurement-contracts-agreements.html) (hereinafter ``Treasury 
Procurement Contracts and Agreements'').
    \11\ See Annex II, contract number TOFA-09-FAA-0005; General 
Services Administration, Department of Defense, and the National 
Aeronautics and Space Administration, Federal Acquisition Regulation, 
at Subpart 7.503 (Mar. 2005) (online at www.acquisition.gov/Far/
current/pdf/FAR.pdf) (hereinafter ``Federal Acquisition Regulation'').
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      Procurement contracts are the standard instrument 
by which government agencies obtain goods and services from 
private companies. They are governed by the FAR. Although 
contracts may be used to obtain virtually any type of good or 
service, government agencies cannot allow contractors to 
perform functions that are ``inherently governmental.'' \12\ 
For example, the agreement for legal services between Treasury 
and Cadwalader Wickersham & Taft, LLP, is a procurement 
contract.\13\
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    \12\ Id. at Subpart 7.5.
    \13\ See Annex II, infra, contract number TOFS-09-D-0011.
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    On October 3, 2010, Treasury's authority under the TARP 
expired. This does not affect Treasury's ability to enter into 
new contracts and agreements, although its needs for such 
arrangements have changed.
    The Congressional Oversight Panel is specifically required 
by EESA to examine ``[t]he use by the Secretary of authority 
under this Act, including with respect to the use of 
contracting authority and administration of the program.'' \14\ 
Several previous Panel reports have touched on the issue of 
contracting under the TARP, \15\ but none have focused 
exclusively on the issue.
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    \14\ 12 U.S.C. Sec. 5233(b)(1)(A)(i).
    \15\ April 2010 Oversight Report, supra note 3, at 86; October 2009 
Oversight Report, supra note 3, at 44; Congressional Oversight Panel, 
February Oversight Report: Valuing Treasury's Acquisitions, at 12 (Feb. 
6, 2009) (online at cop.senate.gov/documents/cop-020609-report.pdf).
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        B. Provisions that Govern TARP Contracts and Agreements


1. EESA

    As discussed above, under EESA and pre-existing law, the 
Secretary of the Treasury is authorized to use two separate 
mechanisms to employ private parties to provide goods and 
services necessary to the implementation of the statute. First, 
the Secretary may enter into contracts.\16\ Second, the 
Secretary may designate financial institutions as ``financial 
agents'' to assist Treasury in implementing the statute.\17\
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    \16\ 12 U.S.C. Sec. 5211(c)(2).
    \17\ 12 U.S.C. Sec. 5211(c)(3).
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            a. Contracting Authority
    The Secretary's contracting authority under EESA includes 
contracts for services as well as contracts for goods.\18\ EESA 
does not bar contractors from hiring subcontractors or impose 
any conditions on the subcontracting process. EESA authorizes 
the Secretary to waive ``specific provisions'' of the FAR, the 
regulation that typically governs the acquisition of goods and 
services and which is discussed in more detail below. This 
waiver authority was included to permit a more ``streamlined 
process'' if the Secretary determined that ``urgent and 
compelling circumstances make compliance with such provisions 
contrary to the public interest.'' \19\ Treasury has not, 
however, made use of this authority.\20\ Treasury states that 
it determined it could accomplish its objectives in a timely 
fashion without the need for a waiver.\21\
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    \18\ Contracts for services are permissible only if they are 
authorized by 5 U.S.C. Sec. 3109, a provision governing the 
``employment of experts and consultants.'' See 12 U.S.C. 
Sec. 5211(c)(2). EESA mentions only one potential contractor by name: 
the statute requires Treasury to consider the FDIC during the process 
of selecting asset managers for residential mortgage loans and 
residential mortgage-backed securities. 12 U.S.C. Sec. 5217(c).
    \19\ 12 U.S.C. Sec. 5217(a).
    \20\ Although Treasury has not waived any of the provisions of the 
FAR--and therefore the FAR applies to all of the TARP procurement 
contracts--it has used the expedited procedures prescribed in the FAR. 
Treasury conversations with Panel staff (Aug. 30, 2010).
    \21\ Treasury conversations with Panel staff (Sept. 16, 2010).
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            b. Financial Agent Authority
    EESA authorized Treasury to employ a second, separate 
regime to use private parties to assist with the statute's 
implementation: it permitted Treasury to designate ``financial 
institutions'' as ``financial agents'' to perform ``all such 
reasonable duties related to this Act as financial agents of 
the Federal Government as may be required.'' \22\ Historically, 
financial agents could be employed to perform only ``inherently 
governmental'' functions.\23\ If an agency wanted to hire a 
private entity to perform non-governmental functions, it was 
required to use a procurement contract. It may be the case, 
however, that EESA broadened Treasury's authority to employ 
financial agents to an extent that Treasury is no longer 
constrained by this limitation. EESA authorizes the Secretary 
to take actions he ``deems necessary to carry out the 
authorities in this Act, including, without limitation,'' the 
designation of financial agents, and it states that those 
agents ``shall perform all such reasonable duties related to 
this Act . . . as may be required.'' \24\
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    \22\ 12 U.S.C. Sec. 5211(c)(3).
    \23\ Transactive Corp. v. United States, 91 F.3d 232 (D.C. Cir. 
1996).
    \24\ 12 U.S.C. Sec. 5211(c)(3) (emphasis added).
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    Unlike when it hires a contractor, an executive agency is 
not bound by the FAR when it hires a financial agent. As a 
result, there are essentially no restrictions on the process 
Treasury may use for selecting financial agents. Although 
financial agents exist outside the FAR's regulatory regime, the 
law is well settled that a financial agent must abide by the 
principles of agency law, since the financial agent acts an 
agent for the government, the principal. As a result, the 
fiduciary duties that would attach in any other principal-agent 
relationship attach to financial agents, including the duty of 
loyalty and the duty of care.\25\ Treasury describes financial 
agents as ``an extension of Treasury to act on behalf of the 
Government in order to address the unique and often urgent 
needs of TARP and OFS.'' \26\ If a financial agent decides to 
engage a subcontractor to assist in the performance of the 
agreement, it is ``responsible for the acts or omissions of its 
affiliates and contractors as if the acts or omissions were by 
the Financial Agent.'' \27\
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    \25\ See, e.g., United States v. Citizens & Southern National Bank, 
889 F.2d 1067, 1069 (Fed. Cir. 1989) (``[T]he government as principal 
and in its sovereign capacity delegates to its financial agents some of 
the sovereign functions that the government itself would otherwise 
perform. . . . The body of procurement law . . . by contrast, applies 
to Treasury only when it is acting as a commercial purchaser of goods 
and services.''); Treasury Procurement Contracts and Agreements, supra 
note 10 (``Financial agents have the fiduciary obligation to protect 
the interests of the United States. Financial Agency Agreements entered 
into by Treasury do not constitute procurement contracts under the 
purview of Federal Acquisition Regulations.'').
    \26\ Congressional Oversight Panel, Joint Written Testimony of Gary 
Grippo, deputy assistant secretary for fiscal operations and policy, 
and Ronald W. Backes, director of procurement services, U.S. Department 
of the Treasury, COP Hearing on Treasury's Use of Private Contractors, 
at 2 (Sept. 22, 2010) (online at cop.senate.gov/documents/testimony-
092210-treasury.pdf) (hereinafter ``Prepared Statement of Gary Grippo 
and Ronald Backes'').
    \27\ See, e.g., U.S. Department of the Treasury, Financial Agency 
Agreement Between U.S. Department of the Treasury and The Bank of New 
York Mellon, at 8 (Oct. 14, 2008) (Contract No. TOFA-09-FAA-001) 
(online at www.financialstability.gov/docs/ContractsAgreements/
Bank%20of%20New%20York%20Mellon.pdf) (hereinafter ``Financial Agency 
Agreement Between Treasury and BNY Mellon'').
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2. Federal Acquisition Regulation

    Unless specifically exempted by statute or regulation, 
executive agencies attempting to use appropriated funds to 
acquire goods and services must comply with the FAR. The FAR is 
more than 1,900 pages long and contains eight subchapters and 
53 parts. It includes four guiding principles:
          (1) Satisfying the customer in terms of cost, 
        quality, and timeliness of the delivered product or 
        service;
          (2) Minimizing administrative operating costs;
          (3) Conducting business with integrity, fairness, and 
        openness; and
          (4) Fulfilling public policy objectives.\28\
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    \28\ Federal Acquisition Regulation, supra note 11, at Subpart 
1.10.
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    The FAR governs areas as general as contractor selection, 
including requirements that certain contracts must be ``set 
aside'' for small businesses, \29\ and as specific as 
notification procedures for the delivery of radioactive 
material.\30\ It prohibits a contractor from offering a 
gratuity--defined as ``an entertainment or gift''--to a 
government official in an attempt to secure a contract.\31\ It 
also provides a variety of circumstances in which provisions 
may be suspended if ``urgent and compelling'' circumstances 
exist.\32\ Individual federal agencies may also issue 
supplemental guidelines to assist with their implementation of 
the FAR, and Treasury states that it uses the ``Department of 
the Treasury Acquisition Regulation supplement'' as additional 
guidance for its TARP procurement contracts.\33\
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    \29\ See Federal Acquisition Regulation, supra note 11, at Subpart 
9.5. See also Section F, infra.
    \30\ Federal Acquisition Regulation, supra note 11, at Subparts 6, 
9, 23.6.
    \31\ Federal Acquisition Regulation, supra note 11, at Subparts 
3.202, 52.203-3(a).
    \32\ See, e.g., Federal Acquisition Regulation, supra note 11, at 
Subpart 31.10.
    \33\ Treasury Procurement Contracts and Agreements, supra note 10.
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    The FAR does not prohibit contractors from hiring 
subcontractors to perform the duties specified in the 
contract.\34\ While it requires contractors to receive consent 
from the contracting executive agency prior to entering certain 
types of subcontracts, the FAR itself generally does not apply 
to subcontractors.\35\ Although the primary contractor has a 
direct relationship to the contracting agency, the 
subcontractor does not; it is bound by the contract between it 
and the primary contractor.
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    \34\ See generally Federal Acquisition Regulation, supra note 11.
    \35\ See Federal Acquisition Regulation, supra note 11, at Subpart 
44 (stating that a consent is required in certain types of contracts, 
and in others the contracting officer ``may require'' consent if he 
determines that it ``is required to protect the Government adequately 
because of the subcontract type, complexity, or value, or because the 
subcontract needs special surveillance.'').
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3. Interim Final Rule on TARP Conflicts of Interest

    EESA required the Secretary to issue ``regulations or 
guidelines necessary to address and manage or to prohibit 
conflicts of interest that may arise in connection with the 
administration and execution'' of the statute.\36\ In 
accordance with this provision, Treasury issued an Interim 
Final Rule (the IFR) on January 21, 2009.\37\ Many interested 
parties commented on aspects of the IFR.\38\ Although the rule 
technically remains ``interim,'' the public comment period 
ended on March 23, 2009, and in practice, the rule has the same 
binding force as any other agency regulation.\39\ The rule 
applies to any ``retained entity'' that seeks or holds 
``contracts or financial agency agreements . . . for services 
under the TARP.'' It applies to subcontractors and consultants, 
but not to entities hired to provide ``administrative services 
identified by the TARP Chief Compliance Officer'' or to 
``special government employees.'' \40\ The rule emphasizes that 
it does not replace provisions of the FAR and should instead be 
read as supplementing them.\41\
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    \36\ 12 U.S.C. Sec. 5218(a).
    \37\ U.S. Department of the Treasury, TARP Conflicts of Interest, 
74 Fed. Reg. 3431-3436 (Jan. 21, 2009) (codified as 31 CFR Sec. 31) 
(hereinafter ``TARP Conflicts of Interest''). This Interim Final Rule 
followed Treasury's issuance of the Interim Guidelines for Conflicts of 
Interest on October 6, 2008, only three days after the passage of EESA. 
U.S. Department of the Treasury, Interim Guidelines for Conflicts of 
Interest (Oct. 6, 2008) (online at www.treas.gov/press/releases/
hp1180.htm). Treasury has not yet issued a final rule, although it has 
indicated that it does plan to issue one. Treasury conversations with 
Panel staff (Sept. 23, 2010). At the Panel's hearing on contracting, 
Scott Amey of the Program on Government Oversight expressed concern 
that a final rule had not yet been issued. Congressional Oversight 
Panel, Testimony of Scott Amey, general counsel, Project on Government 
Oversight, Transcript: COP Hearing on Treasury's Use of Private 
Contractors (Sept. 22, 2010) (publication forthcoming) (online at 
cop.senate.gov/hearings/library/hearing-092210-contracting.cfm) 
(hereinafter ``Transcript Testimony of Scott Amey'').
    \38\ During the 60-day public comment period, several organizations 
and individuals filed comments on the Interim Final Rule on TARP 
Conflicts of Interest. The bulk of these comments were submitted by 
contractors, potential contractors, and organizations that represent 
contractors or potential contractors. See Letter from Michael W. Mutek, 
chair, Section of Public Contract Law, ABA, & Karl J. Ege, chair, 
Section of Business Law, ABA, to the executive secretariat, Office of 
Financial Stability, U.S. Department of the Treasury, Interim Rule on 
TARP Conflicts of Interest (Mar. 24, 2009) (online at 
www.regulations.gov/search/Regs/
home.html#documentDetail?R=090000648092db60) (stating that the Interim 
Final Rule is too cumbersome to follow, imposes unrealistic deadlines, 
needs more clarification and illustrative examples, and shifts too much 
of the work away from Treasury and onto the retained entities); Letter 
from Hugh Ching, Post-Science Institute, to the executive secretariat, 
Office of Financial Stability, U.S. Department of the Treasury, 
Decisions Should Be Based On Expected Rate of Return, Not Just Conflict 
of Interest (Mar. 23, 2009) (online at www.regulations.gov/search/Regs/
home.html#documentDetail?R=0900006480929889) (stating that the 
government should focus on expected rates of return, not on conflicts 
of interest, and that conflicts of interest are only a problem when 
they reduce expected rates of return); Letter from 
PricewaterhouseCoopers LLP, to the executive secretariat, Office of 
Financial Stability, U.S. Department of the Treasury, Interim Rule on 
TARP Conflicts of Interest (Mar. 23, 2009) (online at 
www.regulations.gov/search/Regs/
home.html#documentDetail?R=090000648092a315) (stating that the Interim 
Final Rule needs more clarification because conflict-of-interest 
standards must be clear and unambiguous); Letter from Mark R. Manley, 
senior vice president and deputy general counsel, AllianceBernstein, to 
the executive secretariat, Office of Financial Stability, U.S. 
Department of the Treasury, TARP Conflicts of Interest--Comments on 
Interim Rule (Mar. 23, 2009) (online at www.regulations.gov/search/
Regs/home.html#documentDetail?R=09000064809290be) (stating that the 
Interim Final Rule is too burdensome and costly because it would 
require AllianceBernstein to reallocate a disproportionate amount of 
compliance resources); Letter from Ben A. Plotkin, executive vice 
president, Stifel Nicolaus, to the executive secretariat, Office of 
Financial Stability, U.S. Department of the Treasury, TARP Conflicts of 
Interest: Interim Rule 31 CFR Part 31 (Feb. 18, 2009) (online at 
www.regulations.gov/search/Regs/
home.html#documentDetail?R=0900006480931588) (stating that the Personal 
Conflicts of Interest section of the Interim Final Rule should be 
narrowed to focus on those retained entities whose financial 
obligations might actually give rise to a conflict of interest in 
connection with their performances of services).
    \39\ As discussed in more detail above, formal regulations are not 
the sole constraints on financial agents. As agents of the federal 
government, financial agents are bound by two primary fiduciary duties: 
a duty of loyalty and duty of care. The duty of loyalty encompasses a 
prohibition on self-dealing, which would prevent a financial agent from 
entering into many transactions that would raise conflict-of-interest 
questions.
    \40\ For the purposes of this provision, administrative services 
include commercially-available services, such as LexisNexis or other 
computer database services. No ``special government employees'' have 
been exempted under this provision. All ``special government 
employees'' are required to comply with Treasury's ethics processes. 
Treasury conversations with Panel staff (Oct. 4, 2010).
    \41\ TARP Conflicts of Interest, supra note 37.
---------------------------------------------------------------------------
    The IFR creates two separate schemes to govern two 
different types of conflicts: organizational conflicts of 
interest (OCIs) and personal conflicts of interest (PCIs). The 
rule defines an OCI as ``a situation in which the retained 
entity has an interest or relationship that could cause a 
reasonable person with knowledge of the relevant facts to 
question the retained entity's objectivity or judgment to 
perform under the arrangement, or its ability to represent the 
Treasury.'' \42\ OCIs are prohibited unless they are disclosed 
to Treasury and either mitigated under a Treasury-approved plan 
or waived by Treasury.\43\
---------------------------------------------------------------------------
    \42\ 31 CFR Sec. 31.201.
    \43\ 31 CFR Sec. 31.211(a); 31 CFR Sec. 31.211(e).
---------------------------------------------------------------------------
    The rule defines a PCI as a ``personal, business, or 
financial interest of an individual, his or her spouse, minor 
child, or other family member with whom the individual has a 
close personal relationship, that could adversely affect the 
individual's ability to perform under the arrangement, his or 
her objectivity or judgment in such performance, or his or her 
ability to represent the interests of the Treasury.'' \44\ A 
retained entity must ``ensure'' that ``all management 
officials'' working on the contract or agreement do not have 
PCIs unless the conflict has been either ``neutralized'' by 
mitigation measures or waived by Treasury. All retained 
entities and their employees are prohibited from accepting 
certain gifts and ``favors.'' \45\
---------------------------------------------------------------------------
    \44\ 31 CFR Sec. 31.201.
    \45\ 31 CFR Sec. 31.213(a)(1).
---------------------------------------------------------------------------
    The IFR includes several additional requirements that apply 
to the selection process. Retained entities are barred from 
making an offer of ``future employment'' to a Treasury employee 
and from giving ``any money, gratuity, or other thing of 
value'' to a Treasury employee. The rule also places 
limitations on the use of nonpublic information, stating that 
retained entities shall not ``solicit or obtain'' from a 
Treasury employee any nonpublic information that was ``prepared 
for use by Treasury for the purpose of evaluating an offer, 
quotation, or response to enter into an arrangement.'' \46\ 
These prohibitions are aimed at ensuring that the selection 
process is open, competitive, and fair.\47\
---------------------------------------------------------------------------
    \46\ 31 CFR Sec. 31.216(a).
    \47\ See Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 4-5 (``Treasury works diligently to identify and prevent 
any potential conflicts of interest related to its use of financial 
agents and contractors within OFS. In enforcing the TARP conflicts of 
interest interim final rule (31 CFR Part 31), Treasury works with its 
contractors and financial agents, as well as independently, to identify 
and mitigate potential organizational and personal conflicts of 
interest that may arise during the retention of financial agents, the 
awarding of procurement contracts and blanket purchase agreements, and 
during the performance periods of such agreements and contracts.'').
---------------------------------------------------------------------------
    Treasury also has established a set of procedures to 
implement and enforce the principles articulated in the IFR. 
During the inception phase, before Treasury enters an 
arrangement, it considers the proposed work plan and the nature 
of the entity selected to do the work in order to devise a list 
of potential conflicts. Treasury includes provisions on 
conflicts of interest in the text of the arrangements after 
discussions with the entity, so that the provisions are 
individually tailored to each entity. These provisions include 
requirements that the entity self-disclose relevant 
information, requirements that are customized to match 
monitoring needs based on the entity's type of business. To 
ensure that such provisions were included in arrangements 
entered into prior to the promulgation of the IFR, those early 
contracts were renegotiated so as to incorporate the IFR. 
Treasury also reviews the mitigation plans developed by the 
entities to ensure that they are sufficient.\48\ Treasury, and 
not the retained entity, is responsible for determining the 
sufficiency of the mitigation measures.\49\ Treasury then 
engages in ongoing discussions with the entities to monitor 
their compliance, and it receives quarterly reports from them. 
If the business structure changes, for example, Treasury may 
revisit and revise the original mitigation plan. Finally, 
contractors and agents submit inquiries on conflicts issues, 
which Treasury tracks in a database. Treasury estimates that it 
receives an average of approximately 40 inquiries per 
month.\50\
---------------------------------------------------------------------------
    \48\ Treasury conversations with Panel staff (Sept. 23, 2010). See 
also Prepared Statement of Gary Grippo and Ronald Backes, supra note 
26, at 2.
    \49\ Congressional Oversight Panel, Testimony of Gary Grippo, 
deputy assistant secretary for fiscal operations and policy, U.S. 
Department of the Treasury, Transcript: COP Hearing on Treasury's Use 
of Private Contractors (Sept. 22, 2010) (publication forthcoming) 
(online at cop.senate.gov/hearings/library/hearing-092210-
contracting.cfm) (hereinafter ``Testimony of Gary Grippo'') (``[E]ven 
though we ask all our agents and contractors to identify conflicts and 
come up with plans, ultimately we are the ones who are determining 
whether the conflicts have been mitigated.'').
    \50\ Treasury conversations with Panel staff (Sept. 23, 2010). See 
also Prepared Statement of Gary Grippo and Ronald Backes, supra note 
26, at 2.
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4. Treasury's Internal Policies

    Treasury developed a set of internal rules to provide 
additional guidance regarding its relationships with financial 
agents and contractors. While most procurement policies and 
procedures are described in detail in the FAR and in Department 
of the Treasury Acquisition Regulation (DTAR) supplements, \51\ 
OFS supplements these policies and procedures with implementing 
guidance related to six areas: submitting purchase requests, 
Contracting Officer Technical Representative (COTR) nomination 
and file organization, contact and inquiries, web publications, 
contract and agreement distribution, and acquisition planning. 
The ``Policies and Procedures'' for Financial Agents cover 
seven separate areas: compensation procedure, guidance and 
direction procedure, oversight policy, selection and 
designation procedure, access control procedure, vendor 
approval, and performance measurement.\52\ For the most part, 
these documents contain general information on aspects of 
financial agent selection, performance, and monitoring, but 
they do not add substantial specific detail to the information 
included in the financial agency agreements themselves. The 
``oversight policy'' document, for example, states simply that 
Treasury is required to work to ``ensure that service levels 
are being met.'' \53\
---------------------------------------------------------------------------
    \51\ See Section B.2, supra.
    \52\ Documents provided to Panel staff by Treasury staff (Aug. 27, 
2010).
    \53\ U.S. Department of the Treasury, Financial Agent Oversight 
Policy, at 4 (Apr. 30, 2010) (hereinafter ``Treasury Financial Agent 
Oversight Policy'').
---------------------------------------------------------------------------

5. Recommendations by Oversight Bodies

    SIGTARP and the Government Accountability Office (GAO) have 
also played a meaningful role in guiding Treasury's 
implementation of its contracting authority.
            a. SIGTARP
    During the early months of the TARP, SIGTARP made two 
recommendations related to the Secretary's contracting 
authority:
    (1) That all TARP contracts be posted on the Treasury 
website; and
    (2) That transparency and oversight-related language be 
inserted in recent TARP contracts.
    Treasury took steps to address these recommendations, as 
described in SIGTARP's initial report to Congress on February 
6, 2009. According to SIGTARP, Treasury adopted the first 
recommendation ``in full.'' With respect to the second 
recommendation, Treasury did not adopt such language in its 
initial contracts, but it did adopt it in some subsequent 
agreements with large financial institutions.\54\ SIGTARP 
asserted that these subsequent agreements were ``far superior 
than earlier contracts from an oversight perspective.'' \55\
---------------------------------------------------------------------------
    \54\ Office of the Special Inspector General for the Troubled Asset 
Relief Program, Initial Report to the Congress, at 5 (Feb. 6, 2009) 
(online at www.sigtarp.gov/reports/congress/2009/
SIGTARP_Initial_Report_to_the_Congress.pdf) (hereinafter ``SIGTARP 
Initial Report to the Congress'').
    \55\ Id. at 5.
---------------------------------------------------------------------------
            b. GAO
    In several of its reports, GAO provided Treasury with 
recommendations for improving its contracting procedures. For 
example, in its March 19, 2009 report on the ``Status of 
Efforts to Address Transparency and Accountability Issues,'' 
GAO recommended that Treasury ``expedite efforts to ensure that 
sufficient personnel are assigned and properly trained to 
oversee the performance of all contractors, especially for 
contracts priced on a time-and-materials basis.'' \56\ 
Similarly, in its June 2009 report, GAO recommended that 
Treasury should ``explore options for providing to the public 
more detailed information on the costs of TARP contracts and 
agreements, such as a dollar breakdown of obligations and/or 
expenses.'' \57\ Several additional recommendations are 
included in other GAO reports. For example, GAO recommended 
that ``[f]or contracting oversight . . . Treasury review and 
renegotiate existing conflict-of-interest mitigation plans, as 
necessary, to enhance specificity and conformity with the new 
interim conflicts of interest regulation and that it take 
continued steps to manage and monitor conflicts of interest and 
enforce mitigation plans.'' \58\
---------------------------------------------------------------------------
    \56\ See U.S. Government Accountability Office, Troubled Asset 
Relief Program: Status of Efforts to Address Transparency and 
Accountability Issues, at 3, 12 (Mar. 19, 2009) (GAO-09-484T) (online 
at www.gao.gov/new.items/d09484t.pdf) (hereinafter ``March 2009 GAO 
Report on Transparency and Accountability''). This recommendation was 
included in other GAO reports as well. See, e.g., U.S. Government 
Accountability Office, Troubled Asset Relief Program: Status of Efforts 
to Address Transparency and Accountability Issues, at 3 (Feb. 24, 2009) 
(GAO-09-417T) (online at www.gao.gov/new.items/d09417t.pdf) 
(hereinafter ``February 2009 GAO Report on Transparency and 
Accountability'').
    \57\ U.S. Government Accountability Office, Troubled Asset Relief 
Program: June 2009 Status of Efforts to Address Transparency and 
Accountability Issues, at 84 (June 2009) (GAO-09-658) (online at 
www.gao.gov/new.items/d09658.pdf) (hereinafter ``June 2009 GAO Report 
on Transparency and Accountability'').
    \58\ See, e.g., March 2009 GAO Report on Transparency and 
Accountability, supra note 56, at 13.
---------------------------------------------------------------------------
    According to both Treasury and GAO, Treasury took 
meaningful steps to address several of these recommendations. 
In its February 24, 2009 and March 19, 2009 reports, for 
instance, GAO noted that ``consistent with our recommendation 
about contracting oversight, Treasury has enhanced such 
oversight by tracking costs, schedules, and performance and 
addressing the training requirements of personnel who oversee 
the contracts.'' \59\ Treasury also tracks some of these 
recommendations, noting the status of its progress and 
providing extensive detail on the steps it has taken to address 
the recommendations.\60\
---------------------------------------------------------------------------
    \59\ February 2009 GAO Report on Transparency and Accountability, 
supra note 56, at 5; March 2009 GAO Report on Transparency and 
Accountability, supra note 56, at 4.
    \60\ Data provided by Treasury staff to Panel staff (Sept. 2, 
2010). The list provided to Panel staff included only seven 
recommendations in total, derived from only two GAO reports: December 
2008 and January 2009. Several of these recommendations were reiterated 
in later reports, such as the March 19, 2009 report. According to the 
data provided by Treasury staff, the status of all of these 
recommendations is ``closed.'' However, while Treasury and GAO agree 
that Treasury has addressed several of the recommendations, it is not 
clear that the list provided to Panel staff is fully complete, as it 
omits the recommendation that Treasury provide more detailed 
information on TARP contracts and agreements. The Panel has received no 
information about whether Treasury is tracking progress on this 
recommendation.
---------------------------------------------------------------------------

          C. How Treasury Decided What Functions to Outsource


1. In-house vs. Outsourcing Determinations

    The acquisition decisions of the Office of Financial 
Stability (OFS), the office that oversees the TARP, are 
overseen by the OFS's Contract and Agreement Review Board 
(CARB), which is composed of program and procurement 
executives. CARB centralizes decisions regarding the office's 
contracting and financial agency requirements, serving as the 
deliberative body for determining whether to perform a function 
in-house or to outsource it.\61\ This formalized process was 
established in March 2009, after the urgency of the initial 
stages of the financial crisis had subsided.
---------------------------------------------------------------------------
    \61\ Once a decision to outsource is made, separate processes 
govern the procurements or financial agency agreements, which are 
discussed in more detail later in the report. In terms of deliverables, 
the process for these determinations are as follows (Treasury 
conversations with Panel staff (Sept. 16, 2010)):
    a. Procurement contracts: For most contracts, the program officer 
who would like a contractor to perform a particular service will send a 
document outlining the scope of work to be performed to the relevant 
COTR, the specially certified officials who manage the contracts day to 
day. The COTR will then translate that scope of work into specific 
deliverables that will be included in the contract or task order. For 
complex or large contracts, Treasury has a more formal system that 
requires program officers to submit a work request.
    b. Financial agency agreements: An informal process exists for 
determining specific deliverables for all financial agents other than 
Fannie Mae and Freddie Mac. For Fannie and Freddie, the process is more 
elaborate (and discussed in greater detail in Annex I, infra). Treasury 
maintains a deliverables list for both Fannie and Freddie. These lists 
are constantly updated to reflect Treasury's needs and are reviewed 
weekly by two committees.
---------------------------------------------------------------------------
    In testimony before the Panel, Treasury outlined the key 
factors that govern the decision-making process regarding the 
potential acquisition of contracting and financial agent 
services.\62\ In addition to other issues, including the 
availability of resources in other parts of the federal 
government (which are explored in more detail below), Treasury 
cited three main factors that it considers in determining 
whether outside assistance is needed, either in the form of a 
contractor or a financial agent:
---------------------------------------------------------------------------
    \62\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 2-3.
---------------------------------------------------------------------------
      Infrastructure: The ability of the government to 
build efficiently or leverage in-house resources may be overly 
expensive or unnecessary to scale for the particular task at 
hand. For example, Treasury does not have a trading desk to 
execute capital markets transactions or the extensive capital 
markets transaction experience or in-house expertise in certain 
industries (for example, the automotive industry) that would 
match that of a large law firm. Further, the utility of 
establishing long-term infrastructure for a program that by 
definition was billed as temporary was also a factor.
      Objective Third Party: Treasury may require an 
independent third party opinion to assess the valuation of an 
asset or the wisdom of a proposed transaction. This may be 
particularly important to assess the financial and strategic 
assumptions underpinning contemplated transactions with 
taxpayer money (for example, similar to a fairness opinion 
provided by an independent financial advisor to the board of a 
company assessing a proposed transaction).
      Expediency or Timing Considerations: Particularly 
in the context of the crisis backdrop in the wake of the TARP's 
passage, efforts to build internal capabilities organically may 
have been prohibitively slow given the length of time needed to 
reach critical mass, as well as Treasury's expectation that 
TARP programs would be wound down as quickly as possible.
    In discussions with Panel staff, Treasury addressed 
additional factors that often limit its ability to assume more 
work in-house, necessitating the use of contractual and 
financial agent resources.\63\ (See Annex I for an example of 
the factors informing Treasury's decision to hire Fannie Mae 
and Freddie Mac.) These include the availability of in-house or 
other government agency expertise. While other agencies, such 
as the Federal Reserve Board (FRB) and the Federal Deposit 
Insurance Corporation (FDIC), may have staff with the 
appropriate expertise, Treasury explained that there are 
practical limitations associated with pursuing this route, 
given that other agencies are hesitant to ``loan'' key staff, 
particularly when that expertise is required in-house. A 
related factor is the difficulty in identifying and hiring the 
appropriate full-time staff (and the ability to terminate/
reassign in-house employees after completion of the task), 
compared to the relative ease of seeking temporary outside 
help. In many instances, Treasury is more likely to outsource a 
potential task if there is limited long-term utility from the 
project (for example, its expected duration is less than six 
months).\64\ In any case, Treasury did of course make selective 
hires of specialists to manage specific areas of the 
department's TARP mandate (restructuring specialists, for 
example), including financial agent and contracting service 
providers.
---------------------------------------------------------------------------
    \63\ Treasury conversations with Panel staff (Sept. 16, 2010 and 
Oct. 4, 2010).
    \64\ Treasury conversations with Panel staff (Sept. 16, 2010).
---------------------------------------------------------------------------

2. Distinctions Between Financial Agency and Contracting Arrangements

    Decisions to task financial agents differ from contracting 
services, reflecting the recognition that contracting involves 
the ``acquisition of goods and services from the marketplace,'' 
whereas financial agents ``serve as an extension of Treasury to 
act on behalf of the Government in order to address the unique 
and often urgent needs of TARP and OFS.'' \65\
---------------------------------------------------------------------------
    \65\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 2-3. See Section E.3, infra, for discussion of contracting 
vs. financial agency agreements.
---------------------------------------------------------------------------
    When determining whether to contract services, the 
following questions, outlined in Treasury testimony, are most 
important:
    (1) Are the required goods and/or services other than 
something that is inherently governmental?
    (2) Can the services be obtained at a competitive price 
from the private sector?
    (3) Can the services be acquired without creating an 
immitigable conflict of interest?
    (4) Will it be more cost-effective, for duration or other 
reasons, to outsource the work? \66\
---------------------------------------------------------------------------
    \66\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 2.
---------------------------------------------------------------------------
    The decision to employ a financial agent focuses on the 
following two factors:
    (1) Does the work entail the direct management of public 
assets, such as the purchase, valuation, custody, or 
disposition of investments or cash? (Financial agent authority 
is used to obtain the infrastructure, inherent capabilities, or 
special expertise of a financial institution.)
    (2) Does the work entail close collaboration between 
Treasury and a provider such that a fiduciary relationship is 
required? Simply put, does OFS require the services of an agent 
who can act as an extension of Treasury? \67\
---------------------------------------------------------------------------
    \67\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 2-3.
---------------------------------------------------------------------------

3. Additional Factors Affecting Initial Determinations

    Treasury maintains that it will not engage a financial 
agent or contractor if it is unable to mitigate an identified 
conflict. In terms of potential conflicts of interest that 
would disqualify certain tasks from being outsourced to a 
particular entity,\68\ Treasury stated that hiring a TARP 
recipient to manage TARP assets or a law firm that represented 
a client on the other side of a transaction with Treasury are 
examples of conflicts that cannot be mitigated.\69\ In the 
cases of The Bank of New York Mellon Corporation (BNY Mellon) 
and Morgan Stanley, two TARP recipients, Treasury noted that 
BNY Mellon was not making investment decisions in its role as 
master custodian of the TARP,\70\ and that Morgan Stanley had 
paid back its TARP funds prior to receiving the job of managing 
TARP assets.\71\ It could be argued, however, that by taking 
government money in the first place, even if acceptance of the 
money was mandatory and it was subsequently repaid, certain 
TARP recipients had a special status that should have 
disqualified them from acting as a financial advisor in 
relation to TARP funds.
---------------------------------------------------------------------------
    \68\ As discussed in more detail in Section H, infra, EESA does not 
require Treasury to bar all conflicts of interest outright. Rather, the 
statute permits Treasury to develop procedures to ``address and manage 
or to prohibit'' conflicts (see 12 U.S.C. Sec. 5218(a)).
    \69\ Testimony of Gary Grippo, supra note 49; Treasury 
conversations with Panel staff (Sept. 23, 2010 and Oct. 4, 2010).
    \70\ Treasury contracted BNY Mellon's securities services unit to 
``provide the accounting of record for the portfolio, hold all cash and 
assets in the portfolio, provide for pricing and asset valuation 
services and assist with other related services. The Bank of New York 
Mellon will serve as auction manager and conduct reverse auctions for 
the troubled assets.'' See Bank of New York Mellon, The Bank of New 
York Mellon Chosen to Assist the U.S. Department of the Treasury (Oct. 
14, 2008) (online at bnymellon.mediaroom.com/index.php?s=43&item=316). 
To date, BNY Mellon's actual duties performed under TARP have been 
limited to custodial services.
    \71\ While Morgan Stanley was not engaged as a financial advisor to 
Treasury in connection with its sale of Citigroup shares until March 
29, 2010--after its $10 billion repayment of TARP funds on June 9, 2009 
and the subsequent repurchase of its TARP warrant for $950 million on 
August 6, 2009--the firm was previously retained as a financial advisor 
to Treasury in connection with its restructuring of Fannie Mae and 
Freddie Mac on August 5, 2008. See U.S. Department of the Treasury, 
Treasury Announces Plan to Sell Citigroup Common Stock (Mar. 29, 2010) 
(online at www.treas.gov/press/releases/tg615.htm); Morgan Stanley, 
Morgan Stanley Statement on Paying Back TARP Funds (June 9, 2009) 
(online at www.morganstanley.com/about/press/
articles/580e1eb2-54f3-11de-96f6-3f25a44c9933.html); Morgan Stanley, 
Morgan Stanley Agrees to Repurchase Warrant from the U.S. Government 
(Aug. 6, 2009) (online at www.morganstanley.com/about/press/articles/
42d008d5-8209-11de-b5d1-6d6288639586.html); Morgan Stanley, Morgan 
Stanley to Advise U.S. Department of the Treasury Regarding Fannie Mae 
and Freddie Mac (Aug. 5, 2008) (online at www.morganstanley.com/about/
press/articles/6742.html). Separately, the firm was also engaged by the 
Federal Reserve Bank of New York on October 16, 2008 in connection with 
the restructuring of AIG. See Federal Reserve Bank of New York, 
Agreement Between Morgan Stanley and the Federal Reserve Bank of New 
York Regarding American International Group, Inc. (Oct. 16, 2008) 
(online at www.nyfrb.org/aboutthefed/Morgan_Stanely_AIG.PDF).
---------------------------------------------------------------------------
    Conflict identification and mitigation efforts not only 
inform the competitive bidding process, \72\ they are also 
addressed earlier in the process, shortly after an external 
need is identified, but before solicitations are released for 
proposals. OFS assesses the nature of potential conflicts, 
taking into account the business structure of likely offerors. 
Based on this analysis, OFS compiles contract language that is 
targeted to identifying likely conflicts at the outset of the 
process.\73\ For both contracts and financial agency 
agreements, Treasury solicits information related to ``actual, 
potential, or apparent organizational and personal conflicts of 
interest.'' \74\ These inputs form the basis for conflict 
mitigation plans that are reviewed and approved by Treasury.
---------------------------------------------------------------------------
    \72\ Conflicts are discussed in greater detail in Sections G and H, 
infra.
    \73\ Treasury conversations with Panel staff (Sept. 23, 2010).
    \74\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 5.
---------------------------------------------------------------------------
    Treasury officials maintain that they have not identified 
any instances where wholesale potential conflicts within a 
certain segment of the industry prevented Treasury from 
following through on seeking outside assistance. And while OFS 
has disqualified individual contractors based on perceived 
conflicts in the bidding process, Treasury informed the Panel 
that there have been no instances of financial agents that had 
otherwise been selected who have been rejected based on 
conflicts that have been uncovered during the process.\75\
---------------------------------------------------------------------------
    \75\ Treasury conversations with Panel staff (Sept. 23, 2010).
---------------------------------------------------------------------------
    Treasury also claims that eligibility for financial agent 
roles is limited to institutions ``without material or 
debilitating regulatory findings'' or ``any findings that would 
represent a risk to Treasury.'' \76\ Treasury noted that there 
are procedures in place, supplemented by an internal 
information database, that allow ``appropriate information-
sharing mechanisms'' with other regulators to assess if there 
is a potential reputational problem for Treasury.\77\
---------------------------------------------------------------------------
    \76\ Testimony of Gary Grippo, supra note 49.
    \77\ Testimony of Gary Grippo, supra note 49. The quotations 
specifically reference determinations for financial agents, although 
procedures for contractors are similar. Treasury conversations with 
Panel staff (Oct. 4, 2010).
---------------------------------------------------------------------------
    In the contracting realm, issues related to reputational 
risk may be handled differently; reputational risk may be 
defined somewhat narrowly to focus on problematic business 
units or broad-based financial wrongdoing. For example, 
although Fannie Mae and Freddie Mac were awarded financial 
agency agreements after they went into government receivership, 
the agreements were for functions that did not rely on credit 
risk assessments. (It is difficult to envision a scenario 
wherein these contracts had any material bearing on either 
firm's financial health, given the relative small size of the 
contracted amount, in the context of the more than $90 billion 
in losses reported between the two firms in 2009.) \78\
---------------------------------------------------------------------------
    \78\ The revenue from the TARP contracts for Fannie Mae and Freddie 
Mac had no material impact on either firm's financial results given 
that both firms suffered aggregate losses of $93.6 billion in 2009. As 
of October 8, 2010, $111.3 million and $79 million have been expended 
through Treasury's TARP financial agency agreements with Fannie Mae and 
Freddie Mac, respectively. This represents 2.2 percent of Fannie Mae's 
and 0.5 percent of Freddie Mac's 2009 net revenue. While the $111.3 
million expended under the TARP contract with Fannie Mae represented 
14.4 percent of the firm's $773 million earned from fees and other 
income in 2009, the amount is still diminutive when compared to total 
revenues.
    Drilling down further, looking at pre-crisis net revenue for each 
firm, the expended amount of the Fannie Mae TARP contract represented 
1.0 percent of the average 2004-2006 net revenue while the expended 
amount of the Freddie Mac TARP contract constituted 1.2 percent of 
2004-2006 net revenues. Net revenues are calculated here as the sum of 
net interest income and non-interest income. Federal National Mortgage 
Association, Form 10-K for the Fiscal Year Ending December 31, 2009, at 
262 (Feb. 26, 2010) (online at www.sec.gov/Archives/edgar/data/310522/
000095012310018235/w77413e10vk.htm); Federal Home Loan Mortgage 
Corporation, Form 10-K for the Fiscal Year Ended December 31, 2009, at 
57 (Apr. 12, 2010) (online at www.sec.gov/Archives/edgar/data/1026214/
000102621410000019/f71244e10vkza.htm); Federal National Mortgage 
Association, Form 10-K for the Fiscal Year Ending December 31, 2006, at 
F-4 (Aug. 26, 2007) (online at www.sec.gov/Archives/edgar/data/310522/
000095013307003508/w36762e10vk.htm); Federal Home Loan Mortgage 
Corporation, 2006 Annual Report, at 96 (2006) (online at 
www.freddiemac.com/investors/ar/pdf/2006annualrpt.pdf).
---------------------------------------------------------------------------
    To minimize the potential conflict between bank regulators 
and policymakers, financial agent and contracting decisions are 
vested with non-regulatory offices within Treasury (i.e., 
outside the Office of the Comptroller of the Currency and the 
Office of Thrift Supervision), with determinations made by 
career government officials rather than policy officials or 
political appointees.\79\
---------------------------------------------------------------------------
    \79\ See Section E.2, infra, for discussion of Treasury's internal 
controls.
---------------------------------------------------------------------------

4. Unique Backdrop Weighed Heavily on Determinations

    An assessment of Treasury's decisions to seek outside help 
with implementing and managing TARP versus staffing projects 
internally must necessarily be viewed in the context of the 
emergency backdrop following the passage of EESA. This backdrop 
understandably altered the decision tree that would have 
otherwise held sway. The expertise, infrastructure, and 
associated time-to-market required for Treasury to achieve the 
necessary scale within its infrastructure were compromised by 
the fast-moving nature of the crisis. This process was further 
complicated by the broad fallout of the crisis, which arguably 
left few financial institutions (and potential contractors or 
financial agents) that could claim not to have benefited from 
either direct or indirect government support.\80\ Finally, 
building a significant in-house infrastructure would not have 
been consistent with the intent of EESA, which established TARP 
as a temporary program to stabilize the financial system. 
Accordingly, the actions by Treasury reflect a bias to push 
hard to mitigate potential conflicts versus building out 
internal resources or leveraging other government agencies.
---------------------------------------------------------------------------
    \80\ The statute's language is somewhat ambiguous as to whether 
Treasury can seek the assistance of non-U.S. financial agents and 
contractors. A financial institution is defined as an institution 
``established and regulated under the laws of the United States . . . 
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. 5202(5). This definition might be read to include a financial 
institution incorporated and regulated in the United States, but owned 
by a non-U.S. institution.
    Treasury's financial agency agreement with AllianceBernstein, a 
subsidiary of a French holding company (AXA), is the only example of a 
financial agency agreement with a foreign-owned institution 
(AllianceBernstein, in turn, subcontracted work to the U.S. subsidiary 
of Deutsche Bank). EESA's financial institution definition does not 
apply to contracting, which can include non-financial institutions. 
However, the governing language on the contracting side permits foreign 
contracting under certain circumstances (e.g., Federal Acquisition 
Regulation, at Subpart 25).
    In any case, as explored in the Panel's August 2010 report, 
national distinctions in the global financial marketplace are 
increasingly difficult to delineate, given the cross-border nature of 
markets and operations. See Congressional Oversight Panel, August 
Oversight Report: The Global Context and the International Effects of 
the TARP (Aug. 12, 2010) (online at cop.senate.gov/documents/cop-
081210-report.pdf) (hereinafter ``August 2010 Oversight Report'').
---------------------------------------------------------------------------

               D. Description of Contracts and Agreements

    There are 81 TARP-related procurement contracts awarded 
pursuant to the FAR and 15 financial agency agreements awarded 
pursuant to the financial agent authority granted under 
EESA.\81\ Under these arrangements, there are a total of 98 
subcontracts, 40 of which are procurement contracts, and the 
remaining 58 of which are financial agency agreements.\82\ The 
principal metrics used to describe the contracts and agreements 
are ``obligated value'' and ``expended value.'' ``Obligated 
value'' is the amount that Treasury is obliged to pay, provided 
that the contractor or financial agent performs in accordance 
with the terms of the arrangement, \83\ while ``expended 
value'' is the amount that Treasury owes for goods and services 
already delivered under the contract or agreement.\84\ The 
obligated value of these contracts and agreements is $436.7 
million, with $109.3 million attributable to procurement 
contracts and $327.4 million attributable to financial agency 
agreements.\85\ The expended value under these contracts and 
agreements totals $363.0 million, with procurement contracts 
accounting for $87.0 million and financial agency agreements 
accounting for the remaining $276.0 million.
---------------------------------------------------------------------------
    \81\ Unless otherwise noted, all information in this Section was 
derived from data updated through September 30, 2010 and provided by 
Treasury to the Panel staff (Oct. 8, 2010). Base contracts, novations, 
modifications, and task orders all count as a single contract. However, 
task orders under Treasury contracts for Phacil Inc. and the MITRE 
Corporation were counted as separate contracts. There were two 
novations, a contract with the law firm Thacher Proffitt & Wood was 
novated to a contract with Sonnenschein Nath & Rosenthal LLP, and a 
contract with McKee Nelson LLP was novated to Bingham McCutchen LLP. 
For the purposes of this analysis, the novations count as a single 
contract. The total number of procurement contracts includes eight 
contracts, which were awarded by other branches within the Procurement 
Services Division pursuant to a common Treasury service level and 
subject to a reimbursable agreement with the Office of Financial 
Stability, or were awarded by other agencies on behalf of the Office of 
Financial Stability and not administered by the Procurement Services 
Division. The obligated and expended values of these eight contracts 
are approximately $477,000 and $143,000, respectively. These contracts 
were not included in the analysis in Sections D.1 and F, infra.
    \82\ The information on subcontractors was derived solely from 
information produced by Treasury. For procurement contracts the 
information is as of July 31, 2010. Treasury indicated that it is the 
responsibility of the prime contractor to report any information on the 
subcontracts and the subcontractors. Treasury's view is that since 
there is no privity of contract between Treasury and the 
subcontractors, financial agents and contractors are responsible for 
the management of the subcontractors. For the financial agency 
agreements, Fannie Mae engaged several subcontractors not listed, but 
payment was made to them based on arrangements between Fannie Mae and 
OFS. Treasury conversations with Panel staff (Sept. 16, 2010). See 
Sections D.1.f and D.2.b, infra.
    \83\ For procurement contracts, the obligated value is the value 
indicated on either the contract or task order. In a fixed price 
contract, the contractor is entitled to invoice for the full obligated 
value (the negotiated price), however, for labor hour or time and 
materials contracts, the contractor can only invoice for the hours 
actually worked plus allowable and allocable costs incurred. For 
financial agency agreements, the obligated value represents the funds 
that are specifically allocated by Treasury to a given agreement based 
on Treasury's estimate of the funds that will be earned pursuant to the 
compensation terms of the financial agency agreements. Treasury 
conversations with Panel staff (Oct. 4, 2010).
    \84\ The expended value includes both the value that has been 
invoiced by the contractor/financial agent and, to the extent Treasury 
has the information, work that has been performed but has yet to be 
invoiced. Treasury conversations with Panel staff (Sept. 16, 2010 and 
Oct. 4, 2010).
    \85\ Interagency agreements were not included in this analysis. 
These agreements have an obligated value of $76.5 million, and the bulk 
of that value relates to office space, personnel, various 
administrative functions, and oversight, including $53.5 million for 
administrative support in the form of financial management, human 
resources, information technology, general counsel and other 
reimbursable support services and $23.0 million in oversight costs. 
However, $7.8 million of that obligated value stems from an agreement 
between Treasury and the Pension Benefit Guarantee Corporation, which 
then subcontracted that financial advisory services work for the TARP's 
Automotive Industry Financing Program (AIFP) to Rothschild, Inc. 
Documents provided by Treasury to Panel staff (Oct. 8, 2010).
---------------------------------------------------------------------------
    In terms of obligated value, Fannie Mae is the largest 
financial agent, with $126.7 million, while 
PricewaterhouseCoopers LLP (PricewaterhouseCoopers) is the 
largest contractor, with $25.8 million of obligated value. 
Figure 1 lists the largest contractors and financial agents 
providing services under different arrangements with OFS.

                      FIGURE 1: LARGEST CONTRACTORS AND FINANCIAL AGENTS BY OBLIGATED VALUE
----------------------------------------------------------------------------------------------------------------
                                                                                Potential
            Contractor             Type of  Arrangement   Obligated  Value   Contract  Value    Expended  Value
                                                                                   \86\               \87\
----------------------------------------------------------------------------------------------------------------
Fannie Mae.......................  Financial Agency           $126,712,000  .................       $111,339,451
                                    Agreement.
Freddie Mac......................  Financial Agency             88,850,000  .................         79,296,499
                                    Agreement.
The Bank of New York Mellon Corp.  Financial Agency             28,495,412  .................         23,777,002
                                    Agreement.
PricewaterhouseCoopers LLP.......  Contract............         25,781,474        $50,252,231         23,525,631
Morgan Stanley & Co..............  Financial Agency             23,577,000  .................         13,175,423
                                    Agreement.
AllianceBernstein L.P............  Financial Agency             22,399,943  .................         21,207,253
                                    Agreement.
Cadwalader Wickersham & Taft LLP.  Contract............         21,939,919        147,645,619         19,069,083
Ernst & Young LLP................  Contract............         11,397,968         33,391,392         10,710,092
FSI Group LLC....................  Financial Agency             11,102,500  .................         10,770,000
                                    Agreement.
Simpson Thacher & Bartlett LLP...  Contract............         10,827,988         21,025,000          5,479,614
    Total........................  ....................       $371,084,204                N/A       $318,350,048
----------------------------------------------------------------------------------------------------------------
\86\ See footnote 89, infra, for a more complete discussion of the term ``potential contract value.''
\87\ The expended value does not include $3.9 million attributable to Cadwalader as a subcontractor under a
  procurement agreement and $3.4 million and $21.5 million to PricewaterhouseCoopers and Ernst & Young,
  respectively, for subcontract work performed under financial agency agreements.

    A complete list of the procurement contracts and financial 
agency agreements appears as Annex II to this report.

1. Procurement Contracts

    To date, Treasury has entered into 73 procurement contracts 
with 53 contractors; 46 of those contracts are currently 
active.\88\ The total obligated value under all the procurement 
contracts is $108.8 million, and the total potential contract 
value is $407.3 million.\89\ Active contracts account for 
$282.5 million of the remaining potential contract value.\90\
---------------------------------------------------------------------------
    \88\ Eight contracts, which were awarded by other branches within 
the Procurement Services Division pursuant to a common Treasury service 
level and subject to a reimbursable agreement with the Office of 
Financial Stability, or were awarded by other agencies on behalf of the 
Office of Financial Stability and not administered by the Procurement 
Services Division with a total obligated value of approximately 
$477,000, were not considered as part of this analysis. The five 
contracts with other branches of the procurement services division were 
with American Furniture Rentals, Immix Technology (two contracts), 
Heery International, and the Washington Post. In addition the other 
three contracts were entered into with the IRS and they were with CSC 
Systems and Solutions, Turner Consulting and KnowledgeBank. Active 
contracts are those contracts that have a performance end date after 
September 30, 2010.
    \89\ The ``potential contract value'' is the program ceiling for 
task or delivery order contracts and the total amount of the award for 
definitive contracts. For the three contracts without a ceiling, it was 
assumed that the potential contract value was equal to the potential 
contract values that Treasury indicated were recorded on task orders 
and modifications. For multiple contract awards, the total program 
value is counted once for aggregate numbers, while on an individual 
basis the potential contract value is included for each awardee as if 
it would receive task orders for the full amount of the award. Language 
in many of the contracts indicates that a firm could receive the entire 
award. For example, in each of the three contracts for a multiple award 
with a total potential contract value of $20,687,500, the contract 
stated that, ``the contract ceiling value of all contracts awarded 
under this solicitation, individually and collectively, is 
$20,687,500.'' See, e.g., U.S. Department of the Treasury, Contract 
Between U.S. Department of the Treasury and Debevoise & Plimpton, LLP 
(July 30, 2009) (Contract No. TOFS-09-D-0012) (online at 
www.financialstability.gov/docs/ContractsAgreements/
Debevoise%20&%20Plimpton.pdf) (hereinafter ``Contract Between Treasury 
and Debevoise & Plimpton''). However, each awardee under a multiple 
award IDIQ contract must receive a guaranteed minimum; therefore the 
total potential contract value is slightly less than the full program 
amount. Since these amounts are relatively small (and not always 
denoted in terms of dollars), they were not factored into the potential 
contract ceilings used. Treasury indicated that it would be unlikely 
that one contractor would receive the full potential contract value in 
a multiple award contract or that, in fact, the full potential value of 
the program would be expended. However, Treasury also indicated that if 
one firm consistently proposes outstanding technical or management 
approaches, a positive record of past performance, and competitive 
pricing, they may win more task orders than other contractors. Treasury 
conversations with Panel staff (Sept. 28, 2010 and Oct. 4, 2010).
    \90\ This amount is calculated by subtracting the obligated value 
from the potential contract value for all contracts with a performance 
end date after September 30, 2010. The remaining potential contract 
value does not include the potential contract value for the three 
contracts without ceilings. Four of the multiple award contracts 
account for $235.4 million of the remaining potential contract value.
---------------------------------------------------------------------------
            a. Types of Procurement Contracts
    Treasury's procurement contracts have two different 
structures: (i) task or delivery order contracts; and (ii) 
definitive contracts.\91\ Task or delivery order contracts are 
structured such that exact times and exact quantities of future 
deliveries and services are not known at the time of the 
contract award, and that information is supplied later through 
the use of task and/or delivery orders.\92\ Task or delivery 
order contracts do not have fixed fees for services, and the 
value of the contracts appears in the specific task orders and 
modifications to those contracts.\93\ For example, OFS's 
contract with Debevoise & Plimpton for restructuring legal 
services is a task or delivery order contract.\94\
---------------------------------------------------------------------------
    \91\ For the purposes of this analysis, ``task or delivery order 
contracts'' includes both contracts classified as indefinite delivery/
indefinite quantity (IDIQ) contracts and blanket purchase agreements 
(BPAs) placed against multiple award schedules under the FAR. Federal 
Acquisition Regulation, supra note 11, at Subparts 16.504 and 8.405-3. 
The principal difference derives from the sourcing; IDIQ contracts are 
new contracts formed for a specific purpose based on a ``statement of 
work,'' whereas BPAs piggyback on existing government contracts found 
on the GSA Schedule. See Section D.1.d, infra.
    \92\ Under the FAR, an IDIQ contract ``provides for an indefinite 
quantity, within stated limits, of supplies or services during a fixed 
period'' and a BPA is a mechanism used to ``fill repetitive needs.'' 
Federal Acquisition Regulation, supra note 11, at Subparts 16.50(a) and 
8.405-3.
    \93\ See Federal Acquisition Regulation, supra note 11, at Subparts 
8.405-3, 16.504, 16.505, and 16.702. However, the IDIQ contracts are 
required to have a minimum amount that is not de minimis. For instance, 
for the legal contracts, the minimum has been expressed in terms of 
dollar amounts and hours of work. A contract with the law firm 
Debevoise & Plimpton LLP had a minimum dollar amount of $25,000, while 
a contract with the law firm of Sonnenschein Nath & Rosenthal LLP has a 
guaranteed minimum of 100 labor hours. See, e.g., Contract Between 
Treasury and Debevoise & Plimpton, supra note 89; U.S. Department of 
the Treasury, Contract Between U.S. Department of the Treasury and 
Sonnenschein Nath & Rosenthal, LLP (Dec. 10, 2008) (Contract No. TOS09-
014C) (online at www.financialstability.gov/docs/ContractsAgreements/
Sonnenschein%20TOS09-014C%20redacted.pdf).
    \94\ Contract Between Treasury and Debevoise & Plimpton, supra note 
89. There has been one modification under this contract (to extend the 
contract term) and one task order with an obligated value of $159,175.
---------------------------------------------------------------------------
    OFS designates contracts with defined terms as definitive 
contracts.\95\ OFS has entered into the following types of 
definitive contracts: cost-reimbursement plus fixed price, 
fixed price, fixed price or time, and materials and labor-hour. 
Fixed price contracts have been used, for example, for the 
purchase of office equipment.\96\
---------------------------------------------------------------------------
    \95\ Federal Acquisition Regulation, supra note 11, at Subparts 
16.2, 16.3, and 16.6.
    \96\ U.S. Department of the Treasury, Contract Between U.S. 
Department of the Treasury and Herman Miller, Inc. (Apr. 17, 2009) 
(Contract No. TOFS-09-O-0003) (online at www.financialstability.gov/
docs/ContractsAgreements/Herman%20Miller.pdf); U.S. Department of the 
Treasury, Contract Between U.S. Department of the Treasury and Whitaker 
Brothers Business Machines, Inc. (Jan. 27, 2009) (Contract No. 
TDOX090038) (online at www.financialstability.gov/docs/
ContractsAgreements/
Whitaker%20Brothers%20Bus%20Machines%20Contract.pdf).
---------------------------------------------------------------------------
    OFS has awarded 48 task or delivery order contracts and 25 
definitive contracts, accounting for obligated values of $101.9 
million and $6.9 million, and potential contract values of 
$398.1 million and $9.2 million, respectively.\97\
---------------------------------------------------------------------------
    \97\ See Section B, supra. Based on the information provided by 
Treasury, the Phacil task order was considered a task or delivery order 
contract and the MITRE arrangement was considered a definitive 
contract. For this analysis, the contract with Locke Lord Bissell & 
Liddell, LLP was considered a task or delivery order contract, based on 
the language of the contract even though it was classified as a 
definitive contract by Treasury. U.S. Department of the Treasury, 
Contract Between U.S. Department of the Treasury and Locke Lord Bissell 
& Liddell, LLP (Feb. 12, 2009) (Contract No. TOS0922) (online at 
www.financialstability.gov/docs/ContractsAgreements/
Locke%20CONTRACT(FINAL)%2002,12,09.pdf). The difference between the 
obligated and potential values for the definitive contracts is 
primarily due to the availability of options under two contracts; one 
for the lease of parking spaces and the other for a subscription for 
financial, regulatory and market data, and services. See U.S. 
Department of the Treasury, Contract Between U.S. Department of the 
Treasury and Colonial Parking, Inc. (Jan. 7, 2009) (Contract No. TOS09-
017) (online at www.financialstability.gov/docs/ContractsAgreements/
Colonial%20Parking,%20Inc.%20Contract.pdf); U.S. Department of the 
Treasury, Contract Between U.S. Department of the Treasury and Colonial 
Parking, Inc. (Sept. 30, 2009) (Contract No. TOFS-09-O-0016) (online at 
www.financialstability.gov/docs/ContractsAgreements/
Colonial%20Parking,%20Inc.%20Contract.pdf).
---------------------------------------------------------------------------
    The majority of the task or delivery order contracts have 
potential contract values.\98\ Of the 48 task or delivery order 
contracts, 45 have these ceilings, \99\ and three have no 
potential contract value specified in the base contracts.\100\ 
The potential contract values range from $250,000 to $100.0 
million.
---------------------------------------------------------------------------
    \98\ Under the FAR, IDIQ contracts have a ``stated limit'' where 
quantity limits may be stated as number of units or as dollar values; 
however, BPAs ``shall address the frequency of ordering, invoicing, 
discounts, requirements (e.g. estimated quantities, invoicing, 
discounts, requirements (e.g. estimated quantities, work to be 
performed), delivery locations, and time.'' Federal Acquisition 
Regulation, supra note 11, at Subpart 16.50.
    \99\ Twelve contracts have been modified to increase the potential 
contract value.
    \100\ All three of those task or delivery order contracts are BPAs 
that were awarded under a GSA Schedule Competition. The contracts were 
with PricewaterhouseCoopers LLP, Ernst & Young LLP, and FI Consulting 
Inc. with obligated values of $24.5 million, $11.4 million, and $1.9 
million, respectively. U.S. Department of the Treasury, Blanket 
Purchase Agreement Between U.S. Department of the Treasury and 
PricewaterhouseCoopers (Oct. 8, 2008) (Contract No. T2009-TARP-0001) 
(online at www.financialstability.gov/docs/ContractsAgreements/
PWC%20T2009TARP0001%20redacted.pdf); U.S. Department of the Treasury, 
Blanket Purchase Agreement Between U.S. Department of the Treasury and 
Ernst & Young, LLP (Oct. 18, 2008) (Contract No. T2009-TARP-0002) 
(online at www.financialstability.gov/docs/ContractsAgreements/
ErnstYoung%202009-TARP-0002%20redacted.pdf); U.S. Department of the 
Treasury, Contract Between U.S. Department of the Treasury and FI 
Consulting, Inc. (Mar. 31, 2009) (Contract No. TOFS-09-B-0001) (online 
at www.financialstability.gov/docs/ContractsAgreements/
FI%20Consulting.pdf).
---------------------------------------------------------------------------
    OFS has awarded 25 definitive contracts awarded to specific 
contractors.\101\ The total obligated value and total potential 
contract value under these contracts is $6.9 million and $9.2 
million, respectively. The potential value under these 
contracts ranges from less than $3,000 to $2.7 million.
---------------------------------------------------------------------------
    \101\ A complete list of these contracts is included as Annex II, 
infra.
---------------------------------------------------------------------------
    The FAR uses different mechanisms to foster competition. 
For example, for task or delivery order contracts not issued 
under the GSA schedule, the FAR encourages multiple award 
contracts.\102\ Furthermore, when contracts are issued under 
multiple award task or delivery order contracts or the GSA 
schedule, unless an exemption applies, the FAR requires that 
there be a fair opportunity for all eligible contractors to 
compete.\103\ Under a multiple award contract, contract awards 
are made to two or more contractors under a single 
solicitation. Seven multiple awards account for 30 of the 48 
task or delivery order contracts. The potential program values 
of the multiple awards range from $5.0 million to $100.0 
million, and the total value of these contract awards is $289.2 
million. Of the $42.3 million in obligated value under the 
multiple awards, $17.5 million is attributable to legal 
services for the Automotive Industry Financing Program 
performed by Cadwalader.\104\
---------------------------------------------------------------------------
    \102\ For IDIQ contracts, with a few exceptions, for advisory and 
assistance services, which exceed three years and $10 million, a 
contracting officer is required to make multiple awards. Federal 
Acquisition Regulation, supra note 11, at Subpart 16.50. See footnotes 
92 and 98, supra, for the distinction between IDIQ contracts and BPAs.
    \103\ Federal Acquisition Regulation, supra note 11, at Subpart 
16.504(c).
    \104\ See Section D.1.e, infra.
---------------------------------------------------------------------------
            b. Programs to which Contracts Relate
    Some procurement contracts relate to a specific TARP 
program, while others have been categorized as relating to 
multiple programs and program operations.\105\ However, three 
of the contracts designated as applying to multiple programs 
have task orders issued under them for specific programs, and 
one contract designated for the Automotive Industry Financing 
Program has an obligated value of $3.6 million relating to work 
on the Small Business Administration 7(a) Loan Program.\106\ Of 
the 73 contracts, 21 relate to one TARP program, and 52 
contracts relate to multiple TARP programs (including program 
operations).\107\ Work for the Automotive Industry Financing 
Program was performed under seven contracts, for an obligated 
value of $24.3 million. The following table details the 
obligated value and the potential contract value by program.
---------------------------------------------------------------------------
    \105\ Program operations includes services that relate to all TARP 
programs, including FOIA and IT services. Treasury conversations with 
Panel staff (Oct. 4, 2010).
    \106\ Work for CPP, PPIP and CAP was performed under multiple 
program contracts. The obligated value for the CPP, PPIP and CAP work 
was $5.7 million and $3.0 million and $2.6 million, respectively. 
However, the potential contract value for these contracts is accounted 
for under multiple programs.
    \107\ Five contracts identified as relating to ``antifraud,'' 
administrative services, or not identifying a specific program were 
included in the Program Operations category. These contracts accounted 
for less than $30,000 in obligated value and potential program value.

                               FIGURE 2: CONTRACT BREAKDOWN BY TARP PROGRAM \108\
----------------------------------------------------------------------------------------------------------------
                                                                Number  of                         Potential
                           Program                              Contracts    Obligated  Value   Contract  Value
----------------------------------------------------------------------------------------------------------------
Multiple Programs............................................           38        $47,845,708       $233,652,903
Automotive Industry Financing Program (AIFP).................            7         24,320,992         37,888,603
Capital Purchase Program (CPP)...............................            6         14,794,781         12,880,161
Public-Private Investment Program (PPIP).....................            4          8,292,540          2,897,400
Program Operations...........................................           18          4,402,477        115,604,144
SBA 7(a) Securities Purchase Program.........................            3          4,007,085          1,870,626
Capital Assistance Program (CAP).............................            2          2,612,032                  0
Home Affordable Modification Program (HAMP)..................            3          2,507,251          2,507,251
    Total \109\..............................................          N/A       $108,782,867       $407,301,088
----------------------------------------------------------------------------------------------------------------
\108\ It is possible for the potential contract value to be less than the obligated value. This is because all
  of the obligated value for task or delivery order contracts is attributable to the task and delivery orders,
  while the potential contract value stems from the base contract and modifications that increased the contract
  ceiling, if any. Furthermore, there are instances where task orders under a contract specify a program while
  the base contract lists the program as a multiple program. For example, the obligated value under the CAP, a
  program that was never implemented, stems from task orders created under a base contract for multiple
  programs, therefore there is the anomalous situation of having obligated value for a program while there is no
  potential contract value for that program.
\109\ The total number of contracts will exceed the actual number of procurement contracts as work performed
  under several programs will count as a contract under each of those programs.

            c. Type of Work Performed under Procurement Contracts
    Seven categories of work are performed under the TARP 
procurement contracts. Of the 73 contracts, 35 are for legal 
advisory work. Legal advisory work accounts for the largest 
obligated and potential contract values, $55.6 million and 
$203.4 million, respectively. The following table details the 
obligated and potential contract value of the procurement 
contracts by category of work.

                       FIGURE 3: PROCUREMENT CONTRACT BREAKDOWN BY TYPE OF WORK PERFORMED
----------------------------------------------------------------------------------------------------------------
                                                          Number of                         Potential Contract
                        Category                          Contracts    Obligated Value            Value
----------------------------------------------------------------------------------------------------------------
Legal Advisory.........................................           35        $55,559,077             $203,375,064
Accounting/Internal Controls...........................            4         39,115,309               41,592,642
Financial Advisory.....................................            4          7,890,379               16,770,190
Information Technology.................................            5          3,942,820              101,200,526
Administrative Support.................................           17          2,017,870               21,737,430
Facilities Support.....................................            4            257,412                  631,812
Compliance.............................................            4                  0               21,993,424
    Total..............................................           73       $108,782,867             $407,301,088
----------------------------------------------------------------------------------------------------------------

            d. Competition
    Treasury used a competitive process to select the 
contractors. Under the FAR, contracts must be made through full 
and open competition, unless there is an exemption.\110\ 
Permitted exemptions allow for limited competition during 
circumstances of unusual and compelling urgency.\111\ Contracts 
issued under the GSA Schedule are considered to be issued under 
full and open competition.\112\ The following table details the 
obligated and potential contract value based on the method for 
awarding the original base contract. GSA Schedule awardees 
accounted for the largest obligated and potential contract 
value at $54.9 million and $193.0 million, respectively.\113\
---------------------------------------------------------------------------
    \110\ Federal Acquisition Regulation, supra note 11, at Subpart 
6.2.
    \111\ Federal Acquisition Regulation, supra note 11, at Subpart 
6.302-2.
    \112\ See Federal Acquisition Regulation, supra note 11, at 
Subparts 8.404 and 6.10.
    \113\ GSA establishes long-term government wide contracts with 
commercial firms, and those contracts are listed on the GSA schedule, 
creating a simplified process so that simplified process for obtaining 
commercial supplies and services at prices associated with volume. 
Sourcing through the GSA Schedule is required before sourcing through 
general commercial providers. Federal Acquisition Regulation, supra 
note 11, at Subparts 8.002 and 8.4.

                   FIGURE 4: PROCUREMENT CONTRACT BREAKDOWN BY COMPETITION AT SELECTION \114\
----------------------------------------------------------------------------------------------------------------
                                                                Number of                          Potential
                         Competition                            Contracts    Obligated  Value   Contract  Value
----------------------------------------------------------------------------------------------------------------
GSA Schedule Competition.....................................           22        $54,861,486       $193,033,966
Limited Competition--Unusual and Compelling Urgency..........           19         50,131,135         86,471,942
Full and Open with Small Business Set-aside..................           13          1,997,820         99,791,842
Full and Open................................................           10            953,782         21,214,694
Sole Source--Only Responsible Source.........................            3            750,526            750,526
Full and Open after Exclusion of Sources (Total Small                    1             50,000          6,000,000
 Business Set-Aside).........................................
SAP--Competed \115\..........................................            2             24,975             24,975
SAP--Not Competed \116\......................................            2              9,930              9,930
GSA Schedule--Sole Source....................................            1              3,213              3,213
    Total....................................................           73       $108,782,867       $407,301,088
----------------------------------------------------------------------------------------------------------------
\114\ Task orders and modifications are grouped by the form of competition for the initial base contract. One
  contract from Treasury (TOS09-007) was classified as a GSA Schedule Competition with a task order indicating
  Limited Competition. The potential contract value on the base contract was $500,000, and the contract was
  analyzed as a limited competition contract.
\115\ SAP or simplified acquisition procedure is used for purchases under a certain dollar threshold. Federal
  Acquisition Regulation, supra note 11, at Part 13.
\116\ Federal Acquisition Regulation, supra note 11, at Part 13.

            e. Largest Contractors
    The largest contractor in terms of obligated value is 
PricewaterhouseCoopers. PricewaterhouseCoopers was the 
recipient of three contracts, one of which for internal 
controls has $24.5 million in obligated value, $22.4 million of 
which has been expended. In addition, PricewaterhouseCoopers 
has been granted one of the multiple awards for program 
compliance support services, with a potential program value of 
$22.0 million.
    The largest contractor in terms of potential contract value 
was Cadwalader.\117\ Cadwalader has four contracts, two of 
which are currently active. Under these contracts, Cadwalader 
has $21.9 million in obligated value, $19.1 million of which 
has been expended by the Treasury. These contracts include a 
multiple award contract. Cadwalader was one of 13 law firms 
awarded a contract for the omnibus procurement for legal 
services; the total potential program value for the 13 
contracts is $99.8 million. In addition, Cadwalader worked as a 
subcontractor under another law firm's contract with Treasury. 
To date, the expended value of this subcontract is $3.9 
million.
---------------------------------------------------------------------------
    \117\ The total expended value attributed to Cadwalader as the 
prime contractor, from the onset of the program until September 30, 
2010, is equivalent to 4.2 percent of the firm's total revenue in 2009. 
The amount of funds expended under the contract is used in the 
calculation of this ratio rather than the obligated amount in order to 
provide a more accurate reflection of its impact on firm revenue. Data 
on amounts expended provided by Treasury (Oct. 8, 2010); American 
Lawyer, The Am Law 100 2010--Gross Revenue: Baker & McKenzie Tops 
Skadden (online at www.law.com/jsp/tal/
PubArticleTAL.jsp?id=1202448484841) (accessed Oct. 12, 2010). 
Cadwalader indicated that the rate it billed Treasury was a ``30% 
discount from the firm's 2009 median rate for each professional 
category as determined in accordance with the guidelines issued by the 
governing professional bodies that include a variety of factors leading 
to the establishment of billing rates for similar matters of similar 
complexity and with similar demands on the firm and its resources.'' 
Data provided by Treasury and Cadwalader to Panel staff (Oct. 5, 2010). 
Cadwalader invoiced Treasury $525 per hour for partners (partners 
normally charge $625 to $1,050 per hour), $287.50 per hour for 
associates (normally charged out at a rate of $310 to $575) and $440 
per hour for special counsel (normally charged out at a rate of $590 to 
$880 per hour). Treasury documents provided to Panel staff (Oct. 8, 
2010).
---------------------------------------------------------------------------
    Ernst & Young has the largest amount of expended value 
attributable to its work. Ernst & Young has performed work as a 
contractor under a procurement contract as well as a 
subcontractor under financial agency agreements. Of the $32.2 
million in expended value attributable to Ernst & Young, $10.7 
million is related to a procurement contract for accounting 
services, and $21.5 million is related to subcontracts under 
financial agency agreements, $17.7 million of which was 
expended under a subcontract with Freddie Mac and the remaining 
$3.8 million was expended under a subcontract with Fannie Mae. 
In addition, Ernst & Young has been granted the same $22.0 
million multiple awards as PricewaterhouseCoopers.
    Cadwalader had the largest concentration of legal work. In 
terms of obligated and expended value, respectively, Cadwalader 
accounts for 39 percent and 48 percent of all the legal 
advisory work under TARP.\118\ Approximately 80 percent of 
Cadwalader's obligated value and 90 percent of its expended 
value stems from Cadwalader's role as lead counsel for the 
Automotive Industry Financing Program.\119\ Although some firms 
have argued that TARP legal work should have been awarded to a 
larger number of firms, some of these contracts by their nature 
are not easily divisible due in part to the need for 
coordination across different practice areas and disciplines 
required in time-sensitive, complex financial transactions. 
Four law firms accounted for approximately 80 percent of the 
legal work on an obligated and expended value basis.\120\
---------------------------------------------------------------------------
    \118\ These amounts do not include the $3.9 million that was 
expended to Cadwalader under a subcontract.
    \119\ Treasury conversations with Panel staff (Sept. 28, 2010).
    \120\ The four largest law firms as a percentage of obligated and 
expended value, respectively were: Cadwalader (39 percent, 48 percent); 
Simpson Thacher & Bartlett LLP (19 percent, 14 percent); Squire Sanders 
& Dempsey LLP (13 percent, 8 percent); and Sonnenschein Nath & 
Rosenthal LLP (9 percent, 12 percent).
---------------------------------------------------------------------------
    For accounting and internal control work, there was a more 
significant amount of concentration. Together, Ernst & Young 
and PricewaterhouseCoopers performed 95 percent of this work in 
terms of obligated value, with PricewaterhouseCoopers 
accounting for 66 percent of the total obligated value.
            f. Subcontracts
    There are 40 subcontracts under 12 procurement 
contracts.\121\ The total value of these subcontracts is $11.3 
million dollars, with an average contract value of $0.3 
million. The largest obligated value under a subcontract is 
$3.9 million to Cadwalader for legal services.
---------------------------------------------------------------------------
    \121\ A table of the subcontracts is attached as Figure 12 in Annex 
II, infra.
---------------------------------------------------------------------------

2. Financial Agency Agreements

    There are currently 15 financial agency agreements and 58 
subcontracts.\122\ The obligated value under these agreements 
is $327.4 million, and the expended value for these agreements 
is $276.0 million. The largest obligated value under an 
agreement is with Fannie Mae for $126.7 million. Figure 5 lists 
the financial agency agreements in order of obligated 
value.\123\
---------------------------------------------------------------------------
    \122\ The agreements are listed in Figure 13 in Annex II, infra. 
Some of these agreements have incentive clauses or provide that an 
incentive arrangement will be established within a year. See generally, 
U.S. Department of the Treasury, Financial Agency Agreement Between 
U.S. Department of the Treasury and FSI Group, LLC (Apr. 20, 2009) 
(Contract No. TOFA-09-FAA-0006) (online at www.financialstability.gov/
docs/ContractsAgreements/
FSI%20FAA%20Equity%20Asset%20Manager%20FINAL.pdf) (hereinafter 
``Financial Agency Agreement Between U.S. Department of the Treasury 
and FSI Group, LLC''). For example, both Fannie Mae and Freddie Mac 
were eligible to receive incentive payments, up to 20 percent, based on 
specified metrics determined by Treasury. Neither GSE has received any 
incentive pay under these agreements. U.S. Department of the Treasury, 
Financial Agency Agreement Between U.S. Department of the Treasury and 
Fannie Mae (Feb. 18, 2009) (Contract No. TOFA-09-FAA-0002) (online at 
www.financialstability.gov/docs/ContractsAgreements/
Fannie%20Mae%20FAA%20021809%20.pdf) (hereinafter ``Financial Agency 
Agreement Between U.S. Department of the Treasury and Fannie Mae''); 
U.S. Department of the Treasury, Financial Agency Agreement Between 
U.S. Department of the Treasury and Freddie Mac (Feb. 18, 2009) 
(Contract No. TOFA-09-FAA-0003) (online at www.financialstability.gov/
docs/ContractsAgreements/
Freddie%20Mac%20Financial%20Agency%20Agreement.pdf) (hereinafter 
``Financial Agency Agreement Between Treasury and Freddie Mac''); 
Treasury conversations with Panel staff (Sept. 16, 2010).
    \123\ These companies are considered together because they are all 
financial agents. Treasury formed financial agency agreements with 
entities with which it needed a fiduciary relationship. For instance, 
Treasury decided it required this type of relationship with 
AllianceBernstein for its asset management services, BNY Mellon for its 
custodial work, and Fannie Mae and Freddie Mac for their role in the 
administration and compliance of HAMP.

                                      FIGURE 5: FINANCIAL AGENCY AGREEMENTS
----------------------------------------------------------------------------------------------------------------
              Financial Agent                         Description            Obligated  Value   Expended  Value
----------------------------------------------------------------------------------------------------------------
Fannie Mae.................................  HAMP Administration..........       $126,712,000       $111,339,451
Freddie Mac................................  HAMP Compliance..............         88,850,000         79,296,499
The Bank of NY Mellon Corporation..........  Custodian....................         28,495,412         23,777,002
Morgan Stanley & Co........................  Disposition Services.........         23,577,000         13,175,423
AllianceBernstein L.P......................  Asset Management Services....         22,399,943         21,207,253
FSI Group LLC..............................  Asset Management Services....         11,102,500         10,770,000
Lazard Freres & Co. LLC....................  Transaction Structuring                7,500,000          2,166,667
                                              Services.
Piedmont Investment Advisors LLC...........  Asset Management Services....          5,615,000          5,120,000
KBW Asset Management, Inc..................  Asset Management Services....          3,803,333          3,279,167
Earnest Partners...........................  Small Business Assistance              4,050,000          1,955,000
                                              Program.
Howe Barnes Hoefer & Arnett, Inc...........  Asset Management Services....          1,250,000            950,000
Lombardia Capital Partners, LLC............  Asset Management Services....          1,250,000            937,500
Paradigm Asset Management Co., LLC.........  Asset Management Services....          1,250,000            925,000
Avondale Investments, LLC..................  Asset Management Services....            750,000            562,500
Bell Rock Capital, LLC.....................  Asset Management Services....            750,000            575,000
    Total..................................  .............................       $327,355,188       $276,086,462
----------------------------------------------------------------------------------------------------------------

            a. Programs Using Financial Agency Agreements
    The 15 financial agency agreements are categorized in 
Figure 6, below, by the type of service provided. There are 12 
agreements to provide asset services, two agreements for HAMP, 
and one agreement for custodial services.\124\ There was a 
variety of asset work, including asset management (for both the 
CPP and SBA 7(a) program), disposition, and transaction 
structuring services. The largest obligated and expended 
values, $215.6 million and $190.6 million, respectively, are 
for HAMP. Figure 6 details the obligated and expended values by 
type of service provided.
---------------------------------------------------------------------------
    \124\ BNY Mellon performs custodial services for many of the TARP 
programs, while the asset managers' work is related to assets from the 
CPP, CDCI, SSFI, AIFP, and AGP portfolios. Data provided by Treasury to 
Panel staff (Sept. 29, 2010).

                         FIGURE 6: FINANCIAL AGENCY AGREEMENT BREAKDOWN BY PROGRAM TYPE
----------------------------------------------------------------------------------------------------------------
                                                                Number of
                       Service Provided                         Contracts    Obligated Value     Expended Value
----------------------------------------------------------------------------------------------------------------
HAMP.........................................................            2       $215,562,000       $190,635,950
Asset Management Services....................................            9         48,170,776         44,326,420
Custodian....................................................            1         28,495,412         23,777,002
Disposition Agent............................................            1         23,577,000         13,175,423
Transaction Structuring (AIFP)...............................            1          7,500,000          2,216,667
SBA 7(a) Program.............................................            1          4,050,000          1,955,000
    Total....................................................           15       $327,355,188       $276,086,462
----------------------------------------------------------------------------------------------------------------

    The agreements provide for several different types of 
payment structures. For instance, asset managers are 
compensated with a flat fee for each financial institution 
whose TARP assets they manage.\125\ BNY Mellon's arrangement is 
more complex due the variety of services it provides for the 
different programs and its compensation structure reflects this 
mix. Its fee schedule includes flat fees, per transaction fees, 
as well as variable fees.\126\
---------------------------------------------------------------------------
    \125\ For instance, the FSI Group, LLC receives a flat annual fee 
for each financial institution whose assets it manages. The fee is 
$50,000 for the first 50 financial institutions under management, 
$40,000 for the next fifty, and $30,000 thereafter for each financial 
institution with assets under FSI Group's management. Financial Agency 
Agreement Between Treasury and Freddie Mac, supra note 122.
    \126\ For instance, for CPP, BNY Mellon receives an annual rate of 
0.0015 percent of the daily average aggregate acquisition value of 
specified financial instruments in its custody. Financial Agency 
Agreement Between Treasury and Freddie Mac, supra note 122.
---------------------------------------------------------------------------
            b. Subcontractors
    Six financial agents engaged a total of 58 subcontractors 
for a reported subcontract value of $81.7 million.\127\ Freddie 
Mac used the most subcontractors at 26 for an expended value of 
$43.2 million. The average expended value per subcontract was 
$1.4 million and ranged from $7,000 to $17.8 million. Freddie 
Mac engaged Ernst & Young for an expended value of $17.8 
million for business process support.
---------------------------------------------------------------------------
    \127\ The subcontractor information is reported by the financial 
agents to Treasury and is as of August 31, 2010. Two of the 
subcontractors were engaged by two different financial agents. Ernst & 
Young was engaged by both Fannie Mae and Freddie Mac, which accounted 
for an expended value of $21.5 million, while Williams, Adley & 
Company, LLP was engaged by BNY Mellon and Freddie Mac for a total 
expended value of $1.2 million.
---------------------------------------------------------------------------
            c. Largest Financial Agents
    The five largest financial agents were Fannie Mae, Freddie 
Mac, BNY Mellon, Morgan Stanley, and AllianceBernstein L.P. 
Both BNY Mellon and Morgan Stanley received TARP funds through 
the CPP.\128\ All five financial agents are U.S. companies, 
although AllianceBernstein is a subsidiary of AXA, a French 
holding company. Fannie Mae was the single largest financial 
agent with $126.7 million in obligated value and $111.3 million 
in expended value as part of HAMP.\129\ For HAMP, Fannie Mae 
reported that it engaged 15 subcontractors, which accounted for 
$28.9 million of its expended value.\130\
---------------------------------------------------------------------------
    \128\ On October 28, 2008, Treasury purchased $3 billion of 
preferred stock with warrants in BNY Mellon and $10 billion of 
preferred stock with warrants in Morgan Stanley. BNY Mellon and Morgan 
Stanley both repaid Treasury's investment on June 17, 2009. U.S. 
Department of the Treasury, Troubled Asset Relief Program Transactions 
Report for the Period Ending September 30, 2010, at 1 (Oct. 4, 2010) 
(online at financialstability.gov/docs/transaction-reports/10-4-
10%20Transactions%20Report%20as%20of%209-30-10.pdf) (hereinafter 
``Treasury Transactions Report'').
    \129\ For further discussion of the size and effect of the TARP 
contracts with Fannie Mae and Freddie Mac see footnote 78, supra.
    \130\ Treasury indicated that Fannie Mae also engages numerous 
marketing, site hosting, and IT vendors that are not individually 
reported on due to the quantity of these contractors, their low average 
dollar-value, and the associated costs of these contracts. OFS pays a 
fixed fee to Fannie Mae pursuant to its financial agency agreement with 
them, which is approximately $700,000 for marketing costs and 44 
percent of the $8-$10 million of estimated costs for other services, 
including site hosting and IT vendors. Treasury conversations with 
Panel staff (Sept. 16, 2010).
---------------------------------------------------------------------------
    Other financial agents have made significant amounts of 
money not from fees paid by Treasury, but from commissions. For 
example, as a requirement of EESA, Treasury was given warrants 
for common stock of the financial institutions it made 
investments in through the CPP.\131\ Treasury has disposed of 
these warrants by either selling them back to the issuing 
institution or through a ``Dutch Auction,'' a form of public 
offering that is registered with the Securities and Exchange 
Commission (SEC).\132\ Deutsche Bank Securities Inc. (Deutsche 
Bank) was retained as a subcontractor to act as the primary 
financial agent executing these sales. In this role, Deutsche 
Bank has earned from 1 percent to 5 percent of the gross 
proceeds from the sale of these securities.\133\ For example, 
Deutsche Bank acted as the sole book-running manager for the 
sale of the Bank of America warrants Treasury received for its 
assistance to that company. Deutsche Bank earned 1.5 percent, 
or $23.5 million, of the gross proceeds from this sale.\134\ To 
date, the TARP has paid $110 million in underwriting fees in 
order to sell warrants publicly that have produced $5 billion 
in gross proceeds.\135\
---------------------------------------------------------------------------
    \131\ If the CPP recipient is a private institution, Treasury 
received and immediately exercised warrants to purchase additional 
shares of preferred stock since warrants for common stock shares were 
not available. U.S. Department of the Treasury, Troubled Asset Relief 
Program Transactions Report for Period Ending Sept. 16, 2010, at 17 
(Sept. 20, 2010) (online at financialstability.gov/docs/transaction-
reports/9-20-10 Transactions Report as of 9-16-10.pdf) (hereinafter 
``Treasury Transactions Report'').
    \132\ U.S. Department of the Treasury, Treasury Announces Intent to 
Sell Warrant Positions in Dutch Auctions (Nov. 19, 2009) (online at 
www.financialstability.gov/latest/tg_11192009b.html) (``These offerings 
will be executed using a modified Dutch auction methodology that 
establishes a market price by allowing investors to submit bids at 
specified increments above a minimum price specified for each 
auction.'').
    \133\ Data provided by Dealogic. In comparison, Zions Bancorp, a 
TARP participant, sold two sets of non-TARP warrants publicly. The 
first sale, completed May 19, 2010, was valued at $185 million and the 
gross underwriting fee was three percent. The second sale was completed 
September 22, 2010 and raised $36.8 million with a gross underwriting 
fee of four percent.
    \134\ Treasury sold three different sets of Bank of America 
warrants: The first investment, associated with the original assistance 
through the CPP, grossed $186,342,969 in proceeds. The second sale 
associated with the CPP--the investment originally made in Merrill 
Lynch--grossed $124,228,646 in proceeds. Finally, the Treasury made 
gross proceeds of $1,255,639,099 from the Bank of America warrants it 
received in conjunction with its Targeted Investment Program. In 
aggregate, this represents $1,566,210,714 in gross proceeds. Following 
the pricing of these securities, Treasury announced that the 
``aggregate net proceeds to Treasury from the offerings are expected to 
be approximately $1,542,717,552.79.'' Treasury Transactions Report, 
supra note 131, at 17; U.S. Department of the Treasury, Treasury 
Department Announces Pricing of Public Offerings of Warrants to 
Purchase Common Stock of Bank of America Corporation (Mar. 1, 2010) 
(online at www.financialstability.gov/latest/pr_03042010.html).
    \135\ Data provided by Dealogic. Deutsche Bank employs other 
financial services firms as ``co-managers'' for these offerings and 
therefore does not retain the entirety of its percentage on each deal.
---------------------------------------------------------------------------

 E. Evaluation of Treasury's Contracting and Agreement Procedures and 
                                Process

    As discussed above, the use of private contractors and 
financial agents to fill short- and long-term needs has been a 
key factor in Treasury's ongoing efforts to help implement, 
operate, and administer the TARP. In this section of the 
report, the Panel evaluates the process underlying Treasury's 
contracting and agreement procedures. In order to assess 
whether Treasury could or should have done anything 
differently, the Panel analyzes whether Treasury's stated 
procedures comply with both the legal regime under which it 
operates and with its internal controls, and evaluates 
Treasury's monitoring and supervision of contract and financial 
agent compliance and performance.

1. Compliance with Legal Obligations

            a. Contracting and the FAR
    Treasury's use of procurement contracts is governed by the 
FAR.\136\ EESA permitted the Secretary, upon a finding of 
``urgent and compelling circumstances,'' to waive any provision 
of the FAR.\137\ Treasury, however, has not exercised this 
power.\138\ The Panel commends this decision as an important 
commitment to following contracting best practices.
---------------------------------------------------------------------------
    \136\ For a more complete description of the FAR requirements, see 
Section B.2, supra.
    \137\ 12 U.S.C. Sec. 5217(a).
    \138\ Treasury conversations with Panel staff (Aug. 30, 2010).
---------------------------------------------------------------------------
    According to the GAO, Treasury has complied with FAR 
requirements in its selection of contractors.\139\ To date, 
companies that bid for but did not win contracts have not filed 
any protests with either GAO or the Court of Federal Claims 
alleging that Treasury used improper procedures in selecting 
the winning company.\140\ Indeed, at times Treasury has done 
more than it was required to do. For example, the FAR allows 
for contracts to be awarded with less than full and open 
competition in certain circumstances, such as when there are 
circumstances of unusual and compelling urgency.\141\ In 
several instances, Treasury determined that there were urgent 
and compelling circumstances but nevertheless solicited and 
received competitive bids.\142\
---------------------------------------------------------------------------
    \139\ Government Accountability Office conversations with Panel 
staff (Aug. 26, 2010).
    \140\ Treasury conversations with Panel staff (Oct. 5, 2010).
    \141\ Federal Acquisition Regulation, supra note 11, at Subpart 
6.302-2(a)(2); Government Accountability Office conversations with 
Panel staff (Aug. 26, 2010). See also Section I, infra.
    \142\ Government Accountability Office conversations with Panel 
staff (Aug. 26, 2010).
---------------------------------------------------------------------------
            b. Financial Agency Agreements
    The exact contours of Treasury's legal authority to use 
financial agency agreements are not clear after the enactment 
of EESA. Only financial institutions can be financial 
agents,\143\ but the FAR does not apply to financial agency 
agreements, and although financial agents are bound by the 
duties imposed by agency law, this does not restrict Treasury's 
discretion in selecting financial agents or administering 
financial agency agreements.
---------------------------------------------------------------------------
    \143\ 12 U.S.C. Sec. 5211(c)(3). Financial institutions are 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. Sec. 5202(5).
---------------------------------------------------------------------------
    Treasury has had the authority to designate financial 
agents since the National Bank Acts of 1863 and 1864, and case 
law prior to EESA suggests that financial agents must be used 
only to perform inherently governmental functions and that 
financial agents must be paid from non-appropriated funds.\144\ 
EESA, though, arguably has broadened Treasury's financial agent 
authority to displace the case law restrictions. EESA mandates 
that financial agents may perform ``all such reasonable duties 
related to this Act . . . as may be required.'' \145\ Though 
still untested in court, such broad language can be read to 
give Treasury statutory authority to employ financial agents 
for a much wider spectrum of duties than just inherently 
governmental functions.
---------------------------------------------------------------------------
    \144\ Transactive Corp. v. United States, 91 F.3d 232 (D.C. Cir. 
1996); Marketing & Management Information, Inc. v. United States, 57 
Fed. Cl. 665 (Fed. Cl. 2003).
    \145\ 12 U.S.C. Sec. 5211(c)(3).
---------------------------------------------------------------------------
    In exercising the financial agency agreement authority, 
Treasury has not made any in-depth analysis of this legal 
ambiguity public. As discussed above, in Section C, Treasury's 
primary consideration in deciding when to execute a financial 
agency agreement was whether Treasury needed a close, fiduciary 
relationship with the company providing the service. According 
to officials in OFS's Office of Financial Agents (OFA), which 
is responsible for selecting, administering, managing day-to-
day, and overseeing financial agency agreements, the OFA did 
not consider whether a service was inherently governmental or 
not. OFA officials stated that they had never taken the 
discussion that far.\146\
---------------------------------------------------------------------------
    \146\ Treasury conversations with Panel staff (Sept. 16, 2010).
---------------------------------------------------------------------------
    Despite not having published a legal justification for its 
use of financial agency agreement authority, Treasury's 
practice in awarding financial agency agreements relies on an 
interpretation of EESA as having displaced prior case law. 
First, all the financial agents were paid from appropriated 
funds. Second, at least some of the financial agency agreements 
were for functions that were not inherently governmental, such 
as those for whole loan or securities management. Historically, 
these services have been obtained through procurement 
contracts, which cannot be used for inherently governmental 
functions.\147\
---------------------------------------------------------------------------
    \147\ James J. McCullough & William S. Speros, These Agents Act for 
the Treasury Department, Legal Times (Nov. 10, 2008) (online at 
www.ffhsj.com/siteFiles/Publications/
C770B7734821251EE89B86279A25212E.pdf).
---------------------------------------------------------------------------
    If this broad reading of EESA is accepted, Treasury has 
likely fulfilled its legal obligations. Nevertheless, 
Treasury's departure from prior limits on financial agency 
agreement authority, and the fact that a broad reading of EESA 
has not yet been tested in court, means that Treasury's use of 
its financial agency agreement authority may be open to debate.
    It is important to note, however, that this does not imply 
that Treasury has misused its broad financial agency agreement 
powers. Under a broad reading of EESA, Treasury had 
unprecedented, unfettered authority to make financial agency 
agreements. Though the Panel does question specific decisions 
elsewhere in this report, \148\ the Panel has no reason to 
believe that Treasury abused its discretion, despite the real 
possibility afforded by such unconstrained authority. Indeed, 
at times Treasury has voluntarily gone beyond what was 
required, without any legal obligation. For example, when 
selecting a financial agent to be a custodian, Treasury had no 
legal obligation to bid the agreement competitively. 
Nevertheless, Treasury publicly sought bids for the financial 
agency agreement and received 70. Of these 70, 10 met minimum 
eligibility requirements, and three institutions were asked to 
give presentations to Treasury before The Bank of New York 
Mellon was ultimately selected as the financial agent.\149\
---------------------------------------------------------------------------
    \148\ See Sections G, H, and Annex I, infra.
    \149\ U.S. Government Accountability Office, Troubled Asset Relief 
Program: Additional Actions Needed to Better Ensure Integrity, 
Accountability, and Transparency, at 37 (Dec. 2, 2008) (GAO-09-161) 
(online at www.gao.gov/new.items/d09161.pdf) (hereinafter ``December 
2008 GAO Report'').
---------------------------------------------------------------------------

2. Compliance with Treasury's Internal Controls

    EESA requires Treasury to establish and maintain an 
effective system of internal controls consistent with the 
standards prescribed under Section 3512(c) of Title 31, U.S. 
Code, to provide reasonable assurance of ``the effectiveness 
and efficiency of operations, including the use of the 
resources of the TARP,'' ``the reliability of financial 
reporting, including financial statements and other reports for 
internal and external use,'' and ``compliance with applicable 
laws and regulations.'' \150\ Internal controls include the 
policies, procedures, and guidance that help management ensure 
effective and efficient use of resources; compliance with laws 
and regulations; and prevention and detection of fraud, waste, 
and abuse. Effective internal controls are a fundamental part 
of managing any organization to achieve desired outcomes and 
manage risk.
---------------------------------------------------------------------------
    \150\ 12 U.S.C Sec. 5226(c)(1)(A)-(C).
---------------------------------------------------------------------------
    As the GAO has noted, a key challenge that OFS faced 
following the enactment of EESA was the need to develop 
simultaneously a comprehensive system of internal controls 
while it was trying to react quickly to financial market 
dislocations.\151\ Due to the rapid evolution of the TARP, OFS 
developed controls as various aspects of the program became 
operational, instead of implementing a controls system prior to 
the establishment of different programs. For example, as 
discussed above, \152\ Treasury developed ``Policies and 
Procedures'' to govern its financial agency agreements. These 
controls, however, were written in late 2009 and early 2010, 
and received final approval only at various points in 2010--
serving as a further indication that Treasury's system of 
internal controls has been a process of gradual development, 
implementation, and evolution. Furthermore, OFS has yet to 
develop internal written procedures for overseeing and 
monitoring Fannie Mae's and Freddie Mac's administrative and 
compliance activities, including verifying the completeness and 
accuracy of their data.\153\ While the Panel recognizes the 
rapid pace of Treasury's program implementation and the 
evolving nature of the TARP, the lack of a comprehensive system 
of internal controls at the beginning increased the risk that 
the interests of the government and taxpayers may not have been 
adequately protected and that the program objectives may not 
have been achieved in the most efficient and effective manner.
---------------------------------------------------------------------------
    \151\ December 2008 GAO Report, supra note 149, at 43.
    \152\ See Section B.4, supra.
    \153\ For further discussion of Fannie Mae and Freddie Mac, see 
Annex I, infra.
---------------------------------------------------------------------------
    Moreover, for financial agency agreements, the now-
finalized guidance is either procedural or general, not 
substantive. For example, the oversight policy document 
mandates only that Treasury must ``ensure that service levels 
are being met.'' \154\ Such requirements are so amorphous that 
it is impossible to meaningfully evaluate whether or not 
Treasury complied. Alternatively, the guidance is logistical, 
as when the compensation procedures direct that obligating 
funds requires the ``completion of a Funding Authorization for 
Financial Agent Activity Sheet, submission of a purchase 
request, commitment of funds, and the creation of an 
obligation.'' \155\ The Policies and Procedures do not 
constrain Treasury's discretion or provide practical guidance 
to Treasury employees charged with selecting and administering 
financial agency agreements. As a result, compliance with these 
internal Policies and Procedures will have little practical 
effect on Treasury's use of its financial agency agreement 
authority.\156\
---------------------------------------------------------------------------
    \154\ Treasury Financial Agent Oversight Policy, supra note 53, at 
4.
    \155\ U.S. Department of the Treasury, Financial Agent Compensation 
Procedure, at 5 (June 30, 2010).
    \156\ It is unfortunately impossible to determine whether such 
guidance is typical of Treasury's usual practices with regard to 
financial agents. Treasury currently has 26 financial agency agreements 
that are unrelated to the TARP and are administered separately. There 
is, however, little public information regarding the internal controls 
Treasury has adopted to help administer these agreements, making a 
comparison to TARP-related financial agency agreements impossible.
---------------------------------------------------------------------------
    The internal controls for contracts are more extensive. The 
internal controls cover six areas: web publication of 
contracts, purchase request guidelines, contact and inquiries 
procedures, COTR nomination and file organizations, contract 
distribution procedure, and acquisition planning guidelines. 
Though some of these policies are procedural, others contain 
substantive requirements for each step of the contracting 
process. Such clear directions ensure consistency in 
administration and that adequate procedures are used for all 
contracts.

3. Evaluation of How Treasury Selects Contractors and Agents

    Once the decision to outsource a particular function has 
been made, \157\ and companies have submitted bids, Treasury 
still must determine which specific company will be awarded the 
contract or agreement. For contracts, the FAR provides 
straightforward requirements: agencies select the company whose 
bid represents the best value.\158\ The FAR also lists a number 
of factors and subfactors to use in evaluating bids.\159\ 
Financial agency agreements, by contrast, have far fewer formal 
requirements, and therefore OFA has considerably more 
discretion in selecting agents.
---------------------------------------------------------------------------
    \157\ For a discussion of how Treasury decides what to outsource, 
see Section C, supra.
    \158\ Federal Acquisition Regulation, supra note 11, at Subpart 
15.3.
    \159\ Federal Acquisition Regulation, supra note 11, at Subpart 
15.3.
---------------------------------------------------------------------------
    OFA does limit its options by imposing certain threshold 
requirements, discussed more fully above, in Section C. 
Nevertheless, OFA's broad discretion resulted in decisions like 
hiring Fannie Mae and Freddie Mac without apparently taking 
into account either public or private sector alternatives, 
which raised a number of issues that are addressed in detail 
later in this report.\160\ Treasury selected Fannie Mae and 
Freddie Mac based on three criteria: (1) Their nationwide 
housing knowledge, as well as the resources and capabilities 
they had acquired in the course of performing their unique role 
in housing finance markets; (2) the limited time frame for 
implementing HAMP; and (3) prior market research by Treasury 
for a separate program that indicated Fannie Mae and Freddie 
Mac were well qualified for the program.\161\ According to 
Deputy Assistant Secretary Gary Grippo, ``we made a 
determination that there were no other parties with the 
capabilities and infrastructure to operate a national mortgage 
modification program.'' \162\ Testimony from the Panel's recent 
hearing, however, suggests that the roles of Fannie Mae and 
Freddie Mac as financial agents were not simply an extension of 
what they were already doing. In addition, both Fannie Mae and 
Freddie Mac have relied heavily on subcontractors to implement 
HAMP, calling into question whether they had the operating 
capabilities and infrastructure to operate a national 
foreclosure mitigation program.\163\
---------------------------------------------------------------------------
    \160\ For a more complete discussion of the Fannie Mae and Freddie 
Mac financial agency agreements, see Annex I, infra.
    \161\ Treasury conversations with Panel staff (Sept. 27, 2010).
    \162\ Testimony of Gary Grippo, supra note 49.
    \163\ For a more complete discussion of the Fannie Mae and Freddie 
Mac financial agency agreements, see Annex I.
---------------------------------------------------------------------------

4. Evaluation of Treasury's Post-Award Management of Contracts and 
        Agreements

            a. Who Manages Post-Award Contracts and Agreements?
    Treasury has improved its post-award contract and agreement 
management staff over time. Given the rapid deployment of the 
TARP in response to the financial crisis and the need to begin 
operations immediately, management staffing was initially 
inadequate. In late 2008 and early 2009, GAO developed a number 
of recommendations designed to ensure the integrity, 
transparency, and accountability of Treasury's TARP contracting 
process.\164\ In general, GAO recommended that Treasury 
expedite its efforts to ensure that a sufficient number of 
appropriately trained personnel were in place to oversee the 
performance of all contractors. Since then, Treasury has 
dedicated more personnel to help facilitate effective 
management and oversight of TARP contracts and financial agency 
agreements.\165\
---------------------------------------------------------------------------
    \164\ U.S. Government Accountability Office, Troubled Asset Relief 
Program: Status of Efforts to Address Transparency and Accountability 
Issues, at 76-77 (Jan. 30, 2009) (GAO-09-296) (online at www.gao.gov/
new.items/d09296.pdf) (hereinafter ``January 2009 GAO Report on 
Transparency and Accountability''); December 2008 GAO Report, supra 
note 149, at 59-60.
    \165\ Treasury conversations with Panel staff (Sept. 2, 2010).
---------------------------------------------------------------------------
            i. Procurement Contracts
    Procurement contracts are overseen by contracting officers, 
who have overall responsibility for managing a contract. The 
day-to-day monitoring of a contract is delegated to Contracting 
Officer's Technical Representatives (COTRs), who act as the 
contracting officer's technical experts and representatives in 
the administration and monitoring of all TARP contracts. With 
limited exceptions, COTRs are required by Treasury's internal 
guidance to be trained and certified in their acquisition-
related responsibilities prior to their appointments.\166\
---------------------------------------------------------------------------
    \166\ January 2009 GAO Report on Transparency and Accountability, 
supra note 164, at 51-52.
---------------------------------------------------------------------------
    Initially, Treasury did not have enough trained COTRs to 
manage the contracts, so it assigned a number of its senior 
officials as COTRs. Given the limited timeframe for executing 
the program, some of these officials were assigned COTR 
responsibilities without receiving formal training in their 
acquisition-related responsibilities.\167\ While Treasury 
replaced the senior-level COTRs with certified COTRs over time, 
the fact that officials without proper procurement training 
were charged with the administration and monitoring of 
contracts for a time potentially impeded efforts to implement 
effectively and oversee the TARP.
---------------------------------------------------------------------------
    \167\ January 2009 GAO Report on Transparency and Accountability, 
supra note 164, at 51-52.
---------------------------------------------------------------------------
    Since then, trained and certified COTRs have been put in 
place for all OFS contracts, \168\ and Treasury has held a 
number of internal workshops and best practice exchanges for 
COTRs. Personnel from other agencies have been brought in to 
share different agencies' practices.\169\ Treasury also plans 
to hold annual refresher training programs intended to 
supplement the formal training and certification required prior 
to COTR appointment and further enhance skills development for 
COTRs assigned to TARP contracts and financial agency 
agreements.\170\ In addition, OFS has developed an online COTR 
document management structure for contract and agreement 
administration to ensure consistent and complete documentation 
of COTR files, standardize processes, and facilitate personnel 
transition through access to information and shared 
practices.\171\ In areas where COTR oversight may potentially 
be weak, Treasury has gone further. For example, Treasury noted 
that COTRs might be unable to assess compliance effectively in 
the context of legal services. To mitigate this potential 
problem, Treasury had all of the attorneys who worked with 
retained law firms receive training and become COTR-
certified.\172\
---------------------------------------------------------------------------
    \168\ There are currently 21 COTRs overseeing Treasury's contracts.
    \169\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \170\ Treasury conversations with Panel staff (Sept. 2, 2010); U.S. 
Department of the Treasury, OFS Actions During Fiscal Year 2010 to 
Enhance Oversight of TARP Contractor and Financial Agent Performance 
(Aug. 19, 2010) (hereinafter ``OFS Actions to Enhance Oversight''). 
Treasury has also indicated that it has trained additional personnel 
for COTR certification to ensure workloads are balanced so sufficient 
attention is given to managing contracts and financial agency 
agreements.
    \171\ Id.
    \172\ Treasury conversations with Panel staff (Sept. 16, 2010).
---------------------------------------------------------------------------
    Additionally, Treasury has hired two senior-level contract 
specialists to both supervise and support all pre-award and 
post-award procurement actions in support of OFS.
            ii. Financial Agency Agreements
    OFA is responsible for the administration, day-to-day 
management, and oversight of the financial agency agreements 
supporting the implementation of EESA. OFA assists the Treasury 
Fiscal Assistant Secretary and Deputy Fiscal Assistant 
Secretary in the selection, designation, and management of 
financial agents in support of the TARP. OFA is responsible for 
providing financial agents with proper instructions and with 
formal direction and guidance in executing their 
responsibilities under their financial agency agreements. 
Within OFA, financial agent managers are the primary points of 
contact for specific financial agency agreements; their 
responsibilities include ensuring that funds are obligated to 
financial agency agreements and that invoices and accruals are 
processed in a timely fashion. In addition, with respect to 
Freddie Mac's financial agent functions, senior-level officials 
within OFS direct and closely monitor Freddie Mac's activities, 
and OFS has four employees assigned to work full-time to 
oversee Freddie Mac (three of whom work full time on-site in 
Freddie Mac's office).\173\ Additionally, Treasury's MHA 
Compliance Committee (composed of senior Treasury officials 
leading the MHA program and chaired by the director of 
compliance at OFS) meets weekly with Freddie Mac's MHA 
compliance senior management team to discuss the program's 
status, issues, and challenges.\174\
---------------------------------------------------------------------------
    \173\ Treasury conversations with Panel staff (Sept. 23, 2010); 
Congressional Oversight Panel, Written Testimony of Paul Heran, program 
executive, Making Home Affordable--Compliance, Freddie Mac, COP Hearing 
on Treasury's Use of Private Contractors, at 2 (Sept. 22, 2010) (online 
at cop.senate.gov/documents/testimony-092210-heran.pdf) (hereinafter 
``Testimony of Paul Heran'').
    \174\ Id. at 2; Treasury conversations with Panel staff (Sept. 23, 
2010).
---------------------------------------------------------------------------
    Since September 2009, Treasury has also made organizational 
and staffing improvements to strengthen its oversight of 
financial agents, including the hiring of seven full-time staff 
members. Originally anticipated to have only around five staff 
members, OFA currently has 11 staff, with four more expected to 
be hired by the end of 2010. The improvements at OFA also 
include the hiring of a permanent full-time director who has 10 
years of experience in managing billion-dollar federal 
contracts and Treasury operations supported by financial agents 
as well as the reorganization of OFA into dedicated teams 
charged with the monitoring and oversight of each major 
financial agent.\175\
---------------------------------------------------------------------------
    \175\ U.S. Department of the Treasury, Update on Changes in Key 
Positions for TARP Oversight of Contractors and Financial Agents (Sept. 
14, 2010).
---------------------------------------------------------------------------
            iii. Additional Post-Award Management
    OFS has created the Contracting Agreement and Review Board 
(CARB), which meets at least monthly and is charged with 
administering contracts and financial agency agreements, 
ensuring sufficient and effective planning, administration, and 
management, and examining issues with planned TARP 
acquisitions.\176\
---------------------------------------------------------------------------
    \176\ Treasury conversations with Panel staff (Sept. 2, 2010).
---------------------------------------------------------------------------
    In addition, Treasury hired an executive contract 
administration manager to oversee the planning of long-range 
requirements, implement contract management best practices, and 
provide leadership and guidance to COTRs and OFA management 
personnel. The contract administration manager reports to the 
OFS chief operating officer and holds weekly roundtable 
meetings with COTRs to identify significant issues and actions 
on particular contracts and financial agency agreements, 
facilitate cross-training and professional development of 
COTRs, and continuously improve the administration and 
oversight of OFS contracts and agreements.\177\
---------------------------------------------------------------------------
    \177\ Treasury conversations with Panel staff (Sept. 2, 2010).
---------------------------------------------------------------------------
    OFS has also established OFS-Compliance (OFS-C) to perform 
some compliance monitoring. OFS-C currently has 27 employees 
and plans to add 20 more positions. Of these 27, five are 
tasked with reviewing all of Treasury's arrangements for 
conflicts of interest.\178\ Four employees help monitor the 
financial agency agreements with Fannie Mae and Freddie Mac, 
which is discussed in more detail below, in Annex I. Other 
staff are not specifically assigned to monitor performance but 
do so part-time in the course of reviewing TARP programs such 
as the CPP.
---------------------------------------------------------------------------
    \178\ For more discussion of this conflicts of interest group, see 
Section H, infra.
---------------------------------------------------------------------------
            b. Treasury Procedures for Post-Award Contract and 
                    Agreement Management
            i. Procurement Contracts
    The specific procedures and metrics Treasury uses to 
administer a contract are laid out in each contract on a 
contract-by-contract basis. In general, though, Treasury has 
several layers of controls to manage contractor performance. 
The first layer is the COTR, who monitors contract performance 
on a daily or weekly basis. The COTR also prepares a monthly 
report, which evaluates the contractor for cost control, 
performance, and business relations.\179\ For contracts for 
legal services, the attorneys who work with the contractor law 
firm help the COTR prepare these monthly reports. At present, 
Treasury's contracts are overseen by 21 COTRs, with a COTR 
overseeing, at most, $38 million worth of contracts and usually 
much less.
---------------------------------------------------------------------------
    \179\ Treasury conversations with Panel staff (Sept. 16, 2010).
---------------------------------------------------------------------------
    The next layer of controls is the CARB, which reviews the 
COTRs' monthly reports. The CARB monitors performance data from 
all contracts to ensure consistent and effective performance 
management. Treasury also relies on self-certifications from 
contractors. For example, contractors must certify that they 
have accurately reported all conflicts of interest.
    Ongoing efforts on the part of Treasury to enhance its 
oversight of contractor performance include an OFS Contract 
Administration Management Plan, which is a comprehensive 
strategy to improve acquisition planning, implement consistent 
and reliable processes for contract execution and 
implementation, manage contractor performance based on level of 
risk, and reduce reliance on contracted support as OFS retains 
in-house expertise.\180\
---------------------------------------------------------------------------
    \180\ OFS Actions to Enhance Oversight, supra note 170.
---------------------------------------------------------------------------
    In the event that a contract violation is found, the COTR 
has several options, including rejecting or withholding 
payment, stopping or reducing the amount of work the contractor 
receives, considering the performance as an element of future 
award decisions, and issuing a formal notice to the contractor 
to cure.
    These procedures follow well-established norms for 
monitoring contract performance.\181\ Though additional 
procedures such as requiring independent audits of contractors 
would provide added assurances of contract performance, it is 
not clear they would be worth the added administrative time and 
expense.\182\
---------------------------------------------------------------------------
    \181\ Project on Government Oversight conversations with Panel 
staff (Sept. 27, 2010); Christopher Yukins, Professor of Law, George 
Washington University Law School, conversations with Panel staff (Sept. 
29, 2010).
    \182\ Christopher Yukins, Professor of Law, George Washington 
University Law School, conversations with Panel staff (Sept. 29, 2010).
---------------------------------------------------------------------------
            ii. Financial Agency Agreements
    Since September 2009, Treasury has strengthened its 
infrastructure for monitoring, managing, and overseeing its 
financial agents, including the installation of performance 
measurement and monitoring initiatives.
    OFA's primary mechanism for monitoring compliance with the 
terms of a financial agency agreement is agent self-
certification.\183\ The agent must certify that they are 
complying with 10 to 15 selected terms of the agreement, such 
as that all conflicts of interest have been addressed, and that 
they safeguarded protected information.\184\ In addition, 
agents are required to review the effectiveness of their 
internal control processes annually, which most agents do 
either by hiring an independent reviewer to perform an SAS 70 
audit, \185\ or by conducting a comparable internal audit.\186\ 
Treasury also requires agents to submit information regarding 
conflicts of interest, which it reviews on an ongoing 
basis.\187\
---------------------------------------------------------------------------
    \183\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \184\ See, e.g., U.S. Department of the Treasury, Financial Agency 
Agreement Between U.S. Department of the Treasury and Avondale 
Investments (Dec. 22, 2009) (Contract No. TOFS-10-FAA-001) (online at 
www.financialstability.gov/docs/ContractsAgreements/
Avondale%20Signed%20FAA.pdf); Financial Agency Agreement Between 
Treasury and BNY Mellon, supra note 27.
    \185\ An SAS 70 audit is an in-depth review of a company's control 
objectives and control activities performed by an independent 
accounting and auditing firm. It was developed by the American 
Institute of Certified Public Accountants and is a widely recognized 
auditing standard. For more information on the auditing standard, see 
SAS 70 Audit, SAS 70--Overview (online at sas70.com/
sas70_overview.html).
    \186\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 6.
    \187\ Treasury conversations with Panel staff (Sept. 16, 2010). For 
a more complete discussion of Treasury's monitoring of contractor and 
agent conflicts of interest, see Section H, infra.
---------------------------------------------------------------------------
    OFA has instituted an annual on-site spot check program for 
financial agents. These spot checks are not formal audits, but 
instead select a few provisions in the agency agreements and 
test the agent's processes with regard to those provisions. For 
example, a spot check may verify that the agent has sufficient 
measures in place for protecting confidential information, 
including that all employees have signed non-disclosure 
forms.\188\
---------------------------------------------------------------------------
    \188\ Treasury conversations with Panel staff (Sept. 16, 2010); 
Prepared Statement of Gary Grippo and Ronald Backes, supra note 26, at 
6.
---------------------------------------------------------------------------
    In addition to compliance with the terms of the financial 
agency agreement, OFA also evaluates agents on their 
performance under the financial agency agreement on a monthly 
or quarterly basis. The process involves all OFS stakeholders 
and balances both quantitative and qualitative factors. 
Quantitative measures include counts of work product, for 
example. Qualitative assessments principally consist of 
interviews with the relevant program officers.\189\ Survey 
responses are also used.\190\ Together, these quantitative and 
qualitative assessments are used to create a scorecard, which 
is linked to incentive fees in some cases.\191\
---------------------------------------------------------------------------
    \189\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \190\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 6.
    \191\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 6.
---------------------------------------------------------------------------
    Furthermore, Treasury has instituted a bi-annual customer 
satisfaction survey of OFA's internal stakeholders (for 
example, OFS), which provides a subjective evaluation of 
whether the financial agents are responsive to Treasury 
requirements.\192\
---------------------------------------------------------------------------
    \192\ U.S. Department of the Treasury, Update on Changes in OFS 
Actions for Enhancing Contractor and Financial Agent Oversight (Sept. 
14, 2010).
---------------------------------------------------------------------------
    If an agent does not perform, OFA relies on general 
Treasury procedures to respond. Treasury has a three-strike 
policy. On the first instance of non-performance, Treasury will 
meet the agent, present proof of non-performance, and establish 
a remediation plan, which will be monitored weekly. If the 
agent fails to perform again, Treasury will issue a formal 
letter and possibly issue sanctions. A third incident usually 
results in termination of the agreement. To date, OFA has not 
proceeded to this third step against any agent.\193\
---------------------------------------------------------------------------
    \193\ Treasury conversations with Panel staff (Sept. 16, 2010).
---------------------------------------------------------------------------
    Despite these several layers of controls, OFA's procedure 
has failed to detect at least one serious failing by an agent. 
Discussed in more detail below, in Annex I, Fannie Mae 
published incorrect information regarding mortgage borrower re-
default rates under HAMP. The error was detected not by 
Treasury but by a group of outside analysts.\194\ OFS and OFA 
officials readily admit that Treasury lacked adequate controls 
with respect to the communication of program requirements and 
the validation of data.\195\ This admission calls into question 
the level of independent scrutiny, verification, and oversight 
that Treasury has implemented with respect to the monitoring of 
its financial agents.\196\ While the Panel recognizes and 
appreciates that Treasury's monitoring and oversight have 
strengthened over time, proper implementation of the TARP and 
oversight of financial agents require rigorous monitoring and 
controls from program inception.
---------------------------------------------------------------------------
    \194\ MITRE, Assessment of the Home Affordable Modification Program 
(HAMP) Re-Default Table, Conducted for the U.S. Department of the 
Treasury--Office of Financial Stability, at 2-1 (Aug. 9, 2010) (online 
at www.financialstability.gov/docs/
MITRE%20Final%20Public%20Version%208-6-10.pdf) (hereinafter ``MITRE 
HAMP Re-Default Report'').
    \195\ Treasury conversations with Panel staff (Sept. 23, 2010).
    \196\ This concern is exacerbated by Treasury's exclusive reliance 
on Fannie Mae to act as record keeper and program administrator, which 
creates significant risks to both effective program implementation and 
financial agent oversight. For further discussion, see Annex I, infra.
---------------------------------------------------------------------------
    Some have argued that the best method for ensuring agent 
performance is to create monetary incentives in the agreement 
to reward excellent performance. Such incentives also provide 
clear metrics for judging success and would force Treasury to 
define its goals for each contract before it is awarded. This 
technique has been used in some agreements such as those with 
Fannie Mae and Freddie Mac.\197\ On the other hand, others 
argue that such incentives are not always necessary. Agents may 
be motivated to perform well by, for example, a desire to build 
capacity in a particular area or the prestige associated with 
successfully accomplishing the task.
---------------------------------------------------------------------------
    \197\ For a more complete discussion of incentives in these 
agreements, see footnote 122, supra.
---------------------------------------------------------------------------
            iii. Subcontracts
    Although Treasury's consent is required before any 
contractor or financial agent can engage a subcontractor, 
Treasury has limited oversight ability after the subcontract is 
awarded. Before giving consent, OFA examines potential 
financial agent subcontractors to ensure that there is an 
adequate budget and that the tasks envisioned for the 
subcontractor are within the original scope of work. In 
addition, the relevant program office can become involved to 
ensure that program objectives will be met. Contracts are most 
carefully examined when they involve payment arrangements where 
Treasury may bear the risk of cost overruns.\198\
---------------------------------------------------------------------------
    \198\ Treasury conversations with Panel staff (Sept. 16, 2010).
---------------------------------------------------------------------------
    Prior to giving approval, Treasury also examines all 
subcontracts for conflict of interest information. The prime 
contractor or financial agent is responsible for collecting 
conflicts information from the potential subcontractors and 
submitting it to Treasury. Potential subcontractors have been 
rejected because of conflicts of interest issues.\199\
---------------------------------------------------------------------------
    \199\ Treasury conversations with Panel staff (Sept. 16, 2010).
---------------------------------------------------------------------------
    After approving a subcontract, Treasury primarily relies on 
the prime contractor or the financial agent to ensure their 
subcontractors' compliance. Prime contractors and financial 
agents, in their required self-certifications, also certify to 
the compliance of their subcontractors. Prime contractors and 
financial agents collect ongoing conflicts of interest 
information from their subcontractors, and then send this 
information to Treasury. Treasury, however, does directly 
collect some information on subcontractors through day-to-day 
inquiries, annual reports from prime contractors and financial 
agents, and from monthly reports that identify subcontractors, 
subcontract values, and other information.
    Even without direct oversight, Treasury retains tools to 
control subcontractor behavior by working through prime 
contractors and financial agents. All the terms of the original 
contract or financial agency agreement flow down to, and bind, 
the subcontractors. Prime contractors and financial agents also 
remain directly liable to Treasury in the event that a 
subcontractor fails to perform adequately.\200\ In addition, 
continually adding further layers of direct oversight risks 
adding to administrative costs without correspondingly great 
increases in accountability.\201\
---------------------------------------------------------------------------
    \200\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \201\ Professor Lawrence Lessig, a Professor of Law at Harvard Law 
School and Director of the Edmond J. Safra Foundation Center for 
Ethics, described this problem as the ``Bee Watcher-Watcher'' problem, 
referencing the Dr. Seuss story that features a bee being watched by a 
watcher, who is in turn watched by another watcher (a watch-watcher), 
who is in turn watched by another watcher (a watch-watcher-watcher) in 
an ever-expanding chain of oversight. Dr. Seuss, Did I Ever Tell You 
How Lucky You Are?, at 29 (1973); Lawrence Lessig, Professor of Law, 
Harvard Law School, conversations with Panel staff (Sep. 20, 2010).
---------------------------------------------------------------------------
    Despite these controls, however, Treasury lacks critical 
basic information about subcontractors, such as the text of the 
subcontracts themselves \202\ and the dates on which they were 
awarded.\203\ Treasury should collect this information. In 
addition, though prime contractor and financial agent direct 
liability will provide incentive to ensure subcontractors are 
adequate, it does not necessarily ensure that Treasury receives 
the best value. More troublingly, without direct oversight, 
Treasury will have difficulty detecting violations of contract 
terms that are not related to work product, such as whether or 
not a subcontractor has ensured the confidentiality of 
information or that there are no conflicts of interest. At 
present, Treasury must simply trust that prime contractors or 
financial agents will enforce these provisions.\204\
---------------------------------------------------------------------------
    \202\ Treasury conversations with Panel staff (Sept. 13, 2010).
    \203\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \204\ This lack of direct oversight and its associated dangers are 
not unique to Treasury. Treasury's procedure for managing 
subcontractors is typical of most government agencies. Steven Schooner, 
Professor of Law, George Washington University Law School, 
conversations with Panel staff (Oct. 5, 2010); Project on Government 
Oversight conversations with Panel staff (Oct. 6, 2010). Over the past 
twenty years, the government's contract management staff has been cut 
while the total value of its acquisitions has increased. This has left 
the government with insufficient resources for contract management and 
has eviscerated the resources available for overseeing subcontractors. 
Steven Schooner, Professor of Law, George Washington University Law 
School, conversations with Panel staff (Oct. 5, 2010).
---------------------------------------------------------------------------

              F. Evaluation of Small Business Arrangements

    Under the FAR, any acquisition between $3,000 and $100,000 
must be set aside exclusively for small business concerns, 
unless the contracting officer determines that competitive 
offers from small businesses cannot be obtained.\205\ For all 
other contracts, the FAR expresses a preference for contracting 
with small businesses, but does not require it. No requirements 
at all exist for small business financial agency 
agreements.\206\
---------------------------------------------------------------------------
    \205\ Federal Acquisition Regulation, supra note 11, at Subpart 
9.5.
    \206\ December 2008 GAO Report, supra note 149, at 39.
---------------------------------------------------------------------------
    From the beginning of the TARP, however, OFS has encouraged 
small businesses, including minority-, veteran-, and women-
owned small businesses, to pursue procurement opportunities 
under both its contracting authority and for financial agency 
agreements.\207\ Where subcontracting opportunities exist for a 
given work requirement, OFS requires contractors to submit 
small business subcontracting plans.\208\ OFS considers a 
potential contractor's efforts to use small businesses as part 
of its selection criteria for all contracts.\209\ Each contract 
is reviewed internally by a small business specialist to 
examine opportunities for small business participation.\210\ In 
addition, the financial agency agreements for both Fannie Mae 
and Freddie Mac provide a floor for the government-sponsored 
enterprises' (GSEs') use of small business contractors, 
including minority- or women-owned contractors. In entering 
into their financial agency agreements with Treasury, Fannie 
Mae and Freddie Mac agreed to ``engage one or more small 
businesses as contractors, including minority- or women-owned 
businesses,'' in fulfilling their responsibilities.\211\ OFS 
has also reached out to small businesses, including minority-, 
veteran-, and women-owned small businesses. For example, on May 
27, 2009, Treasury held an Industry Day and Small Business 
Networking event where 11 small businesses presented their 
capabilities to an audience of approximately 40 interested 
firms.\212\ In some cases, OFS has called small business trade 
associations to notify them of a new solicitation available to 
small businesses.\213\ These efforts notwithstanding, Treasury 
has received considerable criticism of its efforts to promote 
small business contracting. A recurring critique is that 
Treasury's solicitations are too large, covering too much work 
or too large a geographic area. Instead of awarding one large 
contract that small businesses cannot feasibly perform, these 
organizations argue, Treasury should break down the work into 
multiple smaller contracts.\214\ Other criticisms include that 
Treasury's outreach efforts have not included small 
professional services firms such as law firms, \215\ and that 
Treasury has not provided sufficient, conveniently located 
training sessions on how to win contracts.\216\
---------------------------------------------------------------------------
    \207\ U.S. Government Accountability Office, Troubled Asset Relief 
Program: One Year Later, Actions Are Needed to Address Remaining 
Transparency and Accountability Challenges, at 28 (Oct. 2009) (GAO-10-
16) (online at www.gao.gov/new.items/d1016.pdf) (hereinafter ``October 
2009 GAO Report on Transparency and Accountability''). One of 
Treasury's objectives is to provide contracting opportunities for small 
businesses. See Treasury Procurement Contracts and Agreements, supra 
note 10 (``Treasury actively encourages the participation of small, 
minority, veteran, and women-owned businesses in fulfilling its needs. 
. . . Where subcontracting opportunities exist for a given work 
requirement Treasury requires contractors to submit small business 
subcontracting plans with specific goals for small, minority, veteran, 
and women-owned business subcontracts.'').
    \208\ Treasury Procurement Contracts and Agreements, supra note 10.
    \209\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \210\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \211\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122. For a more complete discussion of Fannie Mae and 
Freddie Mac, see Annex I, infra.
    \212\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \213\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \214\ National Association of Minority and Women Owned Law Firms 
conversations with Panel staff (Sept. 30, 2010); National Association 
of Real Estate Brokers conversations with Panel staff (Oct. 5, 2010).
    \215\ National Association of Minority and Women Owned Law Firms 
conversations with Panel staff (Sept. 30, 2010).
    \216\ National Association of Real Estate Brokers conversations 
with Panel staff (Oct. 5, 2010).
---------------------------------------------------------------------------
    OFS has not established any specific targets for how many 
contracts, agreements, and subcontracts to award to small 
businesses. Treasury in general, however, establishes, in 
negotiation with the Small Business Administration, internal 
goals for small business contracts. Their goals for 
disadvantaged, women-owned, and veteran-owned small businesses 
are subsets of their broader small business goals. Figure 7 
below displays the goals for fiscal years 2010 and 2011.

FIGURE 7: TREASURY'S SMALL BUSINESS CONTRACTING GOALS, FISCAL YEARS 2010
                             and 2011 \217\
------------------------------------------------------------------------
                                                              Goal \218\
                          Category                            (Percent)
------------------------------------------------------------------------
Prime Contracts
Small Business.............................................         28.5
    Small Disadvantaged Business...........................          5.0
    Women-Owned Small Business.............................          5.0
    Service-Disabled Veteran-Owned Small Business..........          3.0
Subcontracts
Small Business.............................................         44.7
    Small Disadvantaged Business...........................          5.0
    Women-Owned Small Business.............................          5.0
    Service-Disabled Veteran-Owned Small Business..........          3.0
------------------------------------------------------------------------
\217\ Office of Small and Disadvantaged Business Utilization, Fiscal
  Year 2010 & 2011 Small Business Program Goals (online at www.treas.gov/
  offices/management/dcfo/osdbu/accomplishments.shtml) (accessed Oct.
  12, 2010).
\218\ The goal is a percentage of contract dollars obligated, not the
  number of contracts.

    OFS initially did not contract with many small businesses, 
but has substantially increased its share of small business 
contracts over time.\219\ As of September 30, 2010, a majority 
of financial agency agreements (eight of 15) and 13 contracts 
have been awarded to small businesses. Small businesses have 
won 55 subcontracts, although it is possible that Treasury's 
lack of transparency regarding subcontractors has concealed 
even greater opportunities for small businesses.\220\ These 
contracts, subcontracts, and agreements have already expended 
$42.3 million to small businesses and have an obligated value 
of $54.3 million.
---------------------------------------------------------------------------
    \219\ October 2009 GAO Report on Transparency and Accountability, 
supra note 207, at 28-29.
    \220\ The Panel compiled this number from data provided from 
Treasury (Sept. 30, 2010).

 FIGURE 8: TOTAL NUMBER OF CONTRACTS, SUBCONTRACTS, AND FINANCIAL AGENCY AGREEMENTS, AS OF AUGUST 13, 2010 \221\
----------------------------------------------------------------------------------------------------------------
                                                                 Prime      Financial  Agency
                                                               Contracts        Agreements        Subcontracts
----------------------------------------------------------------------------------------------------------------
Large Business............................................              60                  7                 43
Service Disabled Veteran Owned Small Business.............               2                  0                  2
Small Business............................................               6                  2                 20
Small Disadvantaged Business \222\........................               1                  0                  2
Women and Minority Owned Small Business...................               1                  0                  5
Woman Owned Small Disadvantaged Business..................               1                  0                  1
Women Owned Small Business................................               2                  1                 15
Minority Owned Small Business.............................               0                  5                 10
Other.....................................................               0                  0                  1
----------------------------------------------------------------------------------------------------------------
\221\ Data from Treasury (Sept. 30, 2010). Data for contractors to financial agents is as of August 31, 2010.
\222\ Despite the potential overlap, Treasury used both the Minority Owned Small Business and Small
  Disadvantaged Business categories in the data provided to the Panel.


    FIGURE 9: VALUE OF CONTRACTS, FINANCIAL AGENCY AGREEMENTS, AND SUBCONTRACTS, AS OF AUGUST 13, 2010 \223\
----------------------------------------------------------------------------------------------------------------
                                                                 Prime      Financial  Agency
                                                               Contracts        Agreements        Subcontracts
----------------------------------------------------------------------------------------------------------------
Large Business............................................     $74,551,966       $180,380,453        $62,095,468
Service Disabled Veteran Owned Small Business.............          89,032                  0           $187,843
Small Business............................................   \224\1,931,69          4,229,167         14,621,028
                                                                         4
Small Disadvantaged Business..............................               0                  0            191,368
Women and Minority Owned Small Business...................               0                  0          3,466,979
Woman Owned Small Disadvantaged Business..................               0                  0            422,499
Women Owned Small Business................................       1,307,071            575,000          7,892,877
Minority Owned Small Business.............................               0          9,180,000          3,999,121
Other.....................................................               0                  0             87,360
----------------------------------------------------------------------------------------------------------------
\223\ Data from Treasury (Sept. 30, 2010). All values are expended values. For prime contracts and financial
  agency agreements, the subcontract values were deducted from the prime contract or financial agency agreement
  expended value to avoid double counting. Data for contractors to financial agents is as of August 31, 2010.
\224\ One small business contract had a listed expended value that was less than the value of its subcontract.
  This resulted in an expended value that was negative. As a result, this prime contract has been given an
  expended value of zero for purposes of this Figure.

    Despite OFS's efforts to promote small business contracting 
opportunities, large businesses still receive the overwhelming 
majority of prime contracts, \225\ both in terms of value and 
number. OFS has not met Treasury's goals for small business 
prime contracts. Indeed, less than 5 percent of prime contract 
dollars go to small businesses, far short of the 28.5 percent 
goal. Though not so far below the goal as for prime contracts, 
OFS has also failed to meet Treasury's goals for subcontracting 
dollars. Although Treasury has made efforts to include small 
businesses, there remains room to improve.
---------------------------------------------------------------------------
    \225\ A prime contract is the original contract.
---------------------------------------------------------------------------
    Also of note is the limited involvement of women- and 
minority-owned small businesses.\226\ Despite increases over 
time in small business contracting, the situation has not 
substantially improved with regard to minority- and women-owned 
businesses. Only one prime contract has been awarded to a 
minority-owned business. Trade associations representing 
minority- and women-owned businesses, moreover, state that 
Treasury has not reached out to them as it has done for small 
businesses more generally.\227\ The Panel notes with concern 
the lack of outreach to minority- and women-owned small 
businesses.
---------------------------------------------------------------------------
    \226\ Treasury has received considerable criticism on this point. 
See, e.g., Senate Small Business Committee, Investing in Small 
Business: Jumpstarting the Engines of our Economy (Jan. 29, 2009) 
(online at sbc.senate.gov/public/
index.cfm?p=Hearings&ContentRecord_id=3fa523ec-8771-4093-ac96-
94f08aecba46&ContentType_id=14f995b9-dfa5-407a-9d35-
56cc7152a7ed&Group_id=43eb5e02-e987-4077-b9a7-
1e5a9cf28964&MonthDisplay=1&YearDisplay=2009); House Financial 
Services, Subcommittee on Housing and Community Opportunity, Minorities 
and Women in Financial Regulatory Reform: The Need for Increasing 
Participation and Opportunities for Qualified Persons and Businesses 
(May 12, 2010) (online at financialservices.house.gov/Hearings/
hearingDetails.aspx?NewsID=1066); James Byrne, Eye on Washington, 
Minority Business Entrepreneur (May/June 2009); Marcia Wade Talbert, 
Opportunities for Minority Contracts in TARP Limited, Business News 
(Oct. 25, 2008) (online at www.blackenterprise.com/business/business-
news/2008/10/25/opportunities-for-minority-contracts-in-tarp-limited/).
    \227\ National Association of Minority and Women Owned Law Firms 
conversations with Panel staff (Sept. 30, 2010); National Association 
of Real Estate Brokers conversations with Panel staff (Oct. 5, 2010); 
National Association of Securities Professionals conversations with 
Panel staff (Oct. 8, 2010).
---------------------------------------------------------------------------

            G. Evaluation of Transparency and Accountability

    Transparency and accountability are of heightened 
importance in the context of contracting.\228\ A contractor is 
not a government entity. Its employees do not take an oath of 
office, and it is not obligated to stand for election, so U.S. 
citizens have no opportunity to cast a vote on its performance. 
In this context, it is critical that Treasury use rigorous 
transparency and accountability standards to ensure that the 
public has access to the identities and performance records of 
the private entities working with Treasury to implement the 
TARP.
---------------------------------------------------------------------------
    \228\ See Congressional Oversight Panel, Testimony of Allison 
Stanger, Russell J. Leng '60 Professor of International Politics and 
Economics, Middlebury College, Transcript: COP Hearing on Treasury's 
Use of Private Contractors (Sept. 22, 2010) (publication forthcoming) 
(online at cop.senate.gov/hearings/library/hearing-092210-
contracting.cfm) (hereinafter ``Testimony of Allison Stanger'') (``I am 
increasingly convinced that getting as much information out in the 
public domain and encouraging self-policing behavior, and encouraging 
the American people to hold their government accountable is really the 
key.'').
---------------------------------------------------------------------------

1. Transparency

    A core element of the Panel's mandate is to examine the 
``extent to which the information made available on 
transactions under the [TARP] has contributed to market 
transparency.'' \229\ In previous reports, the Panel has 
examined this issue in detail, stressing the importance of 
transparency with respect to a wide array of TARP programs and 
institutions.\230\
---------------------------------------------------------------------------
    \229\ 12 U.S.C. Sec. 5233(b)(1)(A)(iii).
    \230\ See, e.g., August 2010 Oversight Report, supra note 80, at 4 
(``In the interests of transparency and completeness, and to help 
inform regulators actions in a world that is likely to become ever more 
financially integrated, the Panel strongly urges Treasury to start now 
to report more data about how TARP and other rescue funds flowed 
internationally and to document the impact that the U.S. rescue had 
overseas.'').
---------------------------------------------------------------------------
    Treasury has disclosed a significant amount of information, 
and in testimony before the Panel, one expert stated that 
``Treasury earns strong marks for its transparency efforts.'' 
\231\ Yet despite Treasury's provision of basic information on 
contractors and financial agents, and despite making the 
contracts and agreements themselves publicly available, it may 
be beneficial for Treasury to disclose key information in three 
critical areas:
---------------------------------------------------------------------------
    \231\ Congressional Oversight Panel, Written Testimony of Steven 
Schooner, professor of law and co-director of the government 
procurement law program, The George Washington University School of 
Law, COP Hearing on Treasury's Use of Private Contractors, at 5 (Sept. 
22, 2010) (online at cop.senate.gov/documents/testimony-092210-
schooner.pdf).
---------------------------------------------------------------------------
         material information in arrangements, 
        including use of subcontractors;
         performance under arrangements; and
         monitoring procedures.
    The absence of sufficient information in these three areas 
reflects the critical difference between ``formalistic 
transparency'' and ``meaningful transparency'' that was 
highlighted in testimony before the Panel.\232\
---------------------------------------------------------------------------
    \232\ See Id. at 5.
---------------------------------------------------------------------------
            a. Disclosure of Material Information
    Treasury has disclosed some information with respect to its 
relationships with private entities, including the names of 
both contractors and financial agents, the date the contract 
was awarded, the value, and the anticipated end date. Treasury 
posts a list of the contractors and financial agents, as well 
as the documents themselves, on financialstability.gov.\233\
---------------------------------------------------------------------------
    \233\ Treasury updates the site approximately every 30 days. List 
of Procurement Contracts and Agreements Under EESA, supra note 8 
(accessed Oct. 12, 2010); Treasury conversations with Panel staff (Aug. 
30, 2010).
---------------------------------------------------------------------------
    Not all material information is publicly available, 
however. While Treasury provides basic information on the total 
value of the contract and the general services to be provided 
by the contractor, it does not provide ``detailed information'' 
on the contractor's obligations under the contract or on 
specific expenses incurred.\234\ Many of the contracts are task 
or delivery order contracts, where critical specifics typically 
appear in task orders, rather than in the contracts 
themselves.\235\ Treasury does not release these task orders to 
the public; it maintains that it does not disclose them due to 
the volume of the orders.\236\ Treasury also does not disclose 
hourly rates for law firms. On one hand, Treasury should make 
as much information available as possible, but on the other, 
billing rates may be regarded as the type of trade secret that 
traditionally has been exempted from disclosure requirements. 
An expert testified before the Panel that while not ``all cost 
or pricing data should be protected by the government, 
protecting proprietary information is the general rule.'' \237\
---------------------------------------------------------------------------
    \234\ June 2009 GAO Report on Transparency and Accountability, 
supra note 57, at 84.
    \235\ See Section D.1.a, supra.
    \236\ Treasury conversations with Panel staff (Sept. 16, 2010).
    \237\ Congressional Oversight Panel, Written Testimony of Scott 
Amey, general counsel, Project on Government Oversight, COP Hearing on 
Treasury's Use of Private Contractors, at 4 (Sept. 22, 2010) (online at 
cop.senate.gov/documents/testimony-092210-amey.pdf).
---------------------------------------------------------------------------
    In addition, Treasury does not publicly disclose detailed 
information with respect to the names and duties of 
subcontractors, nor does it publish the subcontracts 
themselves. The result is that in cases in which contractors 
delegate substantial portions of their duties to 
subcontractors, the public possesses limited access to 
information.\238\ Subcontractor status operates like an 
umbrella, shielding contractors, financial agents, and Treasury 
from the need to disclose valuable information about the 
disposition of taxpayer funds.\239\
---------------------------------------------------------------------------
    \238\ GAO has noted Treasury's subcontracting process and its 
efforts to ensure that small businesses, minority-owned businesses, and 
women-owned businesses are well-represented. See June 2009 GAO Report 
on Transparency and Accountability, supra note 57, at 63-64. Of course, 
while it may be true that a substantial percentage of subcontracts have 
been awarded to these types of businesses, this evidence is obscured 
from public view because it is not made publicly available. The fact 
that it is not publicized makes it difficult to identify both cases of 
concern, such as the Anderson contract example discussed in the 
paragraph below, and success stories.
    \239\ Based on past practice, it seems reasonable to think Treasury 
would be capable of disclosing information on subcontractors. See 
Congressional Oversight Panel, Written Testimony of Allison Stanger, 
Russell Leng '60 Professor of International Politics and Economics, 
Middlebury College, COP Hearing on Treasury's Use of Private 
Contractors, at 6, 8 (Sept. 22, 2010) (online at cop.senate.gov/
documents/testimony-092210-stanger.pdf) (hereinafter ``Testimony of 
Allison Stanger'') (``The old version of USAspending.gov used to have a 
page entirely dedicated to subcontracts and linked to the home page. . 
. . I stand ready to be persuaded otherwise, but to date, I have found 
most concerns about the costs of transparency to be misplaced, 
excessively focused on the short term at the expense of the 
sustainable.'').
---------------------------------------------------------------------------
    In one case, Treasury awarded a contract to a ``small 
disadvantaged business''--Anderson, McCoy & Orta, an Oklahoma 
City small business--which (with Treasury approval, as 
required) in turn delegated roughly 80 percent of the contract 
to Cadwalader, a ``large business.'' \240\ Thus, although on 
the surface it appears that the contract is being performed by 
a small business, in actuality a large business is essentially 
responsible for performance.\241\ Because information on 
subcontracts is not made public, this fact is likely to remain 
obscured from public view.\242\
---------------------------------------------------------------------------
    \240\ Data provided to Panel staff by Treasury (Aug. 27, 2010).
    \241\ While it is not illegal for a small business contractor to 
subcontract to a large business, this practice raises red flags. After 
all, although a contractor is not obligated to subcontract with a small 
business when it pursues a subcontract, the example in the text above 
highlights one way in which limited disclosure makes it difficult for 
the public to assess the degree to which small businesses are involved 
in the implementation of the TARP.
    \242\ Cf. October 2009 GAO Report on Transparency and 
Accountability, supra note 207, at 28 (``The share of work by small 
businesses--including minority-and women-owned businesses--under TARP 
contracts and financial agency agreements has grown substantially since 
November 2008, when only one of Treasury's prime contracts was with a 
small business and only one minority small business firm was a 
subcontractor with a large business contractor.'').
---------------------------------------------------------------------------
    According to two experts who testified before the Panel, 
one option for addressing concerns about disclosure is to 
include more robust disclosure terms in future contracts and 
agreements. In certain situations--such as the TARP, which was 
designed and implemented during a period of extreme economic 
upheaval--these provisions could require disclosure of certain 
information that could be withheld during ``normal'' times 
under other disclosure regimes. Such contracts could require 
the disclosure of certain types of proprietary information. 
Including such provisions would allow potential contractors and 
agents to decide in advance whether they want to enter an 
arrangement that imposes heightened disclosure 
responsibilities. Yet in considering this option, it is 
important to recognize that emergency situations may call for 
Treasury to hire competent contractors within a very short 
period of time. Program implementation should not be placed at 
risk by incorporating disclosure provisions that discourage 
potential bidders. On the other hand, in certain types of 
economic emergencies, business considerations may put Treasury 
in a strong negotiating position. In the fall of 2008, for 
example, Wall Street firms--both law firms and financial 
firms--were losing business rapidly. Simultaneously, Treasury 
was soliciting contracts for work that was both lucrative and 
prestigious. In such a situation, Treasury may be able to 
secure qualified contractors despite the inclusion of expanded 
disclosure provisions in the contracts.
            b. Disclosure of Performance
    Treasury publishes almost no information on the performance 
of contractors and financial agents during the life of the 
arrangement. For example, the monthly MHA reports mention the 
activities of the HAMP compliance agent, but offer few 
specifics on whether the agent is actually meeting performance 
targets. There is even less information available on the 
performance of other retained entities. This lack of disclosure 
makes it hard to determine whether the process has been 
aggressive, robust and transparent enough. As a result of this 
lack of disclosure, it is impossible for the public to verify 
that a retained entity is acting in accordance within the terms 
of its arrangement or to advocate for arrangements to be 
canceled when a contractor is performing poorly. Thus, in the 
absence of more detailed information on performance while the 
arrangement is active, any public concerns about a retained 
entity's performance are likely to surface after it has already 
been paid in full.
    Other relevant aspects of performance are also not 
disclosed to the public. While Treasury has provided detailed 
guidance on how retained entities should address conflict of 
interest issues, it does not disclose information concerning 
ongoing conflict monitoring and mitigation efforts.\243\ 
Additionally, neither contractors nor financial agents have 
published any qualitative information on ``best practices'' or 
implementation challenges. The absence of this type of 
qualitative information deprives future generations of 
policymakers of a useful tool for learning how to deploy 
contractors and agents effectively.\244\
---------------------------------------------------------------------------
    \243\ After submitting their original conflict-of-interest 
mitigation plans, some entities submitted amended plans to Treasury. 
Data provided by Treasury staff to Panel staff (Sept. 14, 2010). 
Nonetheless, Treasury does not publish these amended plans, nor does it 
publish information on ongoing conflict assessments or ongoing 
mitigation efforts. See also Testimony of Allison Stanger, supra note 
228 (``[Y]ou really can't talk about mitigating conflicts of interest 
until you see what the interests are. That's why I come down on the 
side of radical transparency.'').
    \244\ As noted in at the Panel's hearing on contracting, better 
availability of ``best practices'' information would have assisted 
government officials and retained entities in employing the best 
possible processes for establishing and carrying out their TARP 
contracts and agreements. See Congressional Oversight Panel, Testimony 
of Steven Schooner, professor of law and co-director of the government 
procurement law program, The George Washington University School of 
Law, Transcript: COP Hearing on Treasury's Use of Private Contractors 
(Sept. 22, 2010) (publication forthcoming) (online at cop.senate.gov/
hearings/library/hearing-092210-contracting.cfm) (``[F]rom an 
aspirational standpoint, there's always room for improvement on a 
contract-by-contract basis. We can all sit down and do better. Give 
them a little more time and a lot more staff, a little bit of training 
and some more best practices, there's plenty of room for 
improvement.'').
---------------------------------------------------------------------------
            c. Disclosure of Monitoring Procedures
    Prior to the Panel's hearing on TARP contracting on 
September 21, 2010, Treasury had not publicly disclosed 
significant details about its procedures for monitoring TARP 
contracts and agreements. Treasury testimony during the hearing 
illuminated several of these monitoring procedures, including 
daily oversight by COTRs for contracts and quantitative monthly 
or quarterly measures for financial agents.\245\ While these 
disclosures are useful in helping the public understand 
Treasury's monitoring procedures, there are additional 
disclosures that would enhance the transparency of the 
monitoring process.
---------------------------------------------------------------------------
    \245\ See Prepared Statement of Gary Grippo and Ronald Backes, 
supra note 26, at 6.
---------------------------------------------------------------------------
    First, Treasury does not make the results of its monitoring 
efforts publicly available, so it is difficult to determine 
whether these monitoring efforts are successful. Second, 
Treasury created detailed ``Policies and Procedures'' to govern 
its relationship with contractors and financial agents, \246\ 
but it has not made these documents public. Treasury maintains 
that it generally does not disclose ``policies and procedures'' 
and that they are intended to be used solely for internal 
processes.\247\ Regardless of past practice, disclosure of the 
documents is particularly important with regard to financial 
agents because of their unique status: unlike traditional 
contractors who are awarded procurement contracts with the 
federal government, financial agents are not subject to the 
FAR.
---------------------------------------------------------------------------
    \246\ See Section B.4, supra.
    \247\ Treasury conversations with Panel staff (Oct. 4, 2010).
---------------------------------------------------------------------------

2. Accountability

    When it passed EESA, Congress emphasized the importance of 
accountability. One of the statute's purposes was to ensure 
that the use of TARP authority was subject to ``public 
accountability.'' \248\ Notwithstanding this concern, EESA 
enabled the Secretary to use private entities to implement the 
TARP, even though private parties--unlike public officials--
would not be subject to traditional accountability mechanisms, 
such as public elections, direct Congressional oversight, or 
statutory disclosure regimes like the Freedom of Information 
Act (FOIA). For these reasons, establishing rigorous oversight 
mechanisms is essential to fulfilling Congress's mandate that 
contractors and financial agents are held accountable.\249\
---------------------------------------------------------------------------
    \248\ 12 U.S.C. Sec. 5201(2)(D).
    \249\ See Senate Budget Committee, Written Testimony of James 
Carafano, director, Douglas and Sarah Allison Center for Foreign Policy 
Studies, The Heritage Foundation, Responsible Contracting: Modernizing 
the Business of Government, at 1 (July 15, 2010) (online at 
budget.senate.gov/democratic/testimony/2010/Carafano_Testimony_715.pdf) 
(``Getting contracting right is a fundamental responsibility of good 
governance--essential to the practice of limited government and fiscal 
responsibility.'').
---------------------------------------------------------------------------
    Treasury has taken several steps to attempt to enhance 
accountability of contractors and financial agents, such as 
making contracts and agreements available online, describing 
financial agents' fiduciary duties in the text of the 
agreements, assigning oversight responsibility to specific 
Treasury employees, and training those employees to oversee 
contractors' performance.\250\ Treasury also hired additional 
full-time staff to assist with monitoring efforts.\251\
---------------------------------------------------------------------------
    \250\ U.S. Government Accountability Office, Troubled Asset Relief 
Program: March 2009 Status of Efforts to Address Transparency and 
Accountability, at 39 (Mar. 2009) (GAO-09-504) (online at www.gao.gov/
new.items/d09504.pdf).
    \251\ Data provided by Treasury staff to Panel staff (Sept. 15, 
2010). While Treasury's decision to hire additional staff to monitor 
contractors' performance constitutes a meaningful step toward enhancing 
accountability, the scale of Treasury's contracting efforts--as well as 
the myriad subcontract agreements that exist--suggests that Treasury 
may still not have adequate capacity to conduct truly comprehensive 
monitoring. In addition, the staffing challenge lies not only at the 
first level of monitoring, but also at the second level: effective 
monitoring necessitates that monitors are supervised such that they are 
held accountable for their performance as well. Developing a system to 
``monitor the monitors'' risks the creation of layer upon layer of 
oversight.
---------------------------------------------------------------------------
    Yet while Treasury has taken significant steps to improve 
its accountability regime, the regime remains imperfect. 
Treasury has failed to provide detailed, public descriptions of 
its plans for holding contractors and agents accountable.\252\ 
Some of the earliest TARP contracts included weak language on 
the contractors' transparency and accountability duties.\253\ 
For example, the contract with the law firm Simpson Thacher & 
Bartlett LLP included no provisions on transparency and 
accountability.\254\ Similarly, subcontractors of financial 
agents are bound neither by agency law nor by the FAR.\255\ The 
result is that some of the entities responsible for 
implementing the TARP are subject to an amorphous 
accountability regime.
---------------------------------------------------------------------------
    \252\ Treasury created ``Policies and Procedures'' that provide 
some guidance on its relationships with financial agents, but they 
apply only to financial agents, provide few details on specific 
accountability mechanisms (such as the methods Treasury will use to 
monitor performance), and cover only five subject areas, omitting key 
issues like public disclosure obligations. See Section B.4, supra.
    \253\ See SIGTARP Initial Report to the Congress, supra note 54, at 
5 (``SIGTARP also recommended that transparency and oversight-related 
language be inserted in recent TARP contracts; Treasury included such 
language in the recent auto industry, Citigroup, and Bank of America 
contracts, making them far superior than earlier contracts from an 
oversight perspective.'').
    \254\ See U.S. Department of the Treasury, Contract Between U.S. 
Department of the Treasury and Simpson Thacher & Bartlett (Oct. 10, 
2008) (Contract No. TOFS-09-D-0009) (online at 
www.financialstability.gov/docs/ContractsAgreements/
Simpson%20Contract%2010,10,08.pdf).
    \255\ See Section B.1.b, supra.
---------------------------------------------------------------------------
    Fannie Mae and Freddie Mac provide relevant examples.\256\ 
Although they may be somewhat unique, they demonstrate some of 
the shortcomings of the existing accountability regime. For 
instance, although Treasury outlined broad, general goals for 
HAMP in March 2009, Treasury has not announced specific 
performance metrics for the program, nor has it revised its 
initial objectives as circumstances have changed. In the 
absence of benchmarks for the program that are both more 
specific and more realistic, it is difficult to determine 
whether Fannie Mae and Freddie Mac are performing adequately 
under their financial agency agreements. Moreover, OFS has not 
yet developed written procedures for oversight and monitoring 
of the two entities, which makes it difficult for OFS to 
monitor performance systematically and ``identify key risks'' 
in the program.\257\
---------------------------------------------------------------------------
    \256\ See Annex I, infra.
    \257\ U.S. Government Accountability Office, TARP Management 
Report: Improvements are Needed in Internal Control Over Financial 
Reporting for the Troubled Asset Relief Program, at 13 (June 30, 2010) 
(GAO-10-743R) (online at www.gao.gov/new.items/d10743r.pdf) 
(hereinafter ``June 2010 GAO Report on Internal Control Over Financial 
Reporting'').
---------------------------------------------------------------------------
    Moreover, contractors are not bound by the FOIA, a core 
accountability tool that applies to federal agencies.\258\ 
Therefore, substantial portions of the work performed to 
effectuate the TARP may be forever shielded from public 
scrutiny. Without access to this information, it will be 
challenging for the public to hold Treasury, as well as its 
contractors, subcontractors, and financial agents, fully 
accountable.\259\
---------------------------------------------------------------------------
    \258\ FOIA obligates federal agencies to disclose requested 
information unless they are able to show that it is covered by one of 
nine exemptions. In contrast, contractors are permitted to disclose 
requested information, but they are not obligated to do so. 5 U.S.C. 
Sec. 552(b). See also Federal Acquisition Regulation, supra note 11, at 
24.20. Likewise, financial agents are not compelled to comply with the 
FOIA.
    \259\ See Senate Budget Committee, Written Testimony of Allison 
Stanger, Russell Leng '60 Professor of International Politics and 
Economics, Middlebury College, Responsible Contracting: Modernizing the 
Business of Government, at 7 (July 15, 2010) (online at 
budget.senate.gov/
democratic/testimony/2010/Stanger_Testimony_715.pdf) (``The American 
people need to be able to see where and how their tax dollars are 
spent--right through to the sub-award level. Companies as well as 
governments can operate with the purest of intentions, but if their 
most important transactions are opaque to the public, they will lose 
trust and effectiveness.'').
---------------------------------------------------------------------------

                 H. Discussion of Conflicts of Interest

    As discussed in more detail in Section B, Treasury issued 
the Interim Final Rule on January 21, 2009 to guide 
contractors, financial agents, and subcontractors (collectively 
referred to as ``retained entities'') in the performance of 
their agreements with Treasury.\260\ The rule is relatively 
extensive and comprehensive in some areas, but weak in others. 
In terms of many traditional ethical issues--such as acceptance 
of gifts and other sorts of ``bribes'' during the contract 
solicitation process--the regulations are robust. Of the public 
comments filed in response to the publication of the interim 
rule, several opposed the rule on the grounds that it would 
impose undue regulatory burdens on retained entities, and for 
potential contractors, the costs of compliance would outweigh 
the benefits of receiving the contract. According to these 
comments, the effect would be to discourage the strongest firms 
from bidding on TARP contracts and subcontracts. In contrast, 
none of the public comments stated that the regulations were 
too lax or insufficiently extensive.\261\
---------------------------------------------------------------------------
    \260\ See Section B.3, supra (discussing the ``TARP Conflicts of 
Interest'' regulations, which are codified in the Code of Federal 
Regulations at 31 CFR Sec. 31).
    \261\ See generally TARP Conflicts of Interest, supra note 37 
(listing all public comments to the Interim Final Rule on TARP 
Conflicts of Interest, none of which fault the rule for being 
insufficiently extensive).
---------------------------------------------------------------------------
    While it is challenging to address the merits of these 
comments without more disclosure from Treasury and retained 
entities--Treasury has not made information on compliance costs 
or ongoing mitigation efforts publicly available--the public 
comments on the IFR do reflect Treasury's broad conception of 
its ``conflict of interest'' mandate. Section 107 of EESA 
requires only that the Secretary ``issue regulations or 
guidelines necessary to address and manage or to prohibit 
conflicts of interest,'' including ``any other potential 
conflict of interest, as the Secretary deems necessary or 
appropriate in the public interest.'' \262\
---------------------------------------------------------------------------
    \262\ 12 U.S.C. Sec. 5218(a).
---------------------------------------------------------------------------
    Yet despite being faced with these sparse requirements, 
Treasury drafted the IFR to include a broad array of provisions 
covering a diverse set of subjects, regulating everything from 
the disclosure of nonpublic information--including requiring 
``periodic training'' for employees on the proper handling of 
nonpublic information--to ``favors'' and gifts.\263\ Just as 
the IFR takes steps beyond the minimal obligations imposed by 
EESA in terms of the breadth of its coverage, it also takes a 
robust approach in terms of the strictness of its methodology 
for dealing with two core types of conflicts of interest: OCI 
and PCI. EESA does not require Treasury to bar all conflicts of 
interest: the statute permitted Treasury simply to develop 
regulations to ``address and manage or to prohibit'' them.\264\ 
Instead, the IFR prohibits all OCIs and PCIs unless they have 
been mitigated or Treasury waives them.\265\ The presumptive 
prohibition seems to reflect an aggressive approach to certain 
types of conflicts of interest.
---------------------------------------------------------------------------
    \263\ 31 CFR Sec. Sec. 31.213(a)(1), 31.217(c)(3).
    \264\ 12 U.S.C. Sec. 5218(a) (emphasis added).
    \265\ 31 CFR Sec. 31.211(a); 31 CFR Sec. 31.212(a).
---------------------------------------------------------------------------
    However, the regulations do not address all situations in 
which conflicts of interest could arise. The Panel is concerned 
about the potential for a conflict of interest to develop in 
the following situations:
          Treasury treats a retained entity differently 
        in Treasury's exercise of its public responsibilities;
          A retained entity carries out its assignments 
        in a manner that serves its interest and not the public 
        interest;
          A retained entity carries out its assignments 
        in a manner that serves the interest of the entity's 
        other clients;
          A retained entity uses information it obtains 
        from its work for the TARP in a manner that benefits 
        itself or its other clients.
    The discussion below lays out the basis for the Panel's 
concerns in greater detail.

1. Treasury Gives Preferential Treatment to a Retained Entity

    There are four situations in which Treasury's relationship 
with a retained entity could compromise its ability to act 
impartially in the exercise of its public responsibilities.
      Treasury contracts with a firm and then seeks to 
regulate the firm or its industry.
      Treasury enters into an arrangement with a 
contractor or financial agent--or that contractor or financial 
agent enters into an arrangement with a subcontractor--and 
subsequently intends to hire an employee from one of those 
retained entities, or one of the retained entities intends to 
hire a Treasury employee.
      Treasury develops an overreliance on one specific 
firm because it has entered multiple arrangements with that 
firm.
      Treasury hires a contractor or financial agent--
or that contractor or financial agent hires a subcontractor--
that needs government support in the future.
    The remainder of this subsection addresses each of these 
situations in turn.
            a. Future Industry Regulation
    Acting in its regulatory capacity, Treasury may need to 
regulate a business that it is also employing to do work. It is 
hard to see how Treasury could avoid the perception of a 
conflict of interest if it implements industry-specific 
regulations or regulates an individual business, and such 
oversight could have direct implications for the ability of a 
contractor or financial agent to perform.\266\ The perception 
of a conflict may be particularly likely to arise if, as 
discussed above, a company enters an arrangement with Treasury 
at below-market rates and expects that it will receive 
advantages in subsequent legislative, regulatory or enforcement 
initiatives.
---------------------------------------------------------------------------
    \266\ Treasury asserts that it maintains a wall between its 
regulatory functions and its policy and political functions. Testimony 
of Gary Grippo, supra note 49. Whether it maintains such a separation 
or not, the perception of a conflict may nonetheless arise if it issues 
regulations that appear to favor certain contractors, agents, or their 
respective industries over others.
---------------------------------------------------------------------------
    It is also possible that a firm could attempt to leverage 
its relationship with Treasury to enhance its capacity to lobby 
effectively with other regulators, such as the Federal Reserve 
or the FDIC. This concern is particularly relevant in the wake 
of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act,\267\ when firms are engaged in intense lobbying of the 
government as it begins the rulemaking process required by the 
statute.
---------------------------------------------------------------------------
    \267\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Pub. L. No. 111-203 (2010).
---------------------------------------------------------------------------
            b. Hiring
    Although EESA explicitly requires the Secretary to issue 
regulations that address ``post-employment restrictions on 
employees,'' \268\ the IFR includes no provisions related to 
this issue. According to the ``Supplemental Information'' 
provided in the Federal Register, the IFR omits this issue 
because Treasury believes it is ``already adequately covered by 
existing law.'' \269\
---------------------------------------------------------------------------
    \268\ 12 U.S.C. Sec. 5218(a).
    \269\ TARP Conflicts of Interest, supra note 37.
---------------------------------------------------------------------------
    Existing regulations do provide guidance on this 
issue.\270\ On his first day in office, President Barack Obama 
issued an executive order that required government appointees 
and lobbyists entering government to pledge not to work on 
``any particular matter involving specific parties that is 
directly and substantially related to my former employer or 
former clients, including regulations and contracts'' for two 
years. Employees leaving the government are also required to 
take a pledge that they will abide by post-employment 
communication restrictions and that they will refrain from 
lobbying executive branch officials until the conclusion of the 
Administration.\271\
---------------------------------------------------------------------------
    \270\ Executive Order 13490 of January 21, 2009: Ethics Commitments 
by Executive Branch Personnel, 74 Fed. Reg. 4673 (Jan. 26, 2009) 
(hereinafter ``Executive Order 13490''). Additional restrictions on 
executive branch officials ``seeking other employment'' are published 
in the Code of Federal Regulations at 5 CFR Sec. 2635.601 et seq.
    \271\ Id.
---------------------------------------------------------------------------
    Despite the merit of these provisions, without more 
disclosure from Treasury, it is difficult to determine whether 
Treasury has confronted any potential conflicts issues for 
either its employees seeking employment in the private sector 
or for private sector employees seeking opportunities at 
Treasury. Treasury does not publicly disclose information that 
identifies the employment paths of its employees. As a result, 
it is challenging to assess whether the issue of the 
``revolving door'' has been addressed appropriately.\272\
---------------------------------------------------------------------------
    \272\ Lawrence Lessig conversations with Panel staff (Sept. 23, 
2010).
---------------------------------------------------------------------------
            c. Overreliance on Individual Firms
    Ensuring that contracts and agreements are awarded to a 
broad group of firms may be critical to minimizing conflicts of 
interest.\273\ Awarding a large number or value of contracts or 
agreements to one specific firm may leave Treasury overly 
reliant on that particular institution. Such overreliance may 
cause Treasury to be disproportionately dependent on certain 
firms or industries. For example, Treasury may be less likely 
to expedite meaningful reforms of Fannie Mae and Freddie Mac 
when it has employed them for combined arrangements of $240.5 
million and when these firms agreed to provide their services 
at cost, receiving no profit from the deals.\274\ Forcing 
senior Treasury officials into the simultaneous role of 
regulator and client may place them in an awkward position. 
Likewise, Treasury may be hesitant to implement certain types 
of accounting reforms when it has an outstanding contract of 
$24.6 million with PricewaterhouseCoopers, particularly when 
such reforms would subject the investment of taxpayer funds to 
more risk.\275\ In addition, Treasury awarded contracts of 
roughly $27 million to Cadwalader, rather than distributing the 
legal work among a wider array of law firms. As a whole, 
disproportionate reliance on particular firms leaves Treasury 
less nimble to consider the widest possible array of regulatory 
options and also makes Treasury more vulnerable to lobbying 
efforts by specific institutions and industries.
---------------------------------------------------------------------------
    \273\ Treasury testified that its preference is to engage multiple 
firms, rather than relying on a single entity. Congressional Oversight 
Panel, Testimony of Ronald W. Backes, director of procurement services, 
U.S. Department of the Treasury, Transcript: COP Hearing on Treasury's 
Use of Private Contractors (Sept. 22, 2010) (publication forthcoming) 
(online at cop.senate.gov/hearings/library/hearing-092210-
contracting.cfm).
    \274\ Congressional Oversight Panel, Testimony of Joy Cianci, 
senior vice president, Making Home Affordable Program, Fannie Mae, 
Transcript: COP Hearing on Treasury's Use of Private Contractors (Sept. 
22, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/
library/hearing-092210-contracting.cfm) (hereinafter ``Testimony of Joy 
Cianci''). See also Annex I, infra.
    \275\ List of Procurement Contracts and Agreements Under EESA, 
supra note 8.
---------------------------------------------------------------------------
            d. Future Government Support
    The IFR does not prevent Treasury from providing 
significant future financial support to entities that it has 
hired as contractors in the past or that are performing work 
for Treasury under a contract in the present.\276\ On one hand, 
such a prohibition may appear to be unnecessary: Treasury's 
criteria for providing any assistance should focus on the 
institution's importance to the broader economy and the extent 
of its need for assistance, not on whether Treasury has 
existing arrangements with the institution.
---------------------------------------------------------------------------
    \276\ The Secretary's authority to make all funding commitments 
under the TARP ended on October 3, 2010. See 12 U.S.C. Sec. 5230(b). 
However, in the future, it is conceivable that the government could 
provide financial support to institutions under a different program.
---------------------------------------------------------------------------
    But on the other hand, Treasury's previous or ongoing 
relations with a company may skew its view of both of these 
criteria. Perhaps Treasury would be inclined to perceive an 
institution as more important if it was performing substantial, 
valuable work as a contractor. Or perhaps it would be less 
reluctant to allow an institution to fail if failure meant that 
a company would not be able to perform a contract for which it 
had already been paid. Companies may also exert pressure on 
Treasury, particularly if they contract with the government at 
standard government rates, which are often below-market 
rates.\277\ For example, Fannie Mae and Freddie Mac agreed to 
provide services at cost, receiving no profits from the 
agreements.\278\ Firms that agree to such arrangements may 
believe that their willingness to provide services at cheap 
rates entitles them to a better deal when they run into 
financial difficulties. On the other hand, it may be improbable 
that Treasury would give such firms preferential treatment in 
light of the likelihood that the size of the contracts would be 
small relative to the scope of the firms' financial 
difficulties.\279\ However, given the absence of specific 
provisions in the IFR related to this issue, as well as an 
absence of any additional guidance from Treasury, it is not 
clear how Treasury would address this situation.\280\ Without 
more concrete guidance on this issue, it is possible that 
future awards of financial assistance to contractors and 
financial agents could raise the appearance of a conflict of 
interest.
---------------------------------------------------------------------------
    \277\ See Section H.1.a, supra.
    \278\ Testimony of Joy Cianci, supra note 274. See also Annex I, 
infra.
    \279\ For example, as discussed in more detail in Annex I, infra, 
the combined obligated value of the Fannie Mae and Freddie Mac 
agreements is approximately $219 million, but both firms reported 
combined losses in excess of $108 billion in 2008.
    \280\ See Letter from Danielle Brian, executive director, Project 
on Government Oversight, to the Chairs and Ranking Members of the 
Senate Committee on Banking, Housing, and Urban Affairs, the Senate 
Committee on Finance, the House Committee on Financial Services, and 
the Joint Economic Committee (May 19, 2009) (online at www.pogo.org/
pogo-files/letters/financial-oversight/er-b-20090519.html) (hereinafter 
``Letter from Danielle Brian to Congressional Leadership'') (``It is 
imperative that Treasury establish strong conflict of interest policies 
for the TARP, because while the firms that were awarded TARP 
procurement contracts also have to follow the conflict of interest 
rules in the Federal Acquisition Regulation, it appears that other 
firms are being retained as `financial agents' and would only have to 
follow the TARP rules.'').
---------------------------------------------------------------------------

2. Retained Entity Serves its own Interest and Not the Public Interest

    A significant concern is that a contractor will carry out 
its contractual responsibilities so as to serve its own 
interest, rather than the public interest.\281\ When there is a 
melding of government and private entities--in terms of both 
interests and personnel--it may be difficult to pinpoint how 
and where public interests align with private interests and how 
and where they diverge. For example, the GSEs may have an 
interest in maximizing the performance of their mortgage loan 
portfolios, which could potentially conflict with their 
responsibilities to administer HAMP and enforce servicer 
compliance uniformly.\282\ In addition, the GSEs may have 
sought these agreements in order to curry favor with Treasury 
despite the fact that the agreements do not contribute to their 
long-term profitability.
---------------------------------------------------------------------------
    \281\ See, e.g., Testimony of Allison Stanger, supra note 239, at 
6, 8 (``Government by contract means that government is entirely 
dependent on the private sector to conduct its daily business, so 
effective oversight is too often hostage to a corporate bottom 
line.'').
    \282\ See Annex I, infra.
---------------------------------------------------------------------------
    It is very challenging to develop regulations that are 
sufficient to address this concern fully, as it is almost 
inevitable that any rule or contract will allow some 
flexibility for entities to make independent decisions that 
could prioritize their own interests over others. While the IFR 
includes provisions that address many aspects of this concern, 
such as its prohibitions on organizational conflicts of 
interest, there are still opportunities for retained entities 
to act to maximize their own self-interest.\283\ Perhaps the 
most effective tool to minimize this possibility is to include 
strong provisions in the contract to bind retained entities to 
perform at a high level that serves the public interest.\284\ 
As described in more detail in Sections C and D, Treasury has 
adopted robust provisions in many of its contracts and 
agreements, and many of its monitoring and compliance 
procedures appear to be stringent. Nonetheless, the Panel 
believes that it is important to continue to monitor this issue 
to ensure that contractors serve the public interest. The Panel 
also recognizes that if errors are made during the selection 
process, there may be some conflicts that cannot be mitigated 
even if they are subjected to an intensive monitoring process.
---------------------------------------------------------------------------
    \283\ Transcript Testimony of Scott Amey, supra note 37 (``I think 
that there are possible ways to get around these conflicts, because 
just mitigating them and coming up with firewalls that somebody in a 
different building [sic] doesn't seem to be adequate to me.'').
    \284\ See Section G.1.a, supra.
---------------------------------------------------------------------------

3. Retained Entity Serves its Clients' Interest and Not the Public 
        Interest

    It is also conceivable that a retained entity would act to 
promote the interest of its clients, rather than the public 
interest. As discussed above, the IFR and the arrangements 
themselves include provisions that attempt to ensure that the 
entity provides the services requested by the government. The 
introduction to the rule acknowledges that ``retained entities 
may find that their duty to private clients impairs their 
objectivity when advising Treasury.'' \285\ Even so, it is 
inevitable that some flexibility will remain that would allow 
an entity to promote private, rather than public, interests. 
For example, the GSEs' business relationships with servicers 
could potentially conflict with their duties to administer HAMP 
uniformly and to ensure that servicers comply with the 
program's guidelines.\286\ Likewise, the choice of Cadwalader 
raises questions about conflicts since the firm has represented 
a number of TARP recipients, including General Motors and 
Ally.\287\ It is important to continue to monitor Treasury's 
arrangements with private entities to ensure that they act in 
the public interest as much as possible. In order to ensure 
that these monitoring efforts are robust, it is important to 
know both the clients of retained entities and their relative 
importance to the firm.\288\
---------------------------------------------------------------------------
    \285\ TARP Conflicts of Interest, supra note 37.
    \286\ See Annex I, infra.
    \287\ In total, Cadwalader represented three clients with respect 
to which it also represented Treasury: GM, Ally Financial, and First 
Bancorp. It maintains that the aggregate revenues from these three 
clients accounted for less than 1 percent of the firm's revenues in 
each of the last five years. Data provided by Treasury and Cadwalader 
to Panel staff (Oct. 5, 2010). Treasury maintains that Cadwalader did 
not perform TARP-related work for any of its clients. Treasury 
conversations with Panel staff (Sept. 28, 2010).
    \288\ With respect to Cadwalader, the Panel requested information 
regarding clients' relative importance to the firm. However, Treasury 
declined to request this information from its client.
---------------------------------------------------------------------------
    It merits mention that the Panel invited Cadwalader to 
testify at its September 22, 2010 hearing, entitled 
``Treasury's Use of Private Contractors.'' In a letter to the 
Panel on September 21, 2010, John J. Rapisardi, co-chairman of 
Cadwalader's Financial Restructuring Department, declined the 
invitation, citing ``the difficulty [testifying] would cause in 
protecting the privilege of both the United States Treasury and 
our other clients in this forum.'' The letter also stated that 
the firm was ``willing to provide the Panel with pertinent 
information provided that the interests of the Firm's clients 
are not prejudiced.'' \289\ This deference to the interests of 
the firm's clients perfectly illustrates the potential 
conflicts that could result from Treasury's contracting 
procedures.
---------------------------------------------------------------------------
    \289\ Letter from John J. Rapisardi, co-chairman of Cadwalader's 
Financial Restructuring Department, to Naomi Baum, executive director 
of the Congressional Oversight Panel (Sept. 21, 2010) (emphasis added).
---------------------------------------------------------------------------

4. Retained Entity Uses Nonpublic Information to Benefit Itself or its 
        Clients

    The IFR contains provisions that govern the use of 
nonpublic information. The introduction to the rule states that 
``retained entities may find that their duty to private clients 
impairs . . . their judgment about the proper use of nonpublic 
information.'' \290\ An entire subsection of the rule deals 
with confidentiality issues.\291\ It specifies that nonpublic 
information should not be disclosed unless necessary and should 
not be used ``to further any private interest other than as 
contemplated by the arrangement.'' \292\ It also requires each 
retained entity to take ``appropriate measures to ensure the 
confidentiality of nonpublic information and to prevent its 
inappropriate use'' and to ``document these measures in 
sufficient detail to demonstrate compliance.'' \293\
---------------------------------------------------------------------------
    \290\ TARP Conflicts of Interest, supra note 37.
    \291\ 31 CFR Sec. 31.217.
    \292\ 31 CFR Sec. 31.217(b).
    \293\ 31 CFR Sec. 31.217(c).
---------------------------------------------------------------------------
    In testimony before the Panel, BNY Mellon outlined a series 
of steps it has taken in an attempt to mitigate potential 
problems that could arise from its possession of sensitive 
information.\294\ It used information barrier policies that 
limit information sharing on a ``need to know'' basis, a 
restricted securities list, ``enhanced access controls'' for 
TARP-related documents (including electronic files), 
nondisclosure agreements, and physical separation of employees 
servicing the TARP from employees engaged in asset management 
activities. At an individual level, employees are required to 
provide disclosures on a quarterly basis, and they are 
restricted from certain personal trading activities.\295\ It is 
not clear, however, that all firms have conflict mitigation 
processes that are as robust as BNY Mellon's.
---------------------------------------------------------------------------
    \294\ AllianceBernstein has instituted similarly robust conflict 
mitigation procedures. AllianceBernstein conversations with Panel staff 
(Sept. 30, 2010).
    \295\ Congressional Oversight Panel, Written Testimony of Mark 
Musi, chief compliance and ethics officer, Bank of New York Mellon, COP 
Hearing on Treasury's Use of Private Contractors, at 3 (Sept. 22, 2010) 
(online at cop.senate.gov/documents/testimony-092210-musi.pdf).
---------------------------------------------------------------------------
    Yet despite Treasury's commendable efforts to restrict the 
inappropriate use of nonpublic information, it is extremely 
difficult to eliminate the concern entirely. Employees of 
retained entities may be exposed to nonpublic information that 
would benefit them in future private pursuits, long after the 
termination of the TARP relationship. Similarly, the 
information could assist their lobbying strategies or other 
types of future engagement with the government. For these 
reasons, this concern should be monitored even after the TARP 
expires.

5. Does the IFR Alleviate Conflicts of Interest?

    As discussed above, the IFR does not address several key 
situations that could result in conflicts of interest. Without 
more guidance, it is possible that if any of these situations 
were to arise, the public could perceive that a conflict of 
interest exists. In addition, because much of the monitoring of 
conflicts of interest is based on self-disclosure by retained 
entities, Treasury may not have sufficient information to 
ensure that all relevant conflicts are addressed.\296\ The 
weaknesses of the IFR create a ripe opportunity for Treasury to 
fill these gaps in the final version of the rule. 
Alternatively, ``radical transparency'' of information on 
contracts, financial agreements, and subcontracts, including 
disclosure of ongoing conflict-of-interest monitoring efforts, 
could help to alleviate the perception of conflicts.\297\
---------------------------------------------------------------------------
    \296\ Letter from Danielle Brian to Congressional Leadership, supra 
note 280 (``[I]t appears that both the Fed and Treasury are mostly 
relying on the asset managers for self-disclosure.''). Treasury has 
stated that it ``independently review[s] the conflicts posture'' for 
all retained entities and that the IFR was intended solely to outline 
the responsibilities of retained entities, not to reflect or narrow the 
range of monitoring activities that Treasury is entitled to undertake 
on its own. Testimony of Gary Grippo, supra note 49; Treasury 
conversations with Panel staff (Sept. 23, 2010). Nonetheless, Treasury 
largely relies upon self-disclosure by these entities of the underlying 
data regarding potential conflicts issues, and then it uses this data 
as the basis of its own review. Most importantly, it is possible for 
entities to withhold information from Treasury, and it is difficult for 
Treasury to then uncover this information with the level of granularity 
necessary to identify a potential conflict of interest.
    \297\ For an extended discussion of the benefits of transparency 
and areas in which enhanced transparency may be possible, see Section 
G, supra.
---------------------------------------------------------------------------
    More broadly, however, the conflict-of-interest regulations 
highlight the fundamental conundrum that plagues the TARP's 
implementation: when the government is tasked with intervening 
in the private sector to stabilize a faltering economy, how can 
it partner with private industry while simultaneously 
preserving public values? This tension is evidenced with 
respect to specific institutions. When Morgan Stanley, for 
example, is acting as a financial agent for the U.S. 
government, will Treasury's ability to develop fair economic 
policies for the financial industry be compromised? Similarly, 
the cases of Fannie Mae and Freddie Mac are evidence of some of 
the possible conflicts that may persist despite the presence of 
the IFR and Treasury's monitoring regime.\298\ In addition, to 
what extent would truly robust conflict-of-interest regulations 
impede Treasury's ability to hire the highest-performing 
contractors and financial agents? While it is in Treasury's 
interest to remain attractive to the private entities capable 
of the best performance and to generate the highest possible 
rates of return on its investments, Treasury must also develop 
policies that are consistent with public values, such as 
fairness and transparency. In some instances, these values 
necessarily impose costs, making the contracts less appealing 
to private firms. At the same time, these costs are critical to 
ensuring that the public understands how the government uses 
its money, who receives this money, and the quality of the work 
that the government receives for the money it spends.
---------------------------------------------------------------------------
    \298\ See Annex I, infra.
---------------------------------------------------------------------------

                I. Activities of Other Oversight Bodies

    As part of their broader duty to oversee the TARP, GAO and 
SIGTARP have explored the issue of TARP contracting and intend 
to publish further on this subject near the time of this 
report's release.
    SIGTARP has released seven quarterly reports to Congress 
since the enactment of EESA. Each of these reports has briefly 
discussed or offered recommendations regarding an element of 
TARP contracting.\299\ SIGTARP's initial report to Congress, 
released on February 6, 2009, recommended that all TARP 
agreements be posted online. This recommendation was fully 
implemented on January 28, 2009.\300\ Furthermore, the majority 
of SIGTARP reports have cautioned that conflicts of interest 
may exist at any level of the TARP's administration.
---------------------------------------------------------------------------
    \299\ See Office of the Special Inspector General for the Troubled 
Asset Relief Program, Quarterly Report to Congress, at 147-151 (Apr. 
21, 2009) (online at www.sigtarp.gov/reports/congress/2009/
April2009_Quarterly_Report_to_Congress.pdf); Office of the Special 
Inspector General for the Troubled Asset Relief Program, Quarterly 
Report to Congress, at 91-92, 171-183 (July 21, 2009) (online at 
www.sigtarp.gov/reports/congress/2009/
July2009_Quarterly_Report_to_Congress.pdf); Office of the Special 
Inspector General for the Troubled Asset Relief Program, Quarterly 
Report to Congress, at 87, 159-161 (Oct. 21, 2009) (online at 
www.sigtarp.gov/reports/congress/2009/
October2009_Quarterly_Report_to_Congress.pdf) (hereinafter ``Quarterly 
Report to Congress''); Office of the Special Inspector General for the 
Troubled Asset Relief Program, Quarterly Report to Congress, at 140-141 
(Jan. 30, 2010) (online at www.sigtarp.gov/reports/congress/2010/
January2010_Quarterly_Report_to_Congress.pdf); Office of the Special 
Inspector General for the Troubled Asset Relief Program, Quarterly 
Report to Congress, at 25-28 (July 21, 2010) (online at 
www.sigtarp.gov/reports/congress/2010/
July2010_Quarterly_Report_to_Congress.pdf) (hereinafter ``July 2010 
SIGTARP Report'').
    \300\ SIGTARP Initial Report to the Congress, supra note 54.
---------------------------------------------------------------------------
    On May 14, 2010, SIGTARP sent an engagement memo to Herbert 
M. Allison, Jr., the then-Assistant Treasury Secretary for 
Financial Stability, detailing its intention to audit 
Treasury's process in procuring professional services for 
TARP.\301\ This audit aims to accomplish two goals: (1) to 
assess whether the contract prices for these services were fair 
and reasonable; and (2) to examine the invoices delivered by 
the contractors to establish whether they reflect actual work 
completed.
---------------------------------------------------------------------------
    \301\ Office of the Special Inspector General for the Troubled 
Asset Relief Program, Engagement Memo--Review of Treasury's Process for 
Contracting for Professional Services Under the Troubled Asset Relief 
Program (May 14, 2010) (online at www.sigtarp.gov/reports/audit/2010/
SIGTARP%20Memo%20Contracting%20for%20Professional%20services%205.14.10.p
df).
---------------------------------------------------------------------------
    In addition to its work on TARP contracting, SIGTARP has 
also addressed issues relating to PPIP. The Audit Division of 
SIGTARP currently has two audits focused on PPIP, one on 
internal controls and one on the selection of asset managers. 
The scope of these audits includes the criteria used in the 
selection of managers, issues of conflicts of interests, as 
well as internal controls and compliance.\302\ The results of 
SIGTARP's internal compliance audit, including recommendations 
for Treasury, have so far been evidenced by a series of 
letters.\303\ SIGTARP released the audit report on the 
selection of asset managers on October 7, 2010.\304\ Due to 
SIGTARP's engagement in this area, contracts with the PPIP 
asset managers are not examined in this report.
---------------------------------------------------------------------------
    \302\ July 2010 SIGTARP Report, supra note 299, at 25-28. Treasury 
selected the following fund managers for PPIP: AllianceBernstein L.P. 
and its sub-advisors Greenfield Partners, LLC and Rialto Capital 
Management, LLC; Angelo, Gordon & Co., L.P. and GE Capital Real Estate; 
BlackRock, Inc.; Invesco Ltd.; Marathon Asset Management, L.P.; Oaktree 
Capital Management, L.P.; RLJ Western Asset Management, LP.; The TCW 
Group, Inc.; and Wellington Management Company, LLP. U.S. Department of 
the Treasury, Legacy Securities Public-Private Investment Program 
(Sept. 17, 2010) (online at www.financialstability.gov/roadtostability/
legacysecurities.html#press).
    \303\ July 2010 SIGTARP Report, supra note 299, at 281-282.
    \304\ SIGTARP Report on PPIP, supra note 5.
---------------------------------------------------------------------------
    In early November, GAO plans to release a report focusing 
specifically on TARP contracting. The report will provide an 
assessment of the effectiveness of Treasury's contracting under 
the TARP as well as its implementation of recommendations.

                   J. Conclusion and Recommendations

    The TARP was unique in its size and scope and the speed 
with which it was implemented. In light of these factors, it is 
not surprising that the government sought outside assistance. 
Indeed, although the overall amount expended on outsourced work 
is significant, it is relatively modest in light of the size of 
the TARP itself. As more work is pushed to private contractors 
and agents, however, inevitable and perhaps troubling 
consequences become apparent. Accountability and transparency 
decrease, and the potential for conflicts of interest 
increases. The particular requirements of the TARP exacerbated 
these problems, as some of the services required by Treasury 
were obtained from law firms and financial institutions that 
are not by their nature transparent and have many other clients 
operating in the financial industry, which may have interests 
that conflict with those of the government.
    As discussed above, Treasury has been responsive in 
adopting the recommendations of oversight bodies, and has 
earned some praise from the GAO and expert witnesses both for 
its contracting process and the transparency of its process. 
Despite the pressing needs of the financial crisis, Treasury 
complied with the FAR, although it could have waived its 
provisions, and in some circumstances went above and beyond 
what it was required to do. This praise must be viewed in 
context, however. Government contracting is notoriously 
nontransparent, and it is possible to perform well on a 
comparative basis, and yet be capable of significant 
improvement.
    The Panel recommends that Treasury address the following 
issues:
      Treasury should include performance incentives in 
contracts and agreements, where appropriate.
      Transparency and accountability
          --Material facts: Critical information, such as task 
        orders, should be made public. In the future, Treasury 
        should consider including more stringent disclosure 
        provisions in contracts and agreements so as to 
        obligate retained entities to disclose all relevant 
        material information.
          --Rationale and decision-making process: Treasury 
        should better explain its rationale and decision-making 
        process behind choosing to use contractors and 
        financial agents rather than performing a specific 
        function within Treasury. This is especially important 
        in cases where Treasury enters into contracts or 
        financial agency agreements with institutions like 
        Fannie Mae and Freddie Mac that have received or are 
        likely to receive substantial government assistance.
          --Performance: Treasury should regularly publish 
        progress updates on the performance of contractors and 
        financial agents. Treasury should publish qualitative 
        information on progress made by contractors and 
        financial agents that include information on ``best 
        practices'' and implementation challenges.
          --Monitoring procedures: Treasury should disclose the 
        results of its efforts to monitor contracts and 
        agreements. Treasury should also publicly release its 
        ``Policies and Procedures'' documents and information 
        concerning the control Treasury retains over the 
        direction of the TARP, the types of oversight Treasury 
        exercises over its TARP contractors and financial 
        agents, and the level of input that TARP contractors 
        and financial agents have with respect to program 
        development, execution, and policy decisions.
          --Accountability: Treasury should provide detailed, 
        public descriptions of its plans for holding 
        contractors and agents accountable, including the 
        processes it plans to employ to promote a culture of 
        accountability for subcontractors. Any such plans 
        should detail the level of disclosure that is necessary 
        to hold contractors, agents, and subcontractors 
        accountable.
      Subcontracting
          --Material facts: Treasury should require all 
        contractors to disclose the names and duties of all 
        subcontractors, the values of the subcontracts, and the 
        subcontracts themselves.
          --Small business plans: Treasury should require its 
        financial agents to submit small business 
        subcontracting plans, and Treasury should make this 
        information publicly available. Treasury should also 
        seek to make more subcontracts available to small 
        businesses.
      Conflicts of Interest
          --Final rule on conflicts: Treasury should adopt a 
        final rule on conflicts of interest for contractors, 
        agents, and subcontractors. Nearly 22 months have 
        passed since the IFR was issued, far longer than the 
        60-day notice and comment period. A final rule will 
        provide retained entities with more regulatory 
        certainty.
          --Immediate disclosure of all conflicts and 
        mitigation efforts: Treasury should disclose detailed, 
        ongoing conflict-of-interest findings for all entities, 
        including ongoing conflict mitigation efforts and the 
        information upon which these findings are based. Where 
        possible, Treasury should remove the redactions of 
        material conflict-of-interest information.
          --Ongoing disclosure: Treasury should also make 
        regular disclosures of conflicts of interest that arise 
        in the course of the performance of the arrangement, 
        which should include updated information on entities' 
        mitigation efforts.
          --Compliance costs: Treasury contractors, agents, and 
        subcontractors should publish costs they have incurred 
        in complying with the IFR.
          --Plans for addressing conflicts of interest: 
        Treasury should develop and publicize plans for 
        addressing the four potential conflicts of interest 
        discussed in this report: (1) preferential treatment of 
        retained entities by Treasury, (2) retained entities 
        that serve their own interests, rather than the public 
        interest, (3) retained entities that serve their 
        clients' interests, rather than the public interest, 
        and (4) retained entities that use nonpublic 
        information to benefit themselves or their clients.
          --Self-disclosure: While Treasury clearly takes its 
        responsibility for monitoring conflicts seriously, it 
        relies on contractors and agents to provide most of the 
        underlying data upon which their reviews are based. 
        While this may largely be due to the scope and scale of 
        the arrangements, Treasury should consider alternatives 
        that make it less reliant on the retained entities for 
        factual information, such as conducting intensive spot 
        checks on individual entities.
           ANNEX I: FANNIE MAE AND FREDDIE MAC: A CASE STUDY

    Here, the Panel examines in-depth issues related to two of 
the financial agency agreements that Treasury has entered into 
under EESA: those with Fannie Mae and Freddie Mac. The Panel is 
examining these two contracts in more detail for two reasons. 
First, these financial agency agreements together represent the 
largest part of the TARP procurement contract and financial 
agency agreement universe. Of the $436.7 million in total 
obligated value for all TARP procurement contracts and 
financial agency agreements, Treasury has obligated $126.7 
million under Fannie Mae's financial agency agreement and $88.9 
million under Freddie Mac's financial agency agreement. To 
date, Treasury has expended $111.3 million and $79.3 million on 
its financial agency agreements with Fannie Mae and Freddie 
Mac, respectively.\305\ Second, Fannie Mae and Freddie Mac have 
such a key responsibility in a program designed to prevent 
qualified borrowers from losing their homes through foreclosure 
and, as such, play an instrumental role in implementing one of 
the core purposes of EESA--homeownership preservation.\306\ The 
Panel intends to pursue this topic further in its November 2010 
report on the status of Treasury's foreclosure mitigation 
efforts.
---------------------------------------------------------------------------
    \305\ For comparative purposes, while Treasury had expended less 
than $500 million on HAMP mortgage modifications as of September 30, 
2010, its expenditures under its Fannie Mae and Freddie Mac agreements 
currently equal $190.6 million.
    \306\ 12 U.S.C. Sec. 5201.
---------------------------------------------------------------------------
    In February 2009, Treasury entered into financial agency 
agreements with Fannie Mae and Freddie Mac to provide services 
under the Administration's MHA program, which provides mortgage 
relief to qualifying homeowners. Treasury executed financial 
agency agreements with Fannie Mae and Freddie Mac to administer 
and enforce compliance with HAMP, respectively.\307\ These 
roles are distinct from these entities' participation in HAMP 
as holders or guarantors of mortgages.
---------------------------------------------------------------------------
    \307\ HAMP is designed to help struggling homeowners avoid 
foreclosure by reducing their monthly mortgage payments to 31 percent 
of their pretax monthly income. In order to be eligible, a borrower 
must meet three criteria: (1) the borrower must be delinquent on their 
mortgage or facing imminent risk of default; (2) the property must be 
the borrower's primary residence; and (3) the mortgage was originated 
before January 1, 2009 and the unpaid principal balance must be no 
greater than $729,750. If a borrower is eligible, participating 
servicers will then reduce the borrower's mortgage payment for a trial 
period. If the borrower successfully makes payments and provides 
certain documentation for three months, then the modification is made 
``permanent,'' for five years. For further information about, and 
discussion concerning, HAMP, see March 2009 Oversight Report, supra 
note 3; October 2009 Oversight Report, supra note 3; April 2010 
Oversight Report, supra note 3.
---------------------------------------------------------------------------
    Fannie Mae and Freddie Mac are government-sponsored 
enterprises (GSEs) chartered by Congress with a mission of 
providing liquidity, stability, and affordability to the U.S. 
housing and mortgage markets. Fannie Mae and Freddie Mac 
operate in the U.S. secondary mortgage market by purchasing and 
securitizing mortgages, rather than making direct mortgage 
loans.\308\
---------------------------------------------------------------------------
    \308\ Congress established Fannie Mae in 1938 to create a secondary 
market for loans insured by the Federal Housing Administration (FHA), 
but its charter was amended in 1954 so that it could focus on the 
secondary market more generally. In 1970, Congress established Freddie 
Mac as a new government-chartered entity to provide an additional 
source of liquidity for mortgage loans. Office of Management and 
Budget, Analytical Perspectives: Budget of the U.S. Government, Fiscal 
Year 2011, at 349 (Feb. 1, 2010) (online at www.whitehouse.gov/sites/
default/files/omb/budget/fy2011/assets/spec.pdf) (hereinafter 
``Analytical Perspectives: Budget of the U.S. Government, FY 2011'').
---------------------------------------------------------------------------
    The features of Fannie Mae's and Freddie Mac's government 
charters (for example, a line of credit with Treasury, public 
mission requirements, limited competition, and lower capital 
requirements) created the perception of a government guarantee, 
which played a part in the GSEs becoming significantly 
overleveraged and undercapitalized. In 2008, Fannie Mae and 
Freddie Mac reported combined losses in excess of $108 
billion.\309\ The Federal Housing Finance Agency (FHFA), the 
regulator for Fannie Mae and Freddie Mac, placed Fannie Mae and 
Freddie Mac into conservatorship on September 6, 2008, and they 
continue to function as government-backed enterprises.\310\
---------------------------------------------------------------------------
    \309\ Federally regulated banks must hold 4 percent capital against 
their mortgages, but Fannie Mae and Freddie Mac were required to hold 
only 2.5 percent capital against their on-balance sheet mortgage 
portfolio, and only 0.45 percent against mortgages they guaranteed. See 
House Committee on Financial Services, Written Testimony of Timothy F. 
Geithner, Secretary, U.S. Department of the Treasury, Housing Finance--
What Should the New System Be Able to Do?: Part I--Government and 
Stakeholder Perspectives, at 8-11 (Mar. 23, 2010) (online at 
www.house.gov/apps/list/hearing/financialsvcs_dem/testimony_-
_geithner.pdf).
    \310\ In connection with the GSEs being placed into 
conservatorship, Treasury agreed to provide financial support to the 
GSEs through the establishment of Preferred Stock Purchase Agreements. 
In December 2009, Treasury decided to replace the $200 billion cap on 
Treasury's funding commitment to each GSE with a formulaic cap that 
increases above $200 billion by the amount of any losses and decreases 
by any gains (but not below $200 billion), which will become permanent 
at the end of three years. See Analytical Perspectives: Budget of the 
U.S. Government, FY 2011, supra note 308, at 350.
---------------------------------------------------------------------------
    Edward J. DeMarco, the acting director of FHFA, recently 
described their legal status in testimony before the House 
Subcommittee on Capital Markets, Insurance, and Government-
Sponsored Enterprises. According to Mr. DeMarco, ``[t]he 
statutory purpose of conservatorship is to preserve and 
conserve each company's assets and put them in a sound and 
solvent condition. The goals of conservatorship are to help 
restore confidence in the companies, enhance their capacity to 
fulfill their mission, and mitigate the systemic risk that 
contributed directly to instability in financial markets. The 
Enterprises are responsible for normal business activities and 
day-to-day operations, subject to FHFA supervision. FHFA 
exercises oversight as safety and soundness regulator, and, as 
conservator, holds the powers of the management, board, and 
shareholders of each Enterprise.'' \311\ Mr. DeMarco commented 
further that ``[a] principal focus of the conservatorships is 
to maintain the Enterprises' secondary mortgage market role 
until legislation produces a resolution of their future. FHFA's 
oversight is also directed toward minimizing losses, limiting 
risk exposure, and ensuring the Enterprises price their 
services to address their costs and risk adequately. He also 
stated that ``neither company would be capable of serving the 
mortgage market today without the ongoing financial support 
provided by the Treasury.'' \312\ Although Fannie Mae and 
Freddie Mac have been delisted, their stocks continue to trade 
over the counter.
---------------------------------------------------------------------------
    \311\ House Financial Services, Subcommittee on Capital Markets, 
Insurance, and Government-Sponsored Enterprises, Written Testimony of 
Edward J. DeMarco, acting director, Federal Housing Finance Agency, The 
Future of Housing Finance: A Progress Update on the GSEs, at 2 (Sept. 
15, 2010) (online at financialservices.house.gov/Media/file/hearings/
111/DeMarco091510.pdf).
    \312\ Id. at 2.
---------------------------------------------------------------------------
    Even though Fannie Mae and Freddie Mac have a complicated 
legal relationship with the government as a result of their 
being placed into conservatorship over two years ago, they 
became the government's financial agents when they agreed to 
perform HAMP administration and compliance for the Treasury 
Department. As discussed above, this results in their having a 
fiduciary obligation of loyalty and fair dealing to Treasury, 
including the requirement to act in the best interests of 
Treasury, and not their own interests, in performance of their 
duties under the agreements.\313\
---------------------------------------------------------------------------
    \313\ For further discussion concerning the nature of financial 
agents and the confines of the principal-agent legal relationship, see 
Sections A and B.1.b, supra.
---------------------------------------------------------------------------

                     A. Role of Fannie Mae in HAMP

    In serving as the administrator for HAMP, Fannie Mae's 
principal responsibilities include: implementing the guidelines 
and policies for the program and preparing the requisite forms; 
instructing participating mortgage servicers how to modify 
loans; serving as paying agent to calculate subsidies and 
compensation consistent with program guidelines; serving as 
recordkeeper for executed loan modifications and program 
administration; and coordinating with Treasury and other 
parties toward achievement of the program's goals.\314\ By also 
functioning as the program interface for servicers, Fannie Mae 
provides information and resources to servicers to implement 
the program.
---------------------------------------------------------------------------
    \314\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit A.
---------------------------------------------------------------------------

                     B. Role of Freddie Mac in HAMP

    As the compliance agent responsible for the HAMP Compliance 
Program, Freddie Mac is responsible for ensuring that servicers 
are satisfying their obligations under the HAMP Servicer 
Participation Agreements.\315\ Because of the confidential and 
proprietary information to which it has access, Freddie Mac has 
established a separate and independent division to conduct its 
compliance activities, named Making Home Affordable-Compliance 
(MHA-C), which is responsible for evaluating and reporting to 
Treasury on mortgage servicers participating in HAMP and their 
compliance with HAMP requirements. In addition, Treasury asked 
Freddie Mac, in its role as compliance agent, to develop a 
``second look'' process pursuant to which MHA-C audits a sample 
of HAMP modification requests to double-check the servicer's 
determination on the request.
---------------------------------------------------------------------------
    \315\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit A.
---------------------------------------------------------------------------

   C. Analysis of Treasury's Selection of Fannie Mae and Freddie Mac

    In April 2010, the Panel stated: ``Treasury still needs to 
provide detailed public information related to its selection 
and use of Fannie Mae as financial agent and HAMP program 
administrator and Freddie Mac as compliance agent. The 
effectiveness of the financial agent/program administrator and 
financial agent/compliance agent is instrumental to the success 
and accountability of HAMP, making the selection process for 
these agents especially important.'' \316\
---------------------------------------------------------------------------
    \316\ April 2010 Oversight Report, supra note 3, at 88.
---------------------------------------------------------------------------
    At the Panel's September 22, 2010 hearing on Treasury's use 
of its exceptional crisis contracting authority under EESA, 
Deputy Assistant Secretary Gary Grippo provided further 
background regarding Treasury's decision-making with respect to 
selecting Fannie Mae and Freddie Mac as its financial agents. 
Mr. Grippo stated that Treasury selected Fannie Mae and Freddie 
Mac to perform HAMP-related duties and responsibilities after 
making the determination that no other public or private 
entities (including FHFA and not-for-profits) had the operating 
capabilities, infrastructure, and resources to operate a 
foreclosure mitigation program on a national scale.\317\
---------------------------------------------------------------------------
    \317\ Testimony of Gary Grippo, supra note 49.
---------------------------------------------------------------------------
    In further conversations between Treasury and the Panel 
staff, however, it has become apparent that Treasury selected 
Fannie Mae and Freddie Mac based on three criteria.
      First, given their housing knowledge of a 
nationwide scope and resources and capabilities they acquired 
in the course of performing their unique role in housing 
finance markets (including loss mitigation expertise), Treasury 
determined that the GSEs possessed the unique ability to set up 
a nationwide program such as HAMP. Since the Administration 
initially projected that HAMP would assist up to 3 to 4 million 
at-risk homeowners,\318\ selecting institutions with the pre-
existing capacity and infrastructure became particularly 
important.\319\
---------------------------------------------------------------------------
    \318\ U.S. Department of the Treasury, Making Home Affordable: 
Updated Detailed Program Description (Mar. 4, 2009) (online at 
www.treas.gov/press/releases/reports/housing_fact_sheet.pdf).
    \319\ Treasury conversations with Panel staff (Sept. 27, 2010).
---------------------------------------------------------------------------
      Second, Treasury's determination was also based 
in part upon the time frame for implementing HAMP. It was 
critical for Treasury to select agents that were capable of 
getting a large program off the ground quickly since HAMP was 
launched just several weeks after it was announced.\320\
---------------------------------------------------------------------------
    \320\ Treasury conversations with Panel staff (Sept. 27, 2010).
---------------------------------------------------------------------------
      Finally, as part of the market research that it 
conducted in October 2008 with respect to the purchases of 
troubled assets from troubled financial institutions, Treasury 
identified the GSEs as being very well qualified to help 
administer and operate a large program on a nationwide 
scope.\321\
---------------------------------------------------------------------------
    \321\ Treasury conversations with Panel staff (Sept. 27, 2010).
---------------------------------------------------------------------------
    In early 2009 (during the midst of a financial crisis), it 
is likely that other public or private sector alternatives 
might have been available to assist Treasury with TARP-related 
services and responsibilities.\322\ However, on the one hand as 
discussed above, it is not clear that Treasury had other time-
effective options given the relative infrastructure, 
capabilities, and resources issues that were at the crux of the 
GSEs' selection. On the other hand, the extent to which the 
GSEs had the infrastructure, capabilities, and resources is not 
absolutely clear given the amount of subcontracting they 
engaged in to help fulfill their responsibilities. Treasury 
never considered the Federal Housing Administration (FHA), 
which provides mortgage insurance on loans made by FHA-approved 
lenders throughout the United States and its territories, to be 
a viable option because it ``lacked the infrastructure given 
its market footprint and the nature of its business as an 
insurer.'' \323\ According to Mr. Grippo, ``[s]imply put, we 
made a determination that there were no other parties with the 
capabilities and infrastructure to operate a national mortgage 
modification program. And I can point to experiences that we 
had in October and November of 2008 in making that 
determination.'' \324\ The decision to select the GSEs for 
these responsibilities, however, was made with the approval and 
encouragement of FHFA.\325\
---------------------------------------------------------------------------
    \322\ The Panel notes that Fannie Mae and Freddie Mac entered into 
subcontracts with for-profit companies to assist with their HAMP-
related responsibilities during this time. However, it is important to 
note that other potential alternatives, including Wells Fargo and Bank 
of America, who were facing their own balance sheet issues at the time, 
received substantial TARP assistance, and may not have been capable of 
carrying out such duties and responsibilities over the long-term.
    \323\ Treasury conversations with Panel staff (Oct. 7, 2010).
    \324\ Testimony of Gary Grippo, supra note 49; Treasury 
conversations with Panel staff (Oct. 7, 2010).
    In his testimony, Mr. Grippo noted that the GSEs are unique since 
they ``have connections to all the servicers across the country'' and 
``have the information technology capability to manage information 
related to millions of loans at the loan level, as well as the human 
capital to implement a national program.''
    In conversations with Panel staff, Mr. Grippo also noted that in 
October 2008, Treasury launched (but ultimately did not commence) two 
programs to purchase troubled assets--a program to purchase residential 
mortgage-backed securities and a program to purchase whole loans--
directly from the institutions that held them. As part of this process, 
Treasury issued a public notice soliciting interest from financial 
institutions to serve as financial agents to administer the whole loan 
purchase program. More than 70 institutions (including both Fannie Mae 
and Freddie Mac) submitted bids indicating that they were best 
qualified to be tasked with this responsibility. After conducting due 
diligence and a thorough evaluation, Treasury concluded that the only 
entities that could operationally manage this task were the GSEs since 
they had, among other resources and capabilities, the loan-level 
information technology requirements and pre-existing servicer 
relationships. If Treasury had commenced this program, it would have 
selected the GSEs to assist with the program. Once the Administration 
decided in early 2009 to launch a foreclosure mitigation program 
centered on mortgage modifications, however, Treasury again concluded 
that the GSEs were best able to set up such a program in a ``reasonable 
amount of time.'' The GSEs' selection was a consensus decision made by 
the Treasury Department, the National Economic Council, and the 
Department of Housing and Urban Development after extensive 
consultation, meetings, policy discussions, and consideration of other 
options. Whereas other private sector options (including private 
commercial banks) might have been viable options for performing credit 
risk and asset management services, Treasury concluded that the GSEs 
were exclusively capable of helping administer a mortgage modification 
program. Treasury conversations with Panel staff (Oct. 7, 2010).
    \325\ Treasury conversations with Panel staff (Oct. 7, 2010) 
(during which Mr. Grippo indicated that FHFA ``was involved from the 
very beginning,'' provided its explicit authorization for Treasury's 
selection, and ``always had firsthand knowledge of everything.''); FHFA 
conversations with Panel staff (Oct. 8, 2010); Caroline Herron, former 
vice president and HAMP consultant, Fannie Mae, conversations with 
Panel staff (Oct. 6, 2010).
    In conversations with Panel staff, FHFA representatives stated that 
their approval of Treasury's decision to enter into financial agency 
agreements with Fannie Mae and Freddie Mac was based on two criteria. 
First, the GSEs have the statutory authority to perform various types 
of services for the Federal Reserve, home loan banks, and other 
governmental entities. They are also authorized to be employed as 
fiscal or other agents of the federal government, and the Secretary of 
the Treasury is authorized to make those designations. FHFA determined 
that the roles that Treasury would task Fannie Mae and Freddie Mac with 
were consistent with the goals of the conservatorship process (for 
example, a loss mitigation program would help minimize losses by 
stabilizing the markets and benefitting the GSEs' portfolios). Second, 
the GSEs had the operational capabilities (including servicer 
relationships, leadership, and familiarity with housing finance issues) 
to successfully manage such tasks.
    FHFA also noted that while Treasury had initially proposed that the 
GSEs would be performing the same tasks under HAMP, it advised Treasury 
to reallocate those roles and give them different responsibilities.
---------------------------------------------------------------------------
    Testimony from the Panel's recent hearing, however, 
suggests that the roles of Fannie Mae and Freddie Mac as 
financial agents were not simply an extension of what they were 
already doing and also that they may not have had the operating 
capabilities and infrastructure to operate a national 
foreclosure mitigation program. For example, given that the 
responsibilities that Freddie Mac is tasked with under its 
financial agency agreement are somewhat different from the 
other types of compliance activities it conducts, it needed to 
hire staff and recruit personnel with a slightly different 
skill set (for example, strong auditors that understood 
controls and control-based auditing). Paul Heran, program 
executive for MHA-C at Freddie Mac, stated that after being 
asked by Treasury in February 2009 to serve as HAMP compliance 
agent, Freddie Mac's task ``essentially was to create a wholly 
new business function and organization, hire staff (which . . . 
included transferring qualified personnel from the existing 
Freddie Mac organization), and begin operations immediately.'' 
\326\ The type of work Treasury asked Fannie Mae to perform as 
HAMP administrator is also not within its core competence, nor 
does Fannie Mae have experience as a client consulting company. 
These issues raise important questions as to whether Treasury's 
decision-making undermined the conservatorship process (and 
exposed the GSEs to additional risk) by transferring qualified 
personnel that could otherwise have focused their efforts on 
returning the GSEs to a sound and solvent condition.
---------------------------------------------------------------------------
    \326\ Testimony of Paul Heran, supra note 173, at 1.
---------------------------------------------------------------------------
    On one hand, Treasury's decision to contract with Fannie 
Mae and Freddie Mac after they were placed into conservatorship 
has caused some to raise concerns about whether the government 
was intending to affect their solvency by awarding them large 
financial agency agreements. New York Times columnist David 
Brooks recently commented that ``agencies fail and get rewarded 
with more responsibilities.'' \327\ Vesting Fannie Mae and 
Freddie Mac with key roles in a program designed to help 
stabilize the entire housing market may have provided further 
benefit and stability to the GSEs on a macroeconomic level. It 
may be that the resources Fannie Mae and Freddie Mac are 
devoting to their HAMP responsibilities are simply surplus 
resources within these two firms during a housing market 
downturn (which, in the absence of the HAMP work, would be left 
idle). Viewed in this light, Treasury's decision is only 
appropriate if using the GSEs is more cost-effective and 
efficient than turning to other federal resources or 
contracting with other private firms.
---------------------------------------------------------------------------
    \327\ David Brooks, The Responsibility Deficit, New York Times 
(Sept. 23, 2010) (online at www.nytimes.com/2010/09/24/opinion/
24brooks.html).
---------------------------------------------------------------------------
    On the other hand, the TARP financial agency agreements 
with Fannie Mae and Freddie Mac are not material in relation to 
the economics of the conservancy of those firms.\328\ As 
discussed above, it is difficult to envision a scenario where 
these financial agency agreements had any material bearing on 
either firm's financial health, given the relative small size 
of the contracted amount, in the context of the more than $90 
billion in losses reported between the two GSEs in 2009.\329\ 
Any concern as to whether Treasury's decision-making was 
intended to affect the GSEs' solvency is further lessened by 
the nature of Fannie Mae's and Freddie Mac's financial agency 
agreements with the Treasury Department, which are ``set at 
cost, with no mark-up for profit.'' \330\ Furthermore, Mr. 
Grippo testified at the Panel's recent hearing that Treasury's 
decision-making in engaging Fannie Mae and Freddie Mac as 
financial agents was not driven by a desire to prop them 
up.\331\ ``We had engaged the operating capability of the GSEs. 
Their information technology, their ability to deal with dozens 
if not hundreds of servicers in implementing HAMP.'' \332\ 
Treasury has not used ``those parts of their business related 
to their credit risk management standards, how they ran their 
own portfolio, or any other credit risk decisions that they 
made in the subprime space.'' \333\ The Panel notes, however, 
that the HAMP engagement, although not dispositive to the 
economic survival of Fannie Mae and Freddie Mac, did give the 
GSEs the opportunity to present themselves in the best possible 
light to the Treasury officials who may well be involved in 
determining the GSEs' ultimate fate.
---------------------------------------------------------------------------
    \328\ If Fannie Mae and Freddie Mac were to collect the full 
obligated value under their financial agency agreements, it would 
amount to $219 million. Since their conservatorship is going to cost 
the federal government several hundred billion dollars, the entire TARP 
financial agency agreements, at the maximum possible amount, represent 
only a fraction of the conservatorship amount.
    \329\ For further discussion concerning how Treasury decided what 
functions to contract out in making its contracting and financial agent 
designations, see Section C.1, supra. See also footnote 78, supra, for 
further discussion concerning how the TARP financial agency agreements 
represent a small percentage of Fannie Mae and Freddie Mac's annual net 
revenue.
    \330\ Congressional Oversight Panel, Written Testimony of Joy 
Cianci, senior vice president, Making Home Affordable Program, Fannie 
Mae, COP Hearing on Treasury's Use of Private Contractors, at 4 (Sept. 
22, 2010) (online at cop.senate.gov/documents/testimony-092210-
cianci.pdf) (hereinafter ``Written Testimony of Joy Cianci''); Treasury 
and Freddie Mac conversations with Panel staff (Sept. 27, 2010). The 
Panel notes that although the GSEs' financial agency agreements are at-
cost, with no mark-up for profit, the subcontracts they have entered 
into to help carry out their HAMP-related responsibilities are not at-
cost, but allow the subcontractors to generate profit. Given that the 
taxpayers will ultimately cover all of the costs of HAMP, either 
because of their ownership stakes in Fannie Mae and Freddie Mac or 
because they ultimately pay all of Treasury's bills, taxpayers may not 
be indifferent as to how much Fannie Mae and Freddie Mac are being 
compensated.
    While the financial agency agreements for both Fannie Mae and 
Freddie Mac provide each with the opportunity to receive performance 
incentive payments, Treasury has indicated that no such incentive 
payments have been made, and has taken the incentive payment clause off 
the table indefinitely. Treasury conversations with Panel staff (Sept. 
22, 2010). See also Testimony of Joy Cianci, supra note 274 (stating 
that ``[t]here was a provision in the original contract that provided 
for the potential for incentives. We have not received incentives to 
date. And we're in the process of working through a revision to that 
contract. My understanding is that there will not be an incentive 
framework forward.'').
    \331\ Testimony of Gary Grippo, supra note 49.
    \332\ Id.
    \333\ Id.
---------------------------------------------------------------------------

                 D. Discussion of Conflicts of Interest

    In addition to the IFR, which binds all of Treasury's 
arrangements with contractors and financial agents, Fannie Mae 
and Freddie Mac are subject to the conflicts of interest 
mitigation and information barriers contained within their 
respective financial agency agreements. These internal controls 
center on the responsibilities of Fannie Mae and Freddie Mac to 
ensure the non-disclosure of non-public information and certain 
program information to personnel involved with other Fannie Mae 
or Freddie Mac (or subcontractor) activities that may conflict 
with duties owed by the GSEs to Treasury. According to the 
GSEs' financial agency agreements, there are four actual or 
potential conflicts of interest associated with their status as 
financial agents.\334\ These four actual or potential conflicts 
appear to be comprehensive and carefully thought-out:
---------------------------------------------------------------------------
    \334\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit F; Financial Agency Agreement Between 
Treasury and Freddie Mac, supra note 122, at Exhibit F.
---------------------------------------------------------------------------
          The GSEs' interests in maximizing the 
        performance and minimizing the costs of their retained 
        and guaranteed mortgage loan portfolios, which could 
        potentially conflict with their responsibilities to 
        administer HAMP uniformly and for all borrowers and 
        investors and enforce servicer compliance with program 
        guidelines, respectively;
          The GSEs' business relationships with 
        servicers, which could potentially conflict with their 
        duties to administer HAMP uniformly and enforce 
        servicer compliance with program guidelines, 
        respectively;
          The GSEs' interests in benefitting from HAMP 
        interest rate or principal reduction payments and loan 
        modifications of mortgages in their own portfolios 
        (whether owned or guaranteed), which could potentially 
        conflict with their duties to administer HAMP uniformly 
        for all investors and enforce servicer compliance with 
        program guidelines, respectively; and
          The financial interest of GSE employees in 
        banks or investment funds that could receive or benefit 
        from HAMP interest rate or principal reduction 
        payments, which could potentially conflict with the 
        interests of Treasury.
    As the list above demonstrates, Fannie Mae and Freddie Mac 
appear to have more obvious conflicts of interest than any 
other contractor or financial agent. Although HAMP operates to 
modify non-GSE mortgages, there is a companion program under 
HAMP to modify GSE mortgages. As discussed in several of the 
Panel's previous reports, the federal government committed $75 
billion to HAMP, with $50 billion of TARP funds allocated to 
modify private-label mortgages and $25 billion from the Housing 
and Economic Recovery Act (HERA) to modify GSE mortgages.\335\ 
According to the August 2010 Making Home Affordable Program 
report, 55.2 percent of active permanent and trial loan 
modifications that have taken place since the program's 
inception are actually GSE modifications.\336\ That the 
majority of the modifications under HAMP involve mortgages that 
the GSEs hold or guarantee means that the potential exists for 
a substantial financial conflict of interest. In a prior 
report, the Panel noted that ``these dual roles--as `doers' of 
mortgage modifications for loans that they own or guarantee and 
`overseers' of Treasury's mortgage modification program--may 
present competing interests or diminish the overall 
effectiveness of Fannie Mae's and Freddie Mac's ability to 
modify mortgages, engage in HAMP administration or oversight, 
or both.'' \337\ At the Panel's recent hearing, Mr. Heran 
stated that while MHA-C ``is responsible for evaluating 
compliance for non-GSE loans only,'' the GSEs themselves (under 
the supervision of FHFA) are responsible for evaluating 
compliance for GSE loans.\338\ This means that while MHA-C does 
not conduct compliance for mortgages owned or guaranteed by 
Freddie Mac, another department within Freddie Mac is charged 
with those responsibilities.\339\ The Panel is not convinced as 
to the appropriateness of and logic underlying this particular 
allocation of responsibilities.
---------------------------------------------------------------------------
    \335\ October 2009 Oversight Report, supra note 3; April 2010 
Oversight Report, supra note 3.
    \336\ U.S. Department of the Treasury, Making Home Affordable 
Program: Servicer Performance Report Through August 2010 (Sept. 22, 
2010) (online at www.financialstability.gov/docs/
AugustMHAPublic2010.pdf) (hereinafter ``Servicer Performance Report 
through August 2010'').
    \337\ April 2010 Oversight Report, supra note 3, at 88.
    \338\ Congressional Oversight Panel, Testimony of Paul Heran, 
program executive, Making Home Affordable--Compliance, Freddie Mac, 
Transcript: COP Hearing on Treasury's Use of Private Contractors (Sept. 
22, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/
library/hearing-092210-contracting.cfm).
    \339\ Id.
---------------------------------------------------------------------------
    With respect to the issues arising out of Fannie Mae's and 
Freddie Mac's ownership or guarantees of mortgage portfolios 
that could conflict with financial agency agreements, there are 
several mitigating factors worth noting. First, as discussed 
above, Fannie Mae and Freddie Mac, as financial agents and 
fiduciaries of Treasury, owe a duty to look solely to the best 
interests of Treasury without considering the interests of 
other clients or its own proprietary interests. This helps 
ensure that the GSEs will carry out their assignments in a 
manner that serves the public interest instead of their own 
interests. In order to carry out these functions, Fannie Mae 
and Freddie Mac created distinct business units that are 
segregated from and operate separate and apart from their books 
of business. Second, Treasury receives advice from two GSEs as 
well as from other third-party advisers. Third, Treasury 
retains sole responsibility for developing the HAMP program 
guidelines, and both GSEs are obligated to comply with those 
guidelines. Fourth, both Fannie Mae and Freddie Mac must 
develop and implement an information barrier policy to prevent 
``misuse of material non-public information to benefit'' their 
portfolios (i.e., insider trading) and a firewall with respect 
to employees and systems and databases with information 
regarding modifications of mortgages backing mortgage-backed 
securities in their portfolios.\340\ Fifth, Fannie Mae does not 
receive any incentive payments to fund loan modifications or 
fees to servicers and investors for modifications of loans that 
it owns (other than in its capacity as an investor in mortgage-
backed securities).\341\
---------------------------------------------------------------------------
    \340\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit F; Financial Agency Agreement Between 
Treasury and Freddie Mac, supra note 122, at Exhibit F.
    \341\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit F; Written Testimony of Joy Cianci, supra 
note 330, at 3 (stating that ``[i]t should be noted that Treasury does 
not pay, and Fannie Mae does not receive, incentives under the Program 
for modifications of Fannie Mae-owned loans.'').
---------------------------------------------------------------------------
    Finally, FHFA provides an additional layer of oversight in 
its role as conservator. It closely monitors Fannie Mae's and 
Freddie Mac's compliance with the financial agency agreements 
and the nature of the tasks Treasury asks them to perform on an 
ongoing basis, in addition to helping ensure that the GSEs' 
HAMP responsibilities are segregated completely from their 
business lines.\342\
---------------------------------------------------------------------------
    \342\ FHFA conversations with Panel staff (Oct. 4, 2010).
---------------------------------------------------------------------------
    There are several mitigating factors to address the 
conflict arising out of the GSEs' business relationships with 
servicers. Treasury's relationships with Fannie Mae and Freddie 
Mac are structured so that one GSE--Fannie Mae--is charged with 
program administration and a different GSE--Freddie Mac--is 
responsible for auditing servicer performance under HAMP. For 
its part, Freddie Mac was required to adopt an internal policy 
establishing the principle that in its performance under the 
financial agency agreement, all decisions are to be made solely 
based upon the HAMP program objectives and requirements 
(without consideration of potential benefit to mortgage sellers 
or servicers with whom it does business or to itself via 
modifications of mortgages that it owns or guarantees).\343\ 
Freddie Mac is also required to submit copies of its servicer 
audits to Treasury upon request.\344\ In addition, Treasury 
retains the right under the financial agency agreements to 
oversee and audit their performance.\345\
---------------------------------------------------------------------------
    \343\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit F.
    \344\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit F. While this requirement likely limits the 
exercise of discretion in the audit process (and hence the latitude of 
Freddie Mac to treat certain servicers more favorably than others), it 
does not totally eliminate that discretion.
    \345\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Sec. 17.
---------------------------------------------------------------------------
    With respect to issues concerning personal and 
organizational conflicts of interest, Fannie Mae and Freddie 
Mac, in entering into their financial agency agreements, agreed 
that all management officials and key individuals would be 
subject to a code of ethics and associated insider trading 
policy.\346\ Furthermore, each must certify on a quarterly 
basis that it has no organizational or personal conflicts of 
interest.\347\
---------------------------------------------------------------------------
    \346\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit F.
    \347\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit F.
---------------------------------------------------------------------------
    It could be argued that it is implausible and impractical 
for Fannie Mae and Freddie Mac to conduct modifications of 
mortgages they own or guarantee and maintain business 
relationships with servicers while simultaneously conducting 
independent contracting roles under HAMP. If Treasury selects 
contractors or financial agents with clear structural 
conflicts, or portfolios with interests adverse to Treasury's, 
that may raise an immitigable conflict because the interests 
are not aligned (regardless of whether mitigation procedures 
are implemented). Since a key objective of the conservatorship 
process is to minimize losses, it might appear that Treasury 
and FHFA have incentives to allow Fannie Mae and Freddie Mac to 
use material non-public information gained from their HAMP 
contracting roles that might ultimately be beneficial to the 
GSEs' bottom lines as they conduct their own mortgage 
modifications.\348\ On the other hand, the financial agency 
agreements were set up in different ways and established to 
achieve different goals, suggesting the importance Treasury has 
given to mitigating conflicts of interest and implementing a 
rigorous set of mitigation procedures. Additionally, the GSEs 
appear to have taken their obligations to comply with 
Treasury's conflict of interest regulations in all required 
areas seriously, creating separate business units dedicated to 
carrying out their HAMP responsibilities (and accountable under 
their financial agency agreements to Treasury) and, as 
discussed above, deploying a variety of conflict mitigation 
techniques.\349\
---------------------------------------------------------------------------
    \348\ From the perspective of the taxpayers (who became majority 
shareholders of Fannie Mae and Freddie Mac as a result of their 
placement into conservatorship), this conflict may not be as troubling 
as it may seem since the public may want the GSEs to use information 
gained as a result of their roles as financial agents to aid them in 
modifying their own mortgages, given that the taxpayers directly bear 
the costs of distressed mortgage loans owned or guaranteed by the GSEs 
(while not directly bearing the costs resulting from distressed non-GSE 
mortgages).
    \349\ For example, in conversations with Panel staff, Fannie Mae 
indicated that it has reported 18 incidents (or potential breaches of 
its obligations) to Treasury over the course of its financial agency 
agreement. Such reporting includes minor matters such as a carrier's 
temporary misplacement of a box containing the names and addresses of 
potential borrowers.
---------------------------------------------------------------------------
    As illustrated by the complexities described above, the 
fundamental issue with Fannie Mae and Freddie Mac in their 
roles as financial agents is whether they are simply extensions 
of the federal government itself.\350\ This question is 
somewhat challenging to answer because, as discussed above, the 
GSEs are not legally government agencies and their employees 
are not civil servants, but they have been operating under 
conservatorship by the FHFA and would likely not have survived 
without the financial assistance provided by Treasury. If they 
are really private entities with their own financial interests 
independent of the federal government's, then the real and 
perceived conflicts of interest seem vast and unmanageable. If 
they are just arms of the federal government at this point, 
however, then any real or perceived conflicts likely evaporate. 
The manner in which Treasury is treating the GSEs (for example, 
they are being compensated at cost for the work they are 
doing--they are earning zero profit) in some ways gives the 
appearance that they are government entities, underlining the 
tension created by the anomalous position of Fannie Mae and 
Freddie Mac.
---------------------------------------------------------------------------
    \350\ In August 2009, the Congressional Budget Office (CBO) 
addressed these issues by noting that because of the ``extraordinary 
degree of management and financial control now exercise[d] over them,'' 
along with their ``unique legal status and a long history linking them 
closely to the federal government,'' they should be considered federal 
operations, even though they ``had been considered private firms owned 
by their shareholders.'' Therefore, CBO concluded that it would be 
``appropriate and useful to policymakers to account for and display the 
GSEs' financial transactions alongside other federal activities in the 
budget.'' Congressional Budget Office, The Budget and Economic Outlook: 
An Update, at 8 (Aug. 2009) (online at www.cbo.gov/ftpdocs/105xx/
doc10521/08-25-BudgetUpdate.pdf). For its part, however, the Office of 
Management and Budget (OMB) continues to treat the GSEs as ``non-
budgetary private entities in conservatorship rather than as Government 
agencies'' because they ``remain private companies with Boards of 
Directors and management responsible for their day-to-day operations.'' 
Analytical Perspectives: Budget of the U.S. Government, FY 2011, supra 
note 308, at 140.
---------------------------------------------------------------------------

              E. Evaluation of Small Business Contracting

    The financial agency agreements for both Fannie Mae and 
Freddie Mac provide a floor for the GSEs' use of small business 
contractors, including minority- or women-owned contractors. In 
entering into their financial agency agreements with the 
Treasury Department, Fannie Mae and Freddie Mac agreed to 
``engage one or more small businesses as contractors, including 
minority- or women-owned businesses,'' in fulfilling their 
responsibilities.\351\
---------------------------------------------------------------------------
    \351\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Sec. 15 and Sec. 16.
---------------------------------------------------------------------------
    Fannie Mae and Freddie Mac have selected subcontractors and 
vendors to support their duties as HAMP program administrator 
and compliance agent, respectively, using the standard 
competitive bidding process (unless time-to-market pressures 
necessitate otherwise), and have complied with its obligation 
to engage women-owned and minority-owned small businesses.\352\ 
In total, Fannie Mae has awarded contracts to ``19 small and 
diverse companies'' in furtherance of its duties as HAMP 
compliance agent for Treasury.\353\ Freddie Mac has indicated 
that 25 percent of the subcontractors it has hired are 
minority- or women-owned.\354\
---------------------------------------------------------------------------
    \352\ Written Testimony of Joy Cianci, supra note 330, at 4; 
Treasury and Freddie Mac conversations with Panel staff (Sept. 27, 
2010).
    \353\ Written Testimony of Joy Cianci, supra note 330, at 4.
    \354\ Treasury and Freddie Mac conversations with Panel staff 
(Sept. 27, 2010).
---------------------------------------------------------------------------

                 F. Evaluation of Treasury's Monitoring


1. Treasury's Monitoring of Performance and Compliance

    OFS has developed a comprehensive regime of documents, 
standards, and continual reviews to assess performance and 
financial agency agreement compliance.
    Treasury has a comprehensive oversight structure in place 
to oversee and monitor Fannie Mae's activities as Treasury's 
financial agent.\355\ The Homeownership Preservation Office 
(HPO) has a collaborative relationship with the OFA, CFO, and 
OFS-Compliance teams. Five members of the OFS-Compliance staff 
work exclusively on conflicts of interest matters for all 
contractors and financial agents, and almost all staffers 
within HPO have regular and substantial interactions with 
Fannie Mae.\356\ In addition to the Making Home Affordable 
program committee that meets weekly, Treasury has also 
established several working committees (centered on compliance, 
budgeting, and governance issues) to oversee Fannie Mae. These 
committees meet on a regular basis and include interlocking 
membership from each of the different Treasury offices 
(referenced above) that is tasked with monitoring and oversight 
responsibilities for Fannie Mae.\357\
---------------------------------------------------------------------------
    \355\ Treasury and Fannie Mae conversations with Panel staff (Oct. 
4, 2010).
    \356\ Treasury and Fannie Mae conversations with Panel staff (Oct. 
4, 2010).
    \357\ Treasury and Fannie Mae conversations with Panel staff (Oct. 
4, 2010).
---------------------------------------------------------------------------
    Treasury's monitoring and supervision of the GSEs are 
closely coordinated with general oversight and risk assessment 
by FHFA as part of the conservatorship process. Members of the 
FHFA conservatorship team continuously oversee Fannie Mae's and 
Freddie Mac's financial agency agreements, monitor the tasks 
that Treasury asks the GSEs to perform as a risk assessment 
measure, and help ensure that they are compensated 
appropriately for their work.\358\
---------------------------------------------------------------------------
    \358\ FHFA conversations with Panel staff (Oct. 4, 2010).
---------------------------------------------------------------------------
    Senior-level officials within OFS direct and closely 
monitor Freddie Mac's activities as Treasury's financial agent, 
and OFS has four employees assigned to work full-time to 
oversee Freddie Mac, three of whom work full time on-site in 
Freddie Mac's office.\359\ Additionally, Treasury's MHA 
Compliance Committee (composed of senior Treasury officials 
leading the MHA program and chaired by the director of 
compliance at OFS) meets weekly with Freddie Mac's MHA-C senior 
management team to discuss the program's status, issues and 
challenges.\360\
---------------------------------------------------------------------------
    \359\ Treasury conversations with Panel staff (Sept. 23, 2010); 
Testimony of Paul Heran, supra note 173, at 2.
    \360\ Treasury conversations with Panel staff (Sept. 23, 2010); 
Testimony of Paul Heran, supra note 173, at 2.
---------------------------------------------------------------------------
    As with its other contractors and financial agents, there 
are several metrics that Treasury uses to evaluate and manage 
Fannie Mae's and Freddie Mac's performance and compliance with 
their financial agency agreements. Since financial agents have 
a fiduciary obligation to Treasury (and therefore serve as an 
extension of Treasury), OFS has developed specific processes to 
measure performance and ensure compliance. The process for 
monitoring the performance and compliance of these financial 
agents is contained in their respective financial agency 
agreements.
    On the performance side, these include qualitative measures 
(such as assessments of cost containment, responsiveness, and 
nature of their business relationship with Treasury), and 
quantitative measures (such as how they process transactions, 
the timeliness and accuracy of their reports, and the number of 
servicer reviews conducted).\361\ OFA collects quantitative 
measures on a quarterly or monthly basis to monitor the agents' 
performance, balancing ``objective measurements (for example, 
quantitative counts of work products) and subjective 
measurements (for example, survey responses).'' \362\ 
Additionally, informal communications between Treasury and the 
GSEs are regular and continuous, which suggests that the level 
of interaction is best characterized as constant 
involvement.\363\
---------------------------------------------------------------------------
    \361\ Testimony of Gary Grippo, supra note 49.
    \362\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 6.
    \363\ Treasury and Freddie Mac conversations with Panel staff 
(Sept. 27, 2010); Treasury and Fannie Mae conversations with Panel 
staff (Oct. 4, 2010).
---------------------------------------------------------------------------
    On the compliance side, the GSEs are required to report to 
Treasury on internal controls, risk assessments, information 
technology security, employee training, and how they have 
revisited their conflicts of interest mitigation plans.\364\ 
The financial agency agreements also require that Fannie Mae 
and Freddie Mac self-certify annually that they are complying 
with 11 selected terms of the agreements and review the 
effectiveness of their internal controls on an annual 
basis.\365\ On an annual basis, Treasury staff conduct on-site 
visits to review the processes and controls of each agent at 
their offices.\366\ Treasury also requires agents to submit 
information regarding conflicts of interest, which it reviews 
on an on-going basis.\367\
---------------------------------------------------------------------------
    \364\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122; Financial Agency Agreement Between Treasury and Freddie 
Mac, supra note 122.
    \365\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Sec. 16, Exhibit D; Financial Agency Agreement 
Between Treasury and Freddie Mac, supra note 122, at Sec. 16, Exhibit 
D.
    \366\ Prepared Statement of Gary Grippo and Ronald Backes, supra 
note 26, at 6.
    \367\ Treasury conversations with Panel staff (Sept. 16, 2010). For 
a more complete discussion of Treasury's monitoring of contractor and 
agent conflicts of interest, see Sections B.3 and H, supra.
---------------------------------------------------------------------------

2. Data Production and Verification

    Some concerns have developed recently regarding the process 
underlying Fannie Mae's data generation and how rigorously 
Treasury is scrutinizing the HAMP data and metrics it receives 
from its financial agent. Under the terms of its financial 
agency agreement, Fannie Mae is required, among other tasks, to 
``[p]rovide detailed loan level reporting, as required, to the 
Treasury and the compliance agent.'' \368\ Starting in the June 
2010 Making Home Affordable public report, Treasury has 
included a table entitled ``Performance of Permanent 
Modifications,'' which is produced by Fannie Mae and provides 
information on the number of borrowers in delinquency or re-
default after their loans convert from trial modifications to 
permanent modifications. This information is designed to inform 
the public as to whether homeowners with HAMP modifications are 
being placed into sustainable mortgages. Initially, Treasury 
reported that just under 6 percent of HAMP homeowners were at 
least 60 days late six months after their mortgages were 
modified. After the June 2010 table was published, however, 
analysts at Barclays Capital challenged the information 
reported in the table.\369\ After Treasury and Fannie Mae 
reviewed the data, they found that the default rate that Fannie 
Mae provided in the original table appeared to be significantly 
lower than the actual default rate as indicated by the source 
data. The significant errors in the table were subsequently 
attributed to logic errors in the Fannie Mae code used to 
create the table.\370\ As a result, Treasury had to correct the 
data and republish its June 2010 MHA report in early August 
2010 after data validation efforts were undertaken by the MITRE 
Corporation and an independent third party consultant 
contracted by Fannie Mae's Internal Audit group.
---------------------------------------------------------------------------
    \368\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit A.
    \369\ MITRE HAMP Re-Default Report, supra note 194, at 2-1.
    \370\ MITRE HAMP Re-Default Report, supra note 194, at 2-1.
---------------------------------------------------------------------------
    The data error, which was highly visible and instrumental 
from a public policy perspective, suggests that there was a 
lack of adequate processes or systems in place (as well as 
personnel) at Fannie Mae to detect any mistakes, omissions, or 
discrepancies in data production, as well as insufficient 
scrutiny, verification and validation by the Home Ownership 
Preservation Office within Treasury of the HAMP data 
compilations it was receiving from its financial agent.\371\ 
Treasury, with the support of FHFA, will require Fannie Mae to 
pay for the data validation services provided by the MITRE 
Corporation as a result of the data error.\372\ Fannie Mae and 
Treasury express confidence that processes have been put in 
place to make sure that such errors in the data collection and 
generation cycle will not be repeated, and noted how the MITRE 
Corporation's mandate has been broadened to analyze and 
validate the data generation and production components of all 
public HAMP reports.\373\
---------------------------------------------------------------------------
    \371\ See MITRE, Home Affordable Modification Program: Assessment 
of the HAMP July 2010 Public Report (Final) (Sept. 3, 2010) 
(recommending that Treasury should engage in ``manual cross-checking 
efforts'' to ``decrease the likelihood of errors.''). According to 
Treasury officials, this occurrence demonstrated that Treasury lacked 
adequate controls with respect to how program and financial agency 
agreement requirements were being communicated from Treasury. In 
addition, the data error also highlighted inadequate testing being done 
by Fannie Mae and inadequate validation of that testing on the part of 
Treasury. Treasury conversations with Panel staff (Sept. 23, 2010).
    \372\ Treasury conversations with Panel staff (Sept. 23, 2010). 
Since Fannie Mae is under conservatorship, however, ultimately the fees 
will be paid for by taxpayers, regardless of whether Fannie Mae or 
Treasury pays the fees to MITRE.
    \373\ Treasury conversations with Panel staff (Sept. 23, 2010); 
Testimony of Joy Cianci, supra note 274.
    According to Ms. Cianci, immediately upon discovering the data 
error, Fannie Mae notified Treasury and ``took upon a three-phased 
remediation approach.'' The first phase focused on ``recoding and 
validating a revised grid.'' Treasury engaged the MITRE Corporation to 
``independently code and validate the grid,'' and ``Fannie Mae assigned 
four independent teams to recode and revalidate the grid.'' The MITRE 
Corporation ``expressed strong confidence to Treasury regarding the 
revised table,'' resulting in the publication of the revised table on 
August 6, 2010. Phase two focused on the internal audit and MITRE 
Corporation performing a ``root cause analysis'' to help ``identify 
some recommendations that would bolster controls regarding [Fannie 
Mae's] production of data in support of the public report.'' Currently, 
Fannie Mae is in the third phase which is focused on bolstering 
internal controls.
---------------------------------------------------------------------------
    The systems and resources that Treasury has committed to 
monitoring the performance and compliance of the GSEs have 
grown over time. In recent conversations with Treasury 
officials, however, OFS and OFA officials readily admit that 
Treasury lacked adequate controls with respect to the 
communication of program requirements and the validation of 
data.\374\ This admission, based upon the data error described 
above, calls into question the level of independent scrutiny, 
verification, and oversight that Treasury has done with respect 
to the monitoring of its financial agents. While the Panel 
recognizes and appreciates that Treasury has dedicated more 
resources to the monitoring and oversight of the GSEs, proper 
implementation of the TARP and oversight of financial agents 
require rigorous monitoring and controls from the program's 
inception.
---------------------------------------------------------------------------
    \374\ Treasury conversations with Panel staff (Sept. 23, 2010).
---------------------------------------------------------------------------

  G. Performance Assessment Made Challenging by Insufficient Reporting

    Under the terms of its financial agency agreement and 
responsibilities as HAMP compliance agent, Freddie Mac is 
required, among other tasks, to ``conduct examinations and 
review servicer compliance with the published rules for the 
program and report results to the Treasury.'' \375\ Based upon 
such examinations, Freddie is required to provide Treasury 
``with advice, guidance, and lessons learned to improve 
operation of the program.'' \376\
---------------------------------------------------------------------------
    \375\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit A.
    \376\ Financial Agency Agreement Between Treasury and Freddie Mac, 
supra note 122, at Exhibit A.
---------------------------------------------------------------------------
    In mid-2009, the OFS compliance department observed that 
Freddie Mac (since the inception of HAMP) was having difficulty 
meeting the deadlines of its planned audits and delivering key 
compliance reports.\377\ After evaluating the first Servicer 
Performance Reviews completed by Freddie Mac, OFS had several 
other areas of concern, including the use of unqualified staff 
to perform audits; inconsistent and incomplete audit 
documentation; and overreliance on contractors to perform the 
audits.\378\ These difficulties led Treasury to meet with 
senior officials at Freddie Mac, develop a detailed remediation 
plan addressing many aspects of Freddie Mac's contractual 
obligations and place an OFS compliance official with Freddie 
Mac full-time.\379\ According to Treasury, Freddie Mac was very 
proactive in addressing these concerns and made some key 
personnel changes to improve its compliance function, including 
the hiring of Mr. Heran, program executive for Making Home 
Affordable--Compliance, who came to Freddie Mac after a long 
auditing career in the financial services industry.\380\ While 
OFS compliance acted prudently in recognizing the deficiencies 
at Freddie Mac early on and taking steps to remedy the 
situation, and although it is possible that Freddie Mac has 
completed all of the steps under its detailed remediation plan, 
it is difficult to monitor progress on these issues without 
additional information and more regular reporting.
---------------------------------------------------------------------------
    \377\ July 2010 SIGTARP Report, supra note 299, at 102.
    \378\ July 2010 SIGTARP Report, supra note 299, at 102.
    \379\ July 2010 SIGTARP Report, supra note 299, at 102.
    \380\ Treasury conversations with Panel staff (Sept. 23, 2010).
---------------------------------------------------------------------------

                     H. Evaluation of Transparency

    Beginning with the release of its Making Home Affordable 
Program Servicer Performance Report through May 2010, released 
in June 2010, Treasury has included an appendix describing 
Freddie Mac's compliance activities.\381\ The material in this 
appendix has become boilerplate language that Treasury now 
includes in each month's Servicer Performance Report. The 
appendix describes the four major activities that comprise the 
compliance program, including on-site reviews (to assess 
readiness and governance as well as implementation), loan file 
reviews, net present value (NPV) testing and assessments, and 
incentive payment reviews.\382\ The appendix also discusses the 
frequency with which Freddie Mac conducts its reviews for each 
of the different types of compliance activities to assess 
servicer compliance with HAMP guidelines. In addition, the 
appendix discusses several areas of Freddie Mac's continued 
compliance focus, including borrower solicitation, underwriting 
documentation, NPV model usage, document processing and 
control, data maintenance, and governance. While this 
additional information is a step in the right direction with 
respect to transparency, the Panel is disappointed that the 
monthly MHA reports have offered little detail on Freddie Mac's 
activities as HAMP compliance agent. While it takes time to 
develop a large enough pool of servicer actions and trial 
conversions for Freddie Mac to review, whether the process has 
been aggressive, robust, and transparent enough remains 
unclear. Preliminary compliance results would have been most 
useful early in the life of HAMP in order to enable course 
corrections and help homeowners before it is too late.
---------------------------------------------------------------------------
    \381\ U.S. Department of the Treasury, Making Home Affordable 
Program Servicer Performance Report Through May 2010, at 11 (June 21, 
2010) (online at www.financialstability.gov/docs/
May%20MHA%20Public%20062110.pdf) (hereinafter ``Making Home Affordable 
Program Servicer Performance Report Through May 2010'').
    \382\ See generally, Id. at 11.
---------------------------------------------------------------------------
    Additionally, the May 2010 Making Home Affordable Program 
Servicer Performance Report marked the first occasion in which 
Treasury released the results of MHA-C's compliance ``Second 
Look'' reviews (detailing the December 2009 rotation for 
``Second Look'' reviews).\383\ Treasury again released this 
information in its August 2010 Making Home Affordable Program 
Servicer Performance Report (detailing the first quarter 2010 
rotation for ``Second Look'' reviews).\384\ Going forward, 
Treasury plans to make this information available on a monthly 
basis. According to Treasury, the reason why information on 
other compliance activities has not been made publicly 
available is because the ``Second Look'' compliance activities 
lend themselves to be given out in a benchmark manner, and 
other compliance activities do not.\385\ Going forward, 
however, Treasury plans to continue to consult with MHA-C in 
efforts to determine what other types of compliance-related 
information can be made public and improve transparency.
---------------------------------------------------------------------------
    \383\ Id. at 6. This information demonstrated that MHA-C disagreed 
with the servicers' actions in 3.9 percent of the cases it evaluated.
    \384\ Servicer Performance Report through August 2010, supra note 
336, at 11. This information demonstrated that MHA-C disagreed with the 
servicers' actions in an average of 4.8 percent of the cases it 
evaluated.
    \385\ Treasury conversations with Panel staff (Sept. 27, 2010).
---------------------------------------------------------------------------
    The Panel has long been concerned about Treasury's data 
collection efforts under HAMP. In all of the Panel's prior 
reports on Treasury's foreclosure mitigation efforts, the Panel 
has expressly called for the collection of more data and 
greater public disclosure.\386\ Treasury relies on Fannie Mae 
to act as record keeper for executed loan modifications and 
program administration. In this capacity, Fannie Mae is the 
primary collector of and gatekeeper for all information related 
to HAMP, including basic information such as the number of 
modifications, the rate of conversions from trial to permanent 
modifications, and the reasons for borrower failure. Such 
exclusive reliance creates significant risks to both effective 
program implementation and financial agent oversight.
---------------------------------------------------------------------------
    \386\ April 2010 Oversight Report, supra note 3; October 2009 
Oversight Report, supra note 3; March 2009 Oversight Report, supra note 
3.
---------------------------------------------------------------------------
    In prior reports the Panel has noted the importance of a 
strong accountability regime and public disclosure to the 
credibility and effectiveness of HAMP.\387\ Treasury should 
publicly release more data collected by Fannie Mae and Freddie 
Mac so that Congress, the TARP oversight bodies, and the public 
can better evaluate the effectiveness of HAMP. Review and 
analysis of the substantial amount of data being collected by 
Fannie Mae as program administrator and Freddie Mac as 
compliance agent are important in understanding the strengths 
and weaknesses of HAMP as well as particular areas in need of 
improvement. Because of Fannie Mae and Freddie Mac's crucial 
roles in administering and enforcing HAMP requirements, it is 
especially important that Treasury release data on the 
compliance audits done by Freddie Mac to show whether servicers 
are properly following HAMP guidelines or whether Treasury and 
Freddie Mac are ensuring that HAMP requirements are being 
enforced. Taxpayers should be able to see the consequences that 
result both from HAMP compliance and non-compliance.\388\
---------------------------------------------------------------------------
    \387\ April 2010 Oversight Report, supra note 3, at 5; October 2009 
Oversight Report, supra note 3, at 5.
    \388\ April 2010 Oversight Report, supra note 3, at 9.
---------------------------------------------------------------------------

                             I. Conclusion

    The Panel is very concerned that, over 19 months into its 
financial agency agreements with Fannie Mae and Freddie Mac, 
Treasury's expectations for them in their respective roles of 
financial agent/HAMP administrator and financial agent/
compliance agent remain unclear. The Panel has previously 
called on Treasury to ``clearly define and communicate its 
goals and requirements as well as its measurements for success. 
Without clear goals and measurements, Treasury and its agents 
and third parties (for example, oversight bodies, Congress, and 
the public) will not be able to evaluate the adequacy or 
success of its programs overall or of individual 
participants.'' \389\ Not only has Treasury failed to 
articulate specific goals for the program, but the concerns 
raised in the discussion above suggest that Fannie Mae and 
Freddie Mac are not performing satisfactorily under their 
financial agency agreements. In addition, OFS has yet to 
develop written procedures for the oversight and monitoring of 
Fannie Mae and Freddie Mac's administrative and compliance 
activities, including internal controls over the existence, 
completeness and accuracy of data formulation and input.\390\ 
As GAO noted recently, ``[w]ithout clearly documented guidance 
regarding the specific procedures OFS should follow to 
effectively oversee and monitor Fannie Mae and Freddie Mac, OFS 
faces an increased risk that the financial information related 
to HAMP may not be complete or correct, and OFS management's 
ability to identify key risks in this area may also be 
impaired.'' \391\ It is exactly requirements such as these that 
Treasury should explicitly include in all procurements and 
financial agency agreements. Accordingly, GAO has recommended 
that OFS develop and implement written procedures detailing 
steps to be performed in overseeing and monitoring Fannie Mae 
and Freddie Mac.\392\
---------------------------------------------------------------------------
    \389\ April 2010 Oversight Report, supra note 3, at 86.
    \390\ According to documentation from Treasury, drafted ``Program 
Implementation Guidelines'' guidance for the Financial Agency 
Agreements for Fannie Mae and Freddie Mac are currently in final review 
with Fannie Mae, Freddie Mac, and their regulator, FHFA.
    \391\ June 2010 GAO Report on Internal Control Over Financial 
Reporting, supra note 257, at 13.
    \392\ June 2010 GAO Report on Internal Control Over Financial 
Reporting, supra note 257, at 14.
---------------------------------------------------------------------------
    There are several important lessons that can be learned 
from analyzing Fannie Mae and Freddie Mac's roles as financial 
agents of Treasury.
      First, the lack of clarity surrounding Treasury's 
decision to select Fannie Mae and Freddie Mac suggests that 
Treasury should better explain its rationale and decision-
making process behind choosing to enter into contracts or 
financial agency agreements with institutions that have been 
bailed out or are likely to be bailed out. Since Fannie Mae and 
Freddie Mac do not have a proven track record of success with 
respect to running their own businesses (as demonstrated by 
their being placed into conservatorship in September 2008), 
Treasury had, and has, an obligation to explain why it believes 
they would, and will, be successful with the administration and 
compliance enforcement of the $30 billion TARP-funded HAMP. 
Their selection without extensive consideration of alternative 
options has led inevitably to concerns as to whether their 
selection was part of an overall government rescue of the GSEs, 
and was not driven by concerns for the effectiveness of HAMP.
      Second, the recent data error by Fannie Mae 
indicates that Treasury was not sufficiently cognizant of the 
importance of clear communication and robust monitoring and 
supervision of performance and compliance as it developed and 
implemented large scale programs under the TARP like HAMP, 
particularly early on in the process.
      Third, the credibility and effectiveness of HAMP 
is undermined in the absence of sufficient and regular public 
disclosure of compliance and enforcement activities conducted 
by Treasury's contractors and financial agents. In order for 
compliance and enforcement to function as a deterrence 
mechanism and be exercised effectively, they must be 
sufficiently robust and transparent.

                                                                                        ANNEX II: TABLES
                                                       FIGURE 10: LIST OF PROCUREMENT CONTRACTS DETAILING VALUES UNDER THE CONTRACT \393\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           Adjusted
                                                                                          Performance      Obligated                       Potential      Type of Vehicle
      Contract Number            Contractor            Description       Date of Award     End Date          Value      Expended Value  Contract Value         \395\            Contract Type
                                                                                                                                             \394\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
TOFS-10-D-0005............  Alston & Bird LLP...  Omnibus procurement         8/6/2010        8/5/2015              $0              $0     $99,791,842  TODC                Fixed Price, Labor
                                                   for legal services.                                                                                                       Hour, or Time and
                                                                                                                                                                             Materials
TOFS-09-D-0010............  Anderson McCoy &      Legal services for         5/26/2009      11/24/2010       4,068,834       1,577,271      15,000,000  TODC                Fixed Price Time and
                             Orta.                 work under                                                                                                                Materials or Labor
                                                   Treasury's Public                                                                                                         Hour
                                                   Private Investment
                                                   Funds (PPIF)
                                                   program.
TOFS-10-O-0007............  Association of        CEAR Program               1/15/2010       1/14/2011           5,000           5,000           5,000  DC                  Fixed Price
                             Government            Application.
                             Accountants.
TOFS-09-D-0005............  Bingham McCutchen     SBA Initiative Legal       3/30/2009       9/29/2010         422,355         270,776       1,850,651  TODC                Fixed Price or Time
                             LLP.                  Services--Contract                                                                                                        and Materials
                                                   Novated from TOFS-
                                                   09-D-0005 with
                                                   McKee Nelson.
TOFS-10-O-0021............  Bingham McCutchen     SBA 7(a) Security          9/17/2010      12/31/2010          19,975               0          19,975  DC                  Time and Materials
                             LLP.                  Purchase Program.
TOFS-09-D-0006............  Cadwalader            Auto Investment            3/30/2009       8/31/2010      17,482,165      17,392,786      26,756,322  TODC                Fixed Price or Time
                             Wickersham & Taft     Legal Services.                                                                                                           and Materials
                             LLP.
TOFS-09-D-0011............  Cadwalader            Restructuring Legal        7/30/2009        1/6/2011       2,049,979       1,266,342      20,687,500  TODC                Fixed Price or Time
                             Wickersham & Taft     Services.                                                                                                                 and Materials
                             LLP.
TOS09-020.................  Cadwalader            Bankruptcy Legal           1/27/2009       7/20/2009         409,955         409,955         409,955  DC                  Labor Hour
                             Wickersham & Taft     Services.
                             LLP.
TOFS-10-D-0006............  Cadwalader            Omnibus procurement         8/6/2010        8/5/2015       1,997,820               0      99,791,842  TODC                Fixed Price, Labor
                             Wickersham & Taft     for legal services.                                                                                                       Hour or Time and
                             LLP.                                                                                                                                            Materials
TOFS-10-G-0008............  CCH Incorporated....  GSA Task Order for         9/30/2010      10/30/2010           2,430               0           2,430  DC                  Fixed Price
                                                   procurement books--
                                                   FAR, T&M,
                                                   Government
                                                   Contracts
                                                   Reference, World
                                                   Class Contracting.
TOS09-017.................  Colonial Parking      Lease of parking            1/7/2009       9/30/2013         191,650         111,320         566,050  DC                  Fixed Price
                             Inc..                 spaces.
TOFS-10-O-0020............  CQ-Roll Call Inc....  One year                    9/1/2010        7/7/2011           7,500           7,500           7,500  DC                  Fixed Price
                                                   subscription (3
                                                   users) to the CQ
                                                   Today Breaking News
                                                   & Schedules, CQ
                                                   Congressional &
                                                   Financial
                                                   Transcripts, CQ
                                                   Custom Email Alerts.
TOS09-016.................  Cushman & Wakefield   Painting Services         12/24/2008        1/3/2009           8,750           8,750           8,750  DC                  Fixed Price
                             of VA Inc..           for TARP Offices.
TOFS-10-D-0019............  Davis Audrey          Program Operations         9/27/2010       9/23/2015          50,000               0       6,000,000  TODC                Fixed Price or Labor
                             Robinette.            Support Services to                                                                                                       Hour
                                                   include project
                                                   management,
                                                   scanning and
                                                   document management
                                                   and correspondence.
TOFS-09-D-0012............  Debevoise &           Restructuring Legal        7/30/2009       1/28/2011         159,175               0      20,687,500  TODC                Fixed Price or Time
                             Plimpton, LLP.        Services.                                                                                                                 and Materials
TOFS-10-B-0003............  Digital Management    Data and Document          4/22/2010       4/20/2015               0               0     100,000,000  TODC                Fixed Price, Labor
                             Inc..                 Management                                                                                                                Hour, or Time and
                                                   Consulting Services.                                                                                                      Materials
TOFS-10-D-0004............  Ennis Knupp &         Investment                 4/12/2010       4/11/2015          83,050          82,050       6,000,000  TODC                Fixed Price, Time
                             Associates Inc..      Consulting Services.                                                                                                      and Materials, or
                                                                                                                                                                             Labor Hour
TOS-09-008................  Ennis Knupp &         Investment and            10/11/2008       4/10/2010       2,715,965       2,392,742       2,495,190  TODC                Fixed Price Level of
                             Associates Inc..      Advisory Services.                                                                                                        Effort
TOFS-09-O-0013............  Equilar Inc.........  Executive                  9/10/2009       9/10/2010          59,990          59,990          59,990  DC                  Fixed Price
                                                   Compensation Data
                                                   Subscription.
T2009-TARP-0002...........  Ernst & Young LLP...  Accounting Services.      10/18/2008       9/30/2011      11,397,968      10,710,092      11,397,968  TODC                Fixed Price or Time
                                                                                                                                                                             and Materials
TOFS-10-B-0007............  Ernst & Young LLP...  Program Compliance         7/22/2010       7/19/2015               0               0      21,993,424  TODC                Fixed Price or Labor
                                                   Support Services.                                                                                                         Hour
TOFS-09-B-0001............  FI Consulting Inc...  Credit Reform              3/31/2009       3/30/2014       1,935,866       1,461,560       1,935,866  TODC                Labor Hour
                                                   Modeling and
                                                   Analysis.
TOFS-09-D-0013............  Fox Hefter Swibel     Restructuring Legal        7/30/2009       1/28/2011          84,125               0      20,687,500  TODC                Fixed Price or Time
                             Levin & Carol, LLP.   Services.                                                                                                                 and Materials
TOFS-10-D-0007............  Fox Hefter Swibel     Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                             Levin & Carol, LLP.   for legal services.                                                                                                       Hour or Time and
                                                                                                                                                                             Materials
TOFS-09-D-0007............  Haynes and Boone LLP  Auto Investment            3/30/2009       3/10/2010         345,746         345,746      26,756,322  TODC                Fixed Price or Time
                                                   Legal Services.                                                                                                           and Materials
TOFS-10-D-0008............  Haynes and Boone LLP  Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                                                   for legal services.                                                                                                       Hour, or Time and
                                                                                                                                                                             Materials
TOFS-09-O-0003............  Herman Miller Inc...  Aeron Chairs........       4/17/2009       5/31/2009          53,799          53,799          53,799  DC                  Fixed Price
T09BPA-002................  Hughes Hubbard &      Legal services for        10/29/2008      10/31/2010       3,060,921       2,828,688       5,645,162  TODC                Fixed Price or Time
                             Reed LLP.             the Capital                                                                                                               and Materials
                                                   Purchase Program.
TOFS-10-B-0001............  Hughes Hubbard &      Document Production       12/22/2009      12/22/2014         601,890         601,890      13,464,607  TODC                Fixed Price or Labor
                             Reed LLP.             services and                                                                                                              Hour
                                                   Litigation Support.
TOFS-10-D-0009............  Hughes Hubbard &      Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                             Reed LLP.             for legal services.                                                                                                       Hour or Time and
                                                                                                                                                                             Materials
TOFS-09-O-0012............  Knowledge Mosaic      SEC filings                 9/2/2009       8/31/2010           5,000           5,000           5,000  DC                  Fixed Price
                             Inc..                 subscription
                                                   service.
TDO10-F-249...............  Knowledge Mosaic      SEC filings                8/12/2010       8/31/2011           5,000           5,000           5,000  DC                  Fixed Price
                             Inc..                 subscription
                                                   service.
TOFS-09-G-0002............  Korn/Ferry            Executive search           7/17/2009      10/15/2009          75,017          75,017          75,017  DC                  Fixed Price
                             International.        services for the
                                                   OFS Chief
                                                   Investment Officer
                                                   position.
TDO-TARP-2009-0003........  Lindholm &            Human resources           10/31/2008       9/30/2010         751,302         614,963         710,528  DC                  Labor Hour
                             Associates Inc.       services.
TDOX09-0040...............  Locke Lord Bissell &  Initiate Interim           2/12/2009       8/11/2009         272,243         272,243       2,000,000  DC                  Labor Hour
                             Liddell LLP.          Legal Services in
                                                   support of Treasury
                                                   Investments under
                                                   EESA.
TOFS-10-D-0010............  Love & Long LLP.....  Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                                                   for legal services.                                                                                                       Hour, or Time and
                                                                                                                                                                             Materials
TOFS-09-O-0011............  Mercer (US) Inc.....  Executive                  8/18/2009       8/18/2010           3,000           3,000           3,000  DC                  Fixed Price
                                                   Compensation Data
                                                   Subscription.
TOFS-10-B-0004............  Microlink LLC.......  Data and Document          4/22/2010       4/20/2015       1,665,160         615,150     100,000,000  TODC                Fixed Price, Labor
                                                   Management                                                                                                                Hour, or Time and
                                                   Consulting Services.                                                                                                      Materials
TOFS-10-B-0008............  Navigant Consulting   Program Compliance         7/21/2010       7/19/2015               0               0      21,993,424  TODC                Fixed Price and
                             Inc.                  Support Services.                                                                                                         Labor Hour
TOFS-10-O-0001............  NNA Inc.............  Newspaper delivery..       9/30/2009       9/30/2010           8,479           8,220           7,765  DC                  Fixed Price
TOFS-10-D-0011............  Orrick Herrington     Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                             Sutcliffe LLP.        for legal services.                                                                                                       Hour, or Time and
                                                                                                                                                                             Materials
TDOX09-0039...............  Pat Taylor and        Temporary Services          2/9/2009        1/5/2010         692,108         692,108         692,108  DC                  Labor Hour
                             Associates, Inc.      for Document
                                                   Production, FOIA
                                                   Assistance, and
                                                   Program Support.
TOFS-10-D-0012............  Paul Weiss Rifkind    Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                             Wharton & Garrison    for legal services.                                                                                                       Hour, or Time and
                             LLP.                                                                                                                                            Materials
TOFS-10-D-0013............  Perkins Coie LLP....  Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                                                   for legal services.                                                                                                       Hour, or Time and
                                                                                                                                                                             Materials
TOS-07-109................  Phacil, Inc.........  Freedom of                 5/15/2009       9/12/2009         103,425          90,301         103,425  Task Order          Fixed Price
                                                   Information Act
                                                   (FOIA) Analysts to
                                                   support the
                                                   Disclosure
                                                   Services, Privacy
                                                   and Treasury
                                                   Records.
T2009-TARP-0001...........  PricewaterhouseCoope  Internal control          10/16/2008       9/30/2011      24,541,437      22,410,694      25,361,407  TODC                Time and Materials
                             rs LLP.               services.
TOFS-09-B-0002............  PricewaterhouseCoope  PPIP compliance.....       9/11/2009       9/10/2014       1,240,037       1,114,937       2,897,400  TODC                Labor Hour
                             rs LLP.
TOFS-10-B-0009............  PricewaterhouseCoope  Program Compliance         7/22/2010       7/19/2015               0               0      21,993,424  TODC                Fixed Price and
                             rs LLP.               Support Services.                                                                                                         Labor Hour
TOFS-10-D-0003............  Qualx Corporation...  FOIA Support                3/8/2010        3/8/2015         230,438         192,032      14,000,000  TODC                Fixed Price
                                                   Services.
TOFS-10-B-0005............  RDA Corporation.....  Data and Document          4/23/2010        7/8/2015       1,277,134         393,861     100,000,000  TODC                Fixed Price, Labor
                                                   Management                                                                                                                Hour, or Time and
                                                   Consulting Services.                                                                                                      Materials
TOFS-10-G-0005............  Reed Elselvier Inc.   Accurint                   6/24/2010       6/30/2011           8,208           1,539           8,208  DC                  Fixed Price
                             (dba LexisNexis).     subscription
                                                   services for one
                                                   year--4 users.
TOFS-10-B-0010............  Regis & Associates,   Program Compliance         7/21/2010       7/19/2015               0               0      21,993,424  TODC                Fixed Price and
                             PC.                   Support Services.                                                                                                         Labor Hour
TOFS-10-G-0007............  Schiff Hardin LLP...  Housing Legal              7/22/2010       7/21/2011         537,375          87,464         537,375  DC                  Labor Hour
                                                   Services.
TOFS-10-D-0014............  Seyfarth Shaw LLP...  Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                                                   for legal services.                                                                                                       Hour, or Time and
                                                                                                                                                                             Materials
TOFS-10-D-0015............  Shulman Rogers        Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                             Gandal Pordy &        for legal services.                                                                                                       Hour, or Time and
                             Ecker PA.                                                                                                                                       Materials
TOFS-09-D-0001............  Simpson Thacher &     Capital Assistance         2/20/2009      10/31/2009       2,047,872       1,363,085       5,000,000  TODC                Fixed Price or Labor
                             Bartlett LLP.         Program (I).                                                                                                              Hour
TOFS-09-D-0009............  Simpson Thacher &     Legal services for         5/26/2009       5/24/2011       7,849,026       3,185,439      15,000,000  TODC                Fixed Price or Labor
                             Bartlett LLP.         work under                                                                                                                Hour
                                                   Treasury's Public
                                                   Private Investment
                                                   Funds (PPIF)
                                                   program.
TOS09-007.................  Simpson Thacher &     Legal services for        10/10/2008        4/9/2009         931,090         931,090       1,025,000  TODC                Fixed Price or Time
                             Bartlett LLP.         the implementation                                                                                                        and Materials
                                                   of TARP.
TOFS-09-O-0016............  SNL Financial LC....  SNL Unlimited, a web-      9/30/2009       9/29/2012         260,000         110,000         460,000  DC                  Fixed Price
                                                   based financial
                                                   analytics service.
TOFS-09-D-0004............  Sonnenschein Nath &   Auto Investment            3/30/2009       3/30/2010       1,834,193       1,834,193      26,756,322  TODC                Fixed Price or Time
                             Rosenthal LLP.        Legal services.                                                                                                           and Materials
TOS09-010A................  Sonnenschein Nath &   Legal services             11/7/2008       5/31/2009       2,722,326       2,722,326         233,663  DC                  Labor Hour
                             Rosenthal LLP.        related to auto
                                                   industry loans.
TOS09-014C................  Sonnenschein Nath &   Legal Services for        12/10/2008        6/9/2009         249,999          82,884         249,999  TODC                Fixed Price or Time
                             Rosenthal LLP.        the purchase of                                                                                                           and Materials
                                                   asset backed
                                                   securities.
T09BPA-001................  Squire Sanders &      Legal services for        10/29/2008       7/31/2010       5,787,939       2,687,999       5,520,000  TODC                Fixed Price or Time
                             Dempsey LLP.          the Capital                                                                                                               and Materials
                                                   Purchase Program.
TOFS-10-B-0002............  Squire Sanders &      Housing Legal               4/8/2010        4/7/2011       1,229,350         572,956       1,229,350  TODC                Fixed Price or Labor
                             Dempsey LLP.          Services.                                                                                                                 Hour
TOFS-10-D-0016............  Sullivan Cove Reign   Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                             Enterprises JV.       for legal services.                                                                                                       Hour, or Time and
                                                                                                                                                                             Materials
TOFS-09-D-0003............  The Boston            Management                  3/6/2009        9/5/2009         991,169         991,169       1,000,000  TODC                Labor Hour
                             Consulting Group      Consulting relating
                             Inc.                  to the Auto
                                                   industry.
TOFS-09-D-0008............  The Boston            Management                  4/3/2009       9/30/2010       4,100,195       4,099,923       7,000,000  TODC                Fixed Price or Labor
                             Consulting Group      Consulting relating                                                                                                       Hour
                             Inc.                  to the Auto
                                                   industry.
TOFS-10-O-0017............  The George            Financial                  6/30/2010       8/14/2010           5,000           5,000           5,000  DC                  Fixed Price
                             Washington            Institution Mgmt &
                             University.           Modeling--Training
                                                   course (J.Talley).
TOFS-10-I-0001............  The Mitre             FNMA IR2 Assessment--      2/16/2010      10/31/2010         740,526         656,276         740,526  DC                  Cost Plus Fixed Fee
                             Corporation.          OFS task order on
                                                   Treasury Mitre
                                                   Contract.
TOFS-09-D-0002............  Venable LLP.........  Capital Assistance         2/20/2009       2/19/2010       1,394,724       1,394,724       5,000,000  TODC                Fixed Price or Labor
                                                   Program (II) Legal                                                                                                        Hour
                                                   Services.
TOFS-10-D-0017............  Venable LLP.........  Omnibus procurement         8/6/2010        8/5/2015               0               0      99,791,842  TODC                Fixed Price, Labor
                                                   for legal services.                                                                                                       Hour, or Time and
                                                                                                                                                                             Materials
TOFS-10-G-0006............  West Publishing       Subscription Service       7/27/2010       7/31/2011           5,972             747           5,972  DC                  Fixed Price
                             Corporation.          for 4 users.
TDOX09-0038...............  Whitaker Brothers     Paper Shredder......       1/27/2009       2/26/2009           3,213           3,213           3,213  DC                  Fixed Price
                             Bus Machines Inc.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\393\ Treasury documents provided to Panel staff (Oct. 8, 2010).
\394\ Adjusted Potential Contract Value includes amounts from the base contract, task orders, and modifications.
\395\ Adjusted Potential Contract Value includes amounts from the base contract, task orders, and modifications. A ``TDOC'' is a Task or Delivery Order Contract, while a ``DC'' is a Definitive
  Contract.


                                          FIGURE 11: LIST OF PROCUREMENT CONTRACTS DETAILING COMPETITION AND SOCIOECONOMIC STATUS OF CONTRACTORS \396\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Original        Adjusted
                                                                Potential       Potential                           Socio- economic
 Contract Number        Contractor          Description      Contract Value  Contract Value      Competition            Status        Offerors Solicited  Proposals Received        Program
                                                                  \397\           \398\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
TOFS-10-D-0005     Alston & Bird LLP..  Omnibus procurement     $99,791,842     $99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                                         for legal services.                                  Small Business Set-
                                                                                              aside.
TOFS-09-D-0010     Anderson McCoy &     Legal services for       15,000,000      15,000,000  Limited              Small Business....  8.................  3.................  PPIP
                    Orta.                work under                                           Competition--Unusu
                                         Treasury's Public                                    al and Compelling
                                         Private Investment                                   Urgency.
                                         Funds (PPIF)
                                         program.
TOFS-10-O-0007     Association of       CEAR Program                  5,000           5,000  Sole Source--Only    Large Business....  1.................  1.................  Program Operations
                    Government           Application.                                         Responsible Source.
                    Accountants.
TOFS-09-D--0005    Bingham McCutchen    SBA Initiative            1,850,651       1,850,651  Limited              Large Business....  Novation..........  Novation..........  SBA
                    LLP.                 Legal Services--                                     Competition--Unusu
                                         Contract Novated                                     al and Compelling
                                         from TOFS-09-D-                                      Urgency.
                                         0005 with McKee
                                         Nelson.
TOFS-10-O-0021     Bingham McCutchen    SBA 7(a) Security            19,975          19,975  SAP--Competed......  Large Business....  ..................  3.................  SBA
                    LLP.                 Purchase Program.
TOFS-09-D-0006     Cadwalader           Auto Investment           8,590,000      26,756,322  Limited              Large Business....  8.................  6.................  Auto Industry
                    Wickersham & Taft    Legal Services.                                      Competition--Unusu
                    LLP.                                                                      al and Compelling
                                                                                              Urgency.
TOFS-09-D-0011     Cadwalader           Restructuring Legal      20,687,500      20,687,500  Limited              Large Business....  10................  5.................  Multiple Programs
                    Wickersham & Taft    Services.                                            Competition--Unusu
                    LLP.                                                                      al and Compelling
                                                                                              Urgency.
TOS09-020          Cadwalader           Bankruptcy Legal            417,563         409,955  Limited              Large Business....  3.................  3.................  Auto Industry
                    Wickersham & Taft    Services.                                            Competition--Unusu
                    LLP.                                                                      al and Compelling
                                                                                              Urgency.
TOFS-10-D-0006     Cadwalader           Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                    Wickersham & Taft    for legal services.                                  Small Business Set-
                    LLP.                                                                      aside.
TOFS-10-G-0008     CCH Incorporated...  GSA Task Order for            2,430           2,430  SAP--Not Competed..  Large Business....  1.................  1.................  Program Operations
                                         procurement books--
                                         FAR, T&M,
                                         Government
                                         Contracts
                                         Reference, World
                                         Class Contracting.
TOS09-017          Colonial Parking     Lease of parking            566,050         566,050  Full and Open......  Large Business....  Full and Open       ..................  Program Operations
                    Inc.                 spaces.                                                                                       Competition.
TOFS-10-O-0020     CQ-Roll Call Inc...  One year                      7,500           7,500  SAP--Not Competed..  Large Business....  1.................  1.................  HPO
                                         subscription (3
                                         users) to the CQ
                                         Today Breaking
                                         News & Schedules,
                                         CQ Congressional &
                                         Financial
                                         Transcripts, CQ
                                         Custom Email
                                         Alerts.
TOS09-016          Cushman & Wakefield  Painting Services             8,750           8,750  Full and Open......  Large Business....  1.................  1.................  Program Operations
                    of VA Inc.           for TARP Offices.
TOFS-10-D-0019     Davis Audrey         Program Operations        6,000,000       6,000,000  Full and Open after  Woman and Minority  ..................  ..................  Multiple Programs
                    Robinette.           Support Services                                     Exclusion of         Owned Small
                                         to include project                                   Sources (Total SB    business.
                                         management,                                          set-aside).
                                         scanning and
                                         document
                                         management and
                                         correspondence.
TOFS-09-D-0012     Debevoise &          Restructuring Legal      20,687,500      20,687,500  Limited              Large Business....  10................  5.................  Multiple Programs
                    Plimpton, LLP.       Services.                                            Competition--Unusu
                                                                                              al and Compelling
                                                                                              Urgency.
TOFS-10-B-0003     Digital Management   Data and Document       100,000,000     100,000,000  GSA Schedule         Small Business....  10................  5.................  Program Operations
                    Inc..                Management                                           Competition.
                                         Consulting
                                         Services.
TOFS-10-D-0004     Ennis Knupp &        Investment                6,000,000       6,000,000  Full and Open......  Large Business....  ..................  ..................  Multiple Programs
                    Associates Inc.      Consulting
                                         Services.
TOS-09-008         Ennis Knupp &        Investment and            2,495,190       2,495,190  Limited              Large Business....  6.................  3.................  Multiple Programs
                    Associates Inc.      Advisory Services.                                   Competition--Unusu
                                                                                              al and Compelling
                                                                                              Urgency.
TOFS-09-O-0013     Equilar Inc........  Executive                    59,990          59,990  Full and Open......  Large Business....  Full and Open.....  1.................  Multiple Programs
                                         Compensation Data
                                         Subscription.
T2009-TARP-0002    Ernst & Young LLP..  Accounting Services               0      11,397,968  GSA Schedule         Large Business....  7.................  6.................  Multiple Programs
                                                                                              Competition.
TOFS-10-B-0007     Ernst & Young LLP..  Program Compliance       21,993,424      21,993,424  GSA Schedule         Large Business....  ..................  ..................  Multiple Programs
                                         Support Services.                                    Competition.
TOFS-09-B-0001     FI Consulting Inc..  Credit Reform                     0       1,935,866  GSA Schedule         Small Business....  6.................  2.................  Multiple Programs
                                         Modeling and                                         Competition.
                                         Analysis.
TOFS-09-D-0013     Fox Hefter Swibel    Restructuring Legal      20,687,500      20,687,500  Limited              Large Business....  10................  5.................  Multiple Programs
                    Levin & Carol, LLP.  Services.                                            Competition--Unusu
                                                                                              al and Compelling
                                                                                              Urgency.
TOFS-10-D-0007     Fox Hefter Swibel    Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                    Levin & Carol, LLP.  for legal services.                                  Small Business Set-
                                                                                              aside.
TOFS-09-D-0007     Haynes and Boone     Auto Investment           8,590,000      26,756,322  Limited              Large Business....  8.................  6.................  Auto Industry
                    LLP.                 Legal Services.                                      Competition--Unusu
                                                                                              al and Compelling
                                                                                              Urgency.
TOFS-10-D-0008     Haynes and Boone     Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                    LLP.                 for legal services.                                  Small Business Set-
                                                                                              aside.
TOFS-09-O-0003     Herman Miller Inc..  Aeron Chairs.......          53,799          53,799  GSA Schedule         Large Business....  ..................  GSA Competition...  Program Operations
                                                                                              Competition.
T09BPA-002         Hughes Hubbard &     Legal services for        5,645,162       5,645,162  GSA Schedule         Large Business....  5.................  4.................  CPP
                    Reed LLP.            the Capital                                          Competition.
                                         Purchase Program.
TOFS-10-B-0001     Hughes Hubbard &     Document Production      13,464,607      13,464,607  GSA Schedule         Large Business....  5.................  3.................  Multiple Programs
                    Reed LLP.            services and                                         Competition.
                                         Litigation Support.
TOFS-10-D-0009     Hughes Hubbard &     Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                    Reed LLP.            for legal services.                                  Small Business Set-
                                                                                              aside.
TOFS-09-O-0012     Knowledge Mosaic     SEC filings                   5,000           5,000  Full and Open......  Large Business....  3.................  3.................  Multiple Programs
                    Inc.                 subscription
                                         service.
TDO10-F-249        Knowledge Mosaic     SEC filings                   5,000           5,000  Sole Source--Only    Large Business....  1.................  1.................  Multiple Programs
                    Inc.                 subscription                                         Responsible Source.
                                         service.
TOFS-09-G-0002     Korn/Ferry           Executive search             75,017          75,017  GSA Schedule         Large Business....  4.................  4.................  Program Operations
                    International.       services for the                                     Competition.
                                         OFS Chief
                                         Investment Officer
                                         position.
TDO-TARP-2009-000  Lindholm &           Human resources             710,528         710,528  GSA Schedule         Woman Owned Small   4.................  3.................  Program Operations
 3                  Associates Inc.      services.                                            Competition.         Business.
TDOX09-0040        Locke Lord Bissell   Initiate Interim          2,000,000       2,000,000  Limited              Large Business....  3.................  3.................  Multiple Programs
                    & Liddell LLP.       Legal Services in                                    Competition--Unusu
                                         support of                                           al and Compelling
                                         Treasury                                             Urgency.
                                         Investments under
                                         EESA.
TOFS-10-D-0010     Love & Long LLP....  Omnibus procurement      99,791,842      99,791,842  Full and Open w/     SDB Woman Owned     ..................  81................  Multiple Programs
                                         for legal services.                                  Small Business Set-  Small Business.
                                                                                              aside.
TOFS-09-O-0011     Mercer (US) Inc....  Executive                     3,000           3,000  Full and Open......  Large Business....  3.................  1.................  Multiple Programs
                                         Compensation Data
                                         Subscription.
TOFS-10-B-0004     Microlink LLC......  Data and Document       100,000,000     100,000,000  GSA Schedule         Large Business....  10................  5.................  Program Operations
                                         Management                                           Competition.
                                         Consulting
                                         Services.
TOFS-10-B-0008     Navigant Consulting  Program Compliance       21,993,424      21,993,424  GSA Schedule         Large Business....  9.................  6.................  Multiple Programs
                    Inc.                 Support Services.                                    Competition.
TOFS-10-O-0001     NNA Inc............  Newspaper delivery.           7,765           7,765  Full and Open......  Large Business....  Full and Open       1.................  Program Operations
                                                                                                                                       Competition.
TOFS-10-D-0011     Orrick Herrington    Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                    Sutcliffe LLP.       for legal services.                                  Small Business Set-
                                                                                              aside.
TDOX09-0039        Pat Taylor and       Temporary Services          461,956         692,108  GSA Schedule         Woman Owned Small   3.................  3.................  Multiple Programs
                    Associates, Inc.     for Document                                         Competition.         Business.
                                         Production, FOIA
                                         Assistance, and
                                         Program Support.
TOFS-10-D-0012     Paul Weiss Rifkind   Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                    Wharton & Garrison   for legal services.                                  Small Business Set-
                    LLP.                                                                      aside.
TOFS-10-D-0013     Perkins Coie LLP...  Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                                         for legal services.                                  Small Business Set-
                                                                                              aside.
TOS-07-109         Phacil, Inc........  Freedom of                  103,425         103,425  Full and Open......  Small Business....  ..................  ..................  Program Operations
                                         Information Act
                                         (FOIA) Analysts to
                                         support the
                                         Disclosure
                                         Services, Privacy
                                         and Treasury
                                         Records.
T2009-TARP-0001    PricewaterhouseCoop  Internal control                  0      25,361,407  GSA Schedule         Large Business....  6.................  6.................  Multiple Programs
                    ers LLP.             services.                                            Competition.
TOFS-09-B-0002     PricewaterhouseCoop  PPIP compliance....       2,897,400       2,897,400  GSA Schedule         Large Business....  7.................  4.................  PPIP
                    ers LLP.                                                                  Competition.
TOFS-10-B-0009     PricewaterhouseCoop  Program Compliance       21,993,424      21,993,424  GSA Schedule         Large Business....  9.................  6.................  Multiple Programs
                    ers LLP.             Support Services.                                    Competition.
TOFS-10-D-0003     Qualx Corporation..  FOIA Support             14,000,000      14,000,000  Full and Open......  Service Disabled    Unlimited to        15................  Program Operations
                                         Services.                                                                 Veteran Owned       SDVOSB vendors.
                                                                                                                   Small Business.
TOFS-10-B-0005     RDA Corporation....  Data and Document       100,000,000     100,000,000  GSA Schedule         Small Business....  10................  5.................  Program Operations
                                         Management                                           Competition.
                                         Consulting
                                         Services.
TOFS-10-G-0005     Reed Elselvier Inc.  Accurint                      8,208           8,208  GSA Schedule         Large Business....  4.................  1.................  ..................
                    (dba LexisNexis).    subscription                                         Competition.
                                         services for one
                                         year--4 users.
TOFS-10-B-0010     Regis & Associates,  Program Compliance       21,993,424      21,993,424  GSA Schedule         8(a) and Small      9.................  6.................  Multiple Programs
                    PC.                  Support Services.                                    Competition.         Disadvantaged
                                                                                                                   Business.
TOFS-10-G-0007     Schiff Hardin LLP..  Housing Legal               537,375         537,375  GSA Schedule         Large Business....  ..................  ..................  HAMP
                                         Services.                                            Competition.
TOFS-10-D-0014     Seyfarth Shaw LLP..  Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                                         for legal services.                                  Small Business Set-
                                                                                              aside.
TOFS-10-D-0015     Shulman Rogers       Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                    Gandal Pordy &       for legal services.                                  Small Business Set-
                    Ecker PA.                                                                 aside.
TOFS-09-D-0001     Simpson Thacher &    Capital Assistance        5,000,000       5,000,000  Limited              Large Business....  6.................  3.................  Multiple Programs
                    Bartlett LLP.        Program (I).                                         Competition--Unusu
                                                                                              al and Compelling
                                                                                              Urgency.
TOFS-09-D-0009     Simpson Thacher &    Legal services for       15,000,000      15,000,000  Limited              Large Business....  8.................  3.................  Multiple Programs
                    Bartlett LLP.        work under                                           Competition--Unusu
                                         Treasury's Public                                    al and Compelling
                                         Private Investment                                   Urgency.
                                         Funds (PPIF)
                                         program.
TOS09-007          Simpson Thacher &    Legal services for          500,000       1,025,000  GSA Schedule         Large Business....  6.................  2.................  Multiple Programs
                    Bartlett LLP.        the implementation                                   Competition.
                                         of TARP.
TOFS-09-O-0016     SNL Financial LC...  SNL Unlimited, a            460,000         460,000  Full and Open......  Large Business....  Full and Open.....  3.................  Multiple Programs
                                         web-based
                                         financial
                                         analytics service.
TOFS-09-D-0004     Sonnenschein Nath &  Auto Investment           8,590,000      26,756,322  Limited              Large Business....  8.................  6.................  Auto Industry
                    Rosenthal LLP.       Legal services.                                      Competition--Unusu
                                                                                              al and Compelling
                                                                                              Urgency.
TOS09-010A         Sonnenschein Nath &  Legal services              233,663         233,663  Limited              Large Business....  4.................  4.................  Auto Industry
                    Rosenthal LLP.       related to auto                                      Competition--Unusu
                                         industry loans.                                      al and Compelling
                                                                                              Urgency.
TOS09-014C         Sonnenschein Nath &  Legal Services for          249,999         249,999  Limited              Large Business....  7.................  6.................  CPP
                    Rosenthal LLP.       the purchase of                                      Competition--Unusu
                                         asset backed                                         al and Compelling
                                         securities.                                          Urgency.
T09BPA-001         Squire Sanders &     Legal services for        5,520,000       5,520,000  GSA Schedule         Large Business....  5.................  4.................  CPP
                    Dempsey LLP.         the Capital                                          Competition.
                                         Purchase Program.
TOFS-10-B-0002     Squire Sanders &     Housing Legal             1,229,350       1,229,350  GSA Schedule         Large Business....  5.................  2.................  HAMP
                    Dempsey LLP.         Services.                                            Competition.
TOFS-10-D-0016     Sullivan Cove Reign  Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Service Disabled    ..................  81................  Multiple Programs
                    Enterprises JV.      for legal services.                                  Small Business Set-  Veteran Owned
                                                                                              aside.               Small Business.
TOFS-09-D-0003     The Boston           Management                1,000,000       1,000,000  Limited              Large Business....  5.................  3.................  Auto Industry
                    Consulting Group     Consulting                                           Competition--Unusu
                    Inc.                 relating to the                                      al and Compelling
                                         Auto industry.                                       Urgency.
TOFS-09-D-0008     The Boston           Management                7,000,000       7,000,000  Limited              Large Business....  7.................  5.................  Auto Industry
                    Consulting Group     Consulting                                           Competition--Unusu
                    Inc.                 relating to the                                      al and Compelling
                                         Auto industry.                                       Urgency.
TOFS-10-O-0017     The George           Financial                     5,000           5,000  SAP--Competed......  Large Business....  ..................  1.................  ..................
                    Washington           Institution Mgmt &
                    University.          Modeling--Training
                                         course (J. Talley).
TOFS-10-I-0001     The Mitre            FNMA IR2                    408,075         740,526  Sole Source--Only    Large Business....  1.................  1.................  HAMP
                    Corporation.         Assessment--OFS                                      Responsible Source.
                                         task order on
                                         Treasury Mitre
                                         Contract.
TOFS-09-D-0002     Venable LLP........  Capital Assistance        5,000,000       5,000,000  Limited              Large Business....  6.................  3.................  Multiple Programs
                                         Program (II) Legal                                   Competition--Unusu
                                         Services.                                            al and Compelling
                                                                                              Urgency.
TOFS-10-D-0017     Venable LLP........  Omnibus procurement      99,791,842      99,791,842  Full and Open w/     Large Business....  ..................  81................  Multiple Programs
                                         for legal services.                                  Small Business Set-
                                                                                              aside.
TOFS-10-G-0006     West Publishing      Subscription                  5,972           5,972  GSA Schedule         Large Business....  ..................  ..................  Anti-Fraud
                    Corporation.         Service for 4                                        Competition.
                                         users.
TDOX09-0038        Whitaker Brothers    Paper Shredder.....           3,213           3,213  GSA Schedule--Sole   Small Business....  1.................  1.................  Program Operations
                    Bus Machines Inc.                                                         Source.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\396\ Treasury documents provided to Panel staff (Oct. 8, 2010).
\397\ Original Potential Contract Value is the amount listed in the base contract.
\398\ Adjusted Potential Contract Value includes amounts from the base contract, task orders and modifications.


                                          FIGURE 12: LIST OF SUBCONTRACTS UNDER THE PROCUREMENT CONTRACTS \399\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Subcontract      Socioeconomic
        Contract Number              Contractor      Subcontractor Name       Value            Status             Category               Program
--------------------------------------------------------------------------------------------------------------------------------------------------------
TOFS-09-D-0010.................  Anderson McCoy &    Cadwalader              $3,940,925  Large Business....  Legal Advisory....  PPIP
                                  Orta.               Wickersham & Taft
                                                      LLP.
TOFS-09-D-0006.................  Cadwalader          Driven............          15,452  Small Business....  Legal Advisory....  Auto Industry
                                  Wickersham & Taft
                                  LLP.
TOS-09-008.....................  Ennis Knupp &       Korn Ferry........         375,000  Large Business....  Financial Advisory  Multiple Programs
                                  Associates Inc.
TOS-09-008.....................  Ennis Knupp &       Spencer Stuart....         275,000  Large Business....  Financial Advisory  Multiple Programs
                                  Associates Inc.
TOS-09-008.....................  Ennis Knupp &       FirstAdvantage....         117,500  Large Business....  Financial Advisory  Multiple Programs
                                  Associates Inc.
TOS-09-008.....................  Ennis Knupp &       Bishops Services..          19,850  Large Business....  Financial Advisory  Multiple Programs
                                  Associates Inc.
TOS-09-008.....................  Ennis Knupp &       Delves Group......          26,000  Large Business....  Financial Advisory  Multiple Programs
                                  Associates Inc.
TOS-09-008.....................  Ennis Knupp &       FedEx-Courier.....              58  Large Business....  Financial Advisory  Multiple Programs
                                  Associates Inc.
TOS-09-008.....................  Ennis Knupp &       ABS-IT services              7,000  Woman Owned Small   Financial Advisory  Multiple Programs
                                  Associates Inc.     (2%).                               Business.
TOS-09-008.....................  Ennis Knupp &       Vedder Price-Legal           2,106  Small Business....  Financial Advisory  Multiple Programs
                                  Associates Inc.
T2009-TARP-0002................  Ernst & Young LLP.  Emax Financial....         358,300  Woman and Minority  Accounting/         Multiple Programs
                                                                                          Owned Small         Internal Controls.
                                                                                          Business.
T2009-TARP-0002................  Ernst & Young LLP.  James K Hess......         303,880  Small Business....  Accounting/         Multiple Programs
                                                                                                              Internal Controls.
T2009-TARP-0002................  Ernst & Young LLP.  Morgan Franklin...         814,984  Large Business....  Accounting/         Multiple Programs
                                                                                                              Internal Controls.
T2009-TARP-0002................  Ernst & Young LLP.  R Moran Co........          19,291  Service Disabled    Accounting/         Multiple Programs
                                                                                          Veteran Owned       Internal Controls.
                                                                                          Small Business.
T2009-TARP-0002................  Ernst & Young LLP.  Misha Libman......         194,508  Small Business....  Accounting/         Multiple Programs
                                                                                                              Internal Controls.
T2009-TARP-0002................  Ernst & Young LLP.  T Curtis Co.......       1,082,558  Woman and Minority  Accounting/         Multiple Programs
                                                                                          Owned Small         Internal Controls.
                                                                                          Business.
T2009-TARP-0002................  Ernst & Young LLP.  Peggy Kuhn........         108,000  Woman Owned Small   Accounting/         Multiple Programs
                                                                                          Business.           Internal Controls.
T2009-TARP-0002................  Ernst & Young LLP.  Tom Horton........          18,750  Small Business....  Accounting/         Multiple Programs
                                                                                                              Internal Controls.
T2009-TARP-0002................  Ernst & Young LLP.  Lani Ecko.........          60,939  Small               Accounting/         Multiple Programs
                                                                                          Disadvantaged       Internal Controls.
                                                                                          Business.
TOFS-09-B-0001.................  FI Consulting Inc.  Internet Security           17,241  Small Business....  Accounting/         Multiple Programs
                                                      Corp.                                                   Internal Controls.
T09BPA-002.....................  Hughes Hubbard &    Leftwich &                 158,835  Woman Owned Small   Legal Advisory....  CPP
                                  Reed LLP.           Ludaway, LLC.                       Business.
TOFS-09-D-0005.................  McKee Nelson LLP..  American Detail                500  Small Business....  Legal Advisory....  SBA
                                                      Cleaning Corp.
TOFS-09-D-0005.................  McKee Nelson LLP..  Document                     3,100  Large Business....  Legal Advisory....  SBA
                                                      Technologies,
                                                      Inc..
TOFS-09-D-0005.................  McKee Nelson LLP..  Great Performances             400  Woman Owned Small   Legal Advisory....  SBA
                                                                                          Business.
TOFS-09-D-0005.................  McKee Nelson LLP..  Merrill                      2,600  Large Business....  Legal Advisory....  SBA
                                                      Communications
                                                      LLC.
TOFS-09-D-0005.................  McKee Nelson LLP..  Miller's Office              1,200  Woman Owned Small   Legal Advisory....  SBA
                                                      Products.                           Business.
TOFS-09-D-0005.................  McKee Nelson LLP..  Total Document               2,100  Woman Owned Small   Legal Advisory....  SBA
                                                      Solutions, Inc..                    Business.
TOFS-09-D-0005.................  McKee Nelson LLP..  Washington Express             100  Small Business....  Legal Advisory....  SBA
TOFS-10-B-0004.................  Microlink LLC.....  I3 Solutions......          65,520  Small Business....  Information         Program Operations
                                                                                                              Technology.
T2009-TARP-0001................  PricewaterhouseCoo  A11 Services                 3,025  Woman Owned Small   Accounting/         Multiple Programs
                                  pers LLP.           Corporation.                        business.           Internal Controls.
T2009-TARP-0001................  PricewaterhouseCoo  Bert Smith........         324,904  Large Business....  Accounting/         Multiple Programs
                                  pers LLP.                                                                   Internal Controls.
T2009-TARP-0001................  PricewaterhouseCoo  DP George.........         168,552  Service Disabled    Accounting/         Multiple Programs
                                  pers LLP.                                               Veteran Owned       Internal Controls.
                                                                                          Small Business.
T2009-TARP-0001................  PricewaterhouseCoo  Evergreen                   65,230  Woman Owned Small   Accounting/         Multiple Programs
                                  pers LLP.           Associates of                       Business.           Internal Controls.
                                                      Virginia.
T2009-TARP-0001................  PricewaterhouseCoo  GRC Assurance.....         326,565  Small Business....  Accounting/         Multiple Programs
                                  pers LLP.                                                                   Internal Controls.
T2009-TARP-0001................  PricewaterhouseCoo  JH2 Risk Advisors.         422,499  Woman Owned Small   Accounting/         Multiple Programs
                                  pers LLP.                                               Disadvantaged       Internal Controls.
                                                                                          Business.
T2009-TARP-0001................  PricewaterhouseCoo  Synergy Services..       1,617,819  Woman Owned Small   Accounting/         Multiple Programs
                                  pers LLP.                                               Business.           Internal Controls.
TOFS-10-D-0003.................  Qualx Corporation.  McNeil                     103,000  Large Business....  Administrative      Program Operations
                                                      Technologies.                                           Support.
TOFS-09-D-0008.................  The Boston          Oxnard MB LLC.....          25,437  Small Business....  Financial Advisory  Auto Industry
                                  Consulting Group
                                  Inc..
TOFS-09-D-0008.................  The Boston          PR & Associates...         113,544  Small Business....  Financial Advisory  Auto Industry
                                  Consulting Group
                                  Inc..
TOFS-09-D-0002.................  Venable LLP.......  Brown Sheehan LLP.         130,429  Small               Legal Advisory....  CAP
                                                                                          Disadvantaged
                                                                                          Business.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\399\ Treasury documents provided to Panel staff (Oct. 8, 2010).


                                                                      FIGURE 13: LIST OF FINANCIAL AGENCY AGREEMENTS \400\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
     Financial Agency                                                                       Performance                                            Socio- economic
     Agreement  Number         Financial Agent          Description       Date of  Award     End Date      Obligated  Value   Expended  Value       Category \401\              Program
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
TOFA-09-FAA-0005..........  AllianceBernstein      Asset Management            4/21/2009       4/20/2018        $22,399,943        $21,207,253  Large Business.......  Multiple Programs
                             L.P..                  Services.
TOFA-10-FAA-0001..........  Avondale Investments,  Asset Management           12/22/2009       4/20/2019            750,000            562,500  Minority Owned         CPP
                             LLC.                   Services.                                                                                    Business.
TOFA-09-FAA-0001..........  The Bank of New York   Custodian............      10/14/2008      10/14/2015         28,495,412         23,777,002  Large Business.......  Multiple Programs
                             Mellon Corporation.
TOFA-10-FAA-0002..........  Bell Rock Capital,     Asset Management           12/22/2009       4/20/2019            750,000            575,000  Woman Owned Business.  CPP
                             LLC.                   Services.
TOFA-09-FAA-0004..........  Earnest Partners.....  Asset Management            3/16/2009       3/15/2013          4,050,000          1,955,000  Minority Owned         SBA7(a)
                                                    Services.                                                                                    Business.
TOFA-09-FAA-0002..........  Fannie Mae...........  HAMP Administration..       2/18/2009       2/17/2019        126,712,000        111,339,451  Large Business.......  HAMP
TOFA-09-FAA-0003..........  Freddie Mac..........  HAMP Compliance......       2/18/2009       2/17/2019         88,850,000         79,296,499  Large Business.......  HAMP
TOFA-09-FAA-0006..........  FSI Group LLC........  Asset Management            4/21/2009       4/20/2018         11,102,500         10,770,000  Large Business.......  Multiple Programs
                                                    Services.
TOFA-10-FAA-0003..........  Howe Barnes Hoefer &   Asset Management           12/22/2009       4/20/2019          1,250,000            950,000  Small Business.......  CPP
                             Arnett, Inc..          Services.
TOFA-10-FAA-0004..........  KBW Asset Management,  Asset Management           12/22/2009       4/20/2019          3,803,333          3,279,167  Small Business.......  Multiple Programs
                             Inc..                  Services.
TOFA-10-FAA-0009..........  Lazard Freres & Co.    Transaction                 5/17/2010       2/16/2012          7,500,000          2,166,667  Large Business.......  AIFP
                             LLC.                   Structuring.
TOFA-10-FAA-0005..........  Lombardia Capital      Asset Management           12/22/2009       4/20/2019          1,250,000            937,500  Minority Owned         CPP
                             Partners, LLC.         Services.                                                                                    Business.
TOFA-10-FAA-0008..........  Morgan Stanley & Co..  Disposition Services.       3/29/2010       3/29/2012         23,577,000         13,175,423  Large Business.......  CPP
TOFA-10-FAA-0006..........  Paradigm Asset         Asset Management           12/22/2009       4/20/2019          1,250,000            925,000  Minority Owned         CPP
                             Management Co., LLC.   Services.                                                                                    Business.
TOFA-09-FAA-0007..........  Piedmont Investment    Asset Management            4/21/2009       4/20/2018          5,615,000          5,120,000  Minority Owned         CPP
                             Advisors LLC.          Services.                                                                                    Business.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\400\ Treasury documents provided to Panel staff (Oct. 8, 2010).
\401\ Treasury documents provided to Panel staff (Oct. 5, 2010).


                     FIGURE 14: LIST OF SUBCONTRACTS UNDER FINANCIAL AGENT AGREEMENTS \402\
----------------------------------------------------------------------------------------------------------------
                                                                                 Reported
        Financial Agent                 Contractor           Socioeconomic       Contract          Category
                                                                Status          Value \403\
----------------------------------------------------------------------------------------------------------------
AllianceBernstein..............  Altura Capital Group     Minority and Woman        $816,664  Financial Advisory
                                  LLC.                     Owned Business.                     Services
AllianceBernstein..............  Deutsche Bank            Large Business....         250,000  Financial Advisory
                                  Securities Inc..                                             Services
AllianceBernstein..............  Jeremy Bulow, Jon        Large Business....          48,920  Financial Advisory
                                  Levin, Paul Milgrom                                          Services
                                  and Paul Klemperer.
The Bank of New York Mellon....  American Cybersystems..  Minority Owned              80,168  Temporary Staffing
                                                           Business.                           Services
The Bank of New York Mellon....  Diversant, Inc.........  Minority Owned             539,371  Temporary Staffing
                                                           Business.                           Services
The Bank of New York Mellon....  Foxx-Pitt Kelton.......  Large Business....       1,175,000  Financial Advisory
                                                                                               Services
The Bank of New York Mellon....  Gifford Fong Associates  Small Business....         268,828  Financial Advisory
                                                                                               Services
The Bank of New York Mellon....  Information Integration  Woman Owned                275,501  Technical Writing
                                  Inc. (I-3).              Business.                           Support
The Bank of New York Mellon....  International Market     Large Business....          67,793  Temporary Staffing
                                  Recruiters.                                                  Services
The Bank of New York Mellon....  New York Staffing        Minority Owned             256,257  Temporary Staffing
                                  Services, Inc..          Business.                           Services
The Bank of New York Mellon....  RangeMark (f/k/a         Small Business....       3,738,524  Financial Advisory
                                  Structured Credit                                            Services
                                  Solutions (NSM)).
The Bank of New York Mellon....  Robert Jarrow..........  Small Business....          30,987  Financial Advisory
                                                                                               Services
The Bank of New York Mellon....  TTI of New York, Inc...  Woman Owned                 31,163  Temporary Staffing
                                                           Business.                           Services
The Bank of New York Mellon....  Williams, Adley &        Minority and Woman         276,227  Audit and
                                  Company, LLP.            Owned Business.                     Accounting
                                                                                               Services
The Bank of New York Mellon....  Wilshire Associates      Large Business....       1,223,750  Portfolio
                                  Incorporated.                                                Analystic
                                                                                               Services
Fannie Mae \404\...............  Accenture..............  Large Business....       4,587,626  Project Management
                                                                                               & Reporting
                                                                                               Support
Fannie Mae.....................  Beers & Cutler.........  Large Business....         103,225  Business Process
                                                                                               Support
Fannie Mae.....................  Bloomfield Knoble, Inc.  Large Business....         100,310  Web Development
                                                                                               Support
Fannie Mae.....................  Cap Gemini.............  Large Business....         154,307  Records Retention
                                                                                               Support
Fannie Mae.....................  Ernst & Young LLP......  Large Business....       3,777,188  Business Process
                                                                                               Support
Fannie Mae.....................  Homeownership            Small Business....       8,049,969  Call Center
                                  Preservation                                                 Support
                                  Foundation.
Fannie Mae.....................  Iron Mountain..........  Large Business....           7,141  Data Storage
                                                                                               Services
Fannie Mae.....................  LPS/McDash.............  Large Business....       6,117,500  Data Management
                                                                                               Services
Fannie Mae.....................  Newbold, LLC...........  Small Business....         204,057  Project Management
                                                                                               Support
Fannie Mae.....................  Pace Harmon, LLC.......  Small Business....          82,094  Call Center
                                                                                               Support
Fannie Mae.....................  PERC...................  Large Business....         135,927  Information
                                                                                               Protection
                                                                                               Support
Fannie Mae.....................  PricewaterhouseCoopers   Large Business....       3,371,008  Phone Bank Support
                                  LLP.
Fannie Mae.....................  Robbins Gioia..........  Minority Owned             349,619  MHA Operating
                                                           Business.                           Model Support
Fannie Mae.....................  The Ad Council.........  Large Business....       1,042,716  Marketing Support
Fannie Mae.....................  The Oakleaf Group LLC..  Small Business....         842,967  Program Support
                                                                                               (Reporting)
Freddie Mac....................  AllonHill, LLC.........  Woman Owned              4,442,955  Program Support
                                                           Business.
Freddie Mac....................  American Research        Large Business....         269,019  Training Support
                                  Institute.
Freddie Mac....................  Celerity IT, LLC.......  Large Business....          23,364  Staff Augmentation
Freddie Mac....................  Clayton Holdings.......  Large Business....       3,864,205  Compliance Support
                                                                                               (File Reviews)
Freddie Mac....................  Collaberra.............  Minority Owned             409,240  Professional
                                                           Business.                           Training
Freddie Mac....................  Comsys Info Tech         Large Business....         450,509  Staff Augmentation
                                  Services, Inc..
Freddie Mac....................  Edge Professional        Large Business....         437,968  Staff Augmentation
                                  Services.
Freddie Mac....................  Ernst & Young LLP......  Large Business....      17,761,258  Business Process
                                                                                               Support
Freddie Mac....................  Esolution First, LLC...  Woman Owned                997,566  Staff Augmentation
                                                           Business.
Freddie Mac....................  Grant Thornton.........  Large Business....       1,115,161  Governance Audit
                                                                                               Support
Freddie Mac....................  Helen Thompson.........  Woman Owned                171,100  Training Support
                                                           Business.
Freddie Mac....................  Idea Integration.......  Large Business....          57,295  IT Support
                                                                                               Services
Freddie Mac....................  Inscope Solutions......  Minority Owned             982,193  Project Management
                                                           Business.                           Support
Freddie Mac....................  Kforce.................  ..................          87,360  Staff Augmentation
Freddie Mac....................  Lender Processing        Large Business....       1,458,143  Compliance Program
                                  Services.                                                    Support
Freddie Mac....................  MODIS, Inc.............  Large Business....         435,253  Project Management
                                                                                               Support
Freddie Mac....................  Mortgage Analytics &     Woman Owned                 10,983  Financial Support
                                  Consulting.              Business.                           Services
Freddie Mac....................  Oliver Wyman...........  Large Business....       5,930,308  Data Validation
                                                                                               Support
Freddie Mac....................  Pace Harmon, LLC.......  Large Business....         466,830  Procurement
                                                                                               Support
Freddie Mac....................  Protiviti..............  Large Business....          28,341  Governance Audit
                                                                                               Support
Freddie Mac....................  Sapphire Government      Large Business....         301,577  Staff Augmentation
                                  Technologies.
Freddie Mac....................  Spectrum Technology      Large Business....       1,130,031  IT Support
                                  Services.                                                    Services
Freddie Mac....................  Syapps.................  Minority Owned           1,223,175  IT Support
                                                           Business.                           Services
Freddie Mac....................  VisionIT...............  Minority Owned              52,848  Staff Augmentation
                                                           Business.
Freddie Mac....................  Williams, Adley &        Minority and Woman         933,231  Governance Audit
                                  Company, LLP.            Owned Business.                     Support
Freddie Mac....................  Willmott & Associates..  Large Business....         200,875  Recruitment
                                                                                               Support
FSI Group......................  Elizabeth Park Capital   Minority Owned             106,250  Recruitment
                                  Management, Ltd..        Business.                           Support
Piedmont Investment Advisors...  N/A \405\..............  Small Business....         320,000  Financial Advisory
                                                                                               Services
----------------------------------------------------------------------------------------------------------------
\402\ Data on contractors to financial agents is current through August 31, 2010. Reports are based on
  representations by the financial agents, as Treasury does not have contractual privity with contractors to
  financial agents. Treasury documents provided to Panel staff (Oct. 8, 2010).
\403\ Contract value refers to the amount payable from the agent to the contractor. Not all contractor costs are
  compensated by Treasury on a pass-through basis.
\404\ Fannie Mae also engages numerous marketing, site hosting and IT vendors that are not individually reported
  on an due to the quantity of these contractors, their low average dollar-value and that the associated costs
  of these contracts are included in the fixed fee we pay Fannie Mae under their FAA with the Treasury.
\405\ This subcontractor was a sole proprietor and Treasury requested that the name be withheld.

              SECTION TWO: TARP UPDATES SINCE LAST REPORT


              A. Community Development Capital Initiative

    Treasury completed funding for the Community Development 
Capital Initiative (CDCI) on September 30, 2010. Although 
Treasury committed to spend up to $780 million in TARP funds 
for the CDCI, only $570 million was allocated to 84 Community 
Development Financial Institutions (CDFIs). Among these 
institutions were 28 banks and thrifts that issued preferred 
shares through CPP and later exchanged these securities for an 
equivalent investment amount under the CDCI. The number of 
participating CDFIs grew more than six times in September, with 
73 banks, thrifts, and credit unions entering the program. More 
than half of the final investment amount ($312 million) came 
during the final round of funding on September 29 and 30, 2010.

             B. Citigroup AGP TruPS and Common Stock Sales

    On September 30, 2010, Treasury completed a third round of 
sales for Citigroup common stock, which it received in July 
2009 as part of an exchange for preferred shares issued under 
CPP. A total of 1.5 billion shares were sold between July 30 
and September 30, 2010, at $3.91 per share. Gross proceeds from 
the three disposition periods completed thus far total $16.4 
billion. Approximately $13.4 billion of this amount represents 
a repayment for Citigroup's CPP funding, while the remaining $3 
billion represents a net profit for taxpayers. Treasury still 
holds 3.1 billion common shares, which represents 12.4 percent 
of Citigroup's outstanding common equity.
    Treasury also completed a public offering for $2.2 billion 
in trust preferred securities (TruPS) issued under the Asset 
Guarantee Program (AGP). These securities were a premium for 
Treasury's $5 billion guarantee on a $301 billion pool of 
Citigroup ring-fenced assets. Treasury initially received a $4 
billion premium; however, $1.8 billion was cancelled upon the 
December 2009 termination of the guarantee. All proceeds from 
the TruPS sale constitute further profits for taxpayers since 
Treasury did not make any payments associated with the loss-
share agreement during the life of the program.
    Treasury also plans to sell $800 million in AGP TruPS 
currently held by the FDIC. The FDIC will transfer these 
securities to Treasury upon Citigroup's exit from the Temporary 
Liquidity Guarantee Program (TLGP), provided that there are no 
losses from the company's participation in TLGP.

                         C. AIG Repayment Plan

    On September 30, 2010, American International Group Inc. 
(AIG) announced that it had entered an agreement-in-principle 
with Treasury, the Federal Reserve Bank of New York (FRBNY), 
and the AIG Credit Facility Trust that would allow the company 
to repay its outstanding obligations to the federal government. 
AIG's repayment plan involves three components:
      AIG will repay its balance on the revolving 
credit facility (RCF) with FRBNY. As of September 29, 2010, the 
amount of funds outstanding from the facility was $18.9 
billion. To repay the RCF, AIG plans to use proceeds from the 
initial public offering for American International Assurance 
Company Ltd. (AIA) and the pending sale of American Life 
Insurance Company (ALICO) to MetLife, Inc. AIG will also use 
funds from the parent company to pay down and, ultimately, 
terminate the facility.
      AIG will draw down up to $22.3 billion in Series 
F funds available through the TARP to help purchase FRBNY's 
$25.7 billion preferred equity interests in the AIA Aurora LLC 
and ALICO Holdings LLC special purpose vehicles (SPVs). The 
company will also use proceeds from two future asset sales (AIG 
Star Life Insurance Co. and AIG Edison Life Insurance) to 
purchase the remaining shares held in the SPVs. AIG will then 
transfer the preferred interests to Treasury as part of its 
consideration for the Series F preferred shares. In order to 
repay Treasury for the equity interest in the SPVs, AIG will 
use proceeds from future sales of AIA and MetLife equity, which 
AIG will own upon completion of the ALICO sale.
      Upon full repayment of the RCF, AIG will issue 
approximately 1.655 billion shares of common stock to Treasury 
in exchange for $49.1 billion of Series E and Series F 
preferred equity issued under the TARP and Series C preferred 
convertible stock held by the AIG Credit Facility Trust. AIG 
will also issue up to 75 million warrants for common equity to 
all existing common shareholders. Once the exchange is 
complete, Treasury will have a 92.1 percent common equity stake 
in AIG.

                     D. FHA Short Refinance Program

    On September 7, 2010, the U.S. Department of Housing and 
Urban Development (HUD) began offering an additional refinance 
option for borrowers in negative equity positions through the 
Federal Housing Administration (FHA) Short Refinance Program. 
For a homeowner to qualify for a new FHA-insured loan under the 
program, the borrower must be current on their mortgage 
payments, and the first-lien mortgage holder must write down at 
least 10 percent of the loan's principal. The loan-to-value 
ratio can be no higher than 97.75 percent after the 
refinancing, and the combined loan-to-value ratio on the 
refinanced mortgage (which would also include any junior liens) 
can be no greater than 115 percent.
    Treasury has allocated approximately $3 billion in TARP 
funds for this program to support existing second-lien holders 
who agree to full or partial extinguishment of the liens.
    On September 3, 2010, Treasury purchased an $8 billion, 10-
year letter of credit facility from Citibank, N.A. to cover 
losses on new FHA loans. Treasury will incrementally increase 
the amount available under the facility in proportion to the 
dollar value of mortgages refinanced under the FHA Short 
Refinance Program. After the first two-and-a-half years, the 
amount available under the credit facility will be capped at 
the level of draws up to that point in time. As part of the 
purchase agreement with Citibank, N.A., Treasury will pay up to 
$117 million in fees for the availability and usage of the 
credit facility.

     E. Treasury Releases Two-Year Retrospective Report on the TARP

    Two days following the expiration of the TARP on October 3, 
2010, Treasury released a Two-Year Retrospective report 
assessing the program. The report cites a number of key 
accomplishments Treasury attributes to the TARP. Treasury also 
estimates that the total cost of the TARP will be $51 billion. 
The total cost to Treasury would be $29 billion after factoring 
in an estimated profit of $22 billion associated with its 
investments in AIG outside of the TARP. Treasury expects most 
of the residual cost to come from losses from the TARP's 
investments in the automotive industry as well as expenditures 
for foreclosure mitigation initiatives.

                               F. Metrics

    Each month, the Panel's report highlights a number of 
metrics that the Panel and others, including Treasury, the 
Government Accountability Office (GAO), the Special Inspector 
General for the Troubled Asset Relief Program (SIGTARP), and 
the Financial Stability Oversight Board, consider useful in 
assessing the effectiveness of the Administration's efforts to 
restore financial stability and accomplish the goals of EESA. 
This section discusses changes that have occurred in several 
indicators since the release of the Panel's September report.

1. Macroeconomic Indices

    Real GDP growth quarter-over-quarter peaked at an annual 
rate of 5 percent in the fourth quarter of 2009 and has 
decreased during 2010. Real GDP increased at rates of 3.7 and 
1.6 percent in the first and second quarters of 2010, 
respectively.\406\ These growth rates were also affected by the 
spike in employment resulting from the 2010 U.S. Census.\407\
---------------------------------------------------------------------------
    \406\ Bureau of Economic Analysis, Table 1.1.6.: Real Gross 
Domestic Product, Chained Dollars (online at www.bea.gov/national/
nipaweb/TableView.asp?SelectedTable=6&Freq=Qtr&
FirstYear=2008&LastYear=2010) (hereinafter ``Bureau of Economic 
Analysis, Table 1.1.6''). Until the year-over-year decrease from 2007 
to 2008, nominal GDP had not decreased on an annual basis since 1949. 
Bureau of Economic Analysis, Table 1.1.5.: Gross Domestic Product 
(online at www.bea.gov/national/nipaweb/
TableView.asp?SelectedTable=5&Freq=Qtr&FirstYear=2008&LastYear=2010) 
(accessed Oct. 12, 2010).
    \407\ The Economics and Statistics Administration within the U.S. 
Department of Commerce estimated that the spending associated with the 
2010 Census would peak in the second quarter of 2010 and could boost 
annualized nominal and real GDP growth by 0.1 percentage point in the 
first quarter of 2010 and 0.2 percentage point in the second quarter of 
2010. As the boost from the Census is a one-time occurrence, continuing 
increases in private investment and personal consumption expenditures 
as well as in exports will be needed to sustain the resumption of 
growth that has occurred in the U.S. economy over the past year. 
Economics and Statistics Administration, U.S. Department of Commerce, 
The Impact of the 2010 Census Operations on Jobs and Economic Growth, 
at 8 (Feb. 2010) (online at www.esa.doc.gov/02182010.pdf).
---------------------------------------------------------------------------

                       FIGURE 15: REAL GDP \408\

      
---------------------------------------------------------------------------
    \408\ Bureau of Economic Analysis, Table 1.1.6, supra note 406.
    [GRAPHIC] [TIFF OMITTED] 61540A.001
    
    Since our September report, both underemployment and 
unemployment have increased marginally. Median duration of 
unemployment has decreased by 10 percent.

   FIGURE 16: UNEMPLOYMENT, UNDEREMPLOYMENT, AND MEDIAN DURATION OF 
                           UNEMPLOYMENT \409\

      
---------------------------------------------------------------------------
    \409\ It is important to note that the measures of unemployment and 
underemployment do not include people who have stopped actively looking 
for work altogether. While the Bureau of Labor Statistics (BLS) does 
not have a distinct metric for ``underemployment,'' the U-6 category of 
Table A-15 ``Alternative Measures of Labor Underutilization'' is used 
here as a proxy. BLS defines this measure as: ``Total unemployed, plus 
all persons marginally attached to the labor force, plus total employed 
part time for economic reasons, as a percent of the civilian labor 
force plus all persons marginally attached to the labor force.'' U.S. 
Department of Labor, International Comparisons of Annual Labor Force 
Statistics (online at www.bls.gov/webapps/legacy/cpsatab15.htm) 
(accessed Oct. 12, 2010).
[GRAPHIC] [TIFF OMITTED] 61540A.002


2. Financial Indices

            a. Overview
    Since its post-crisis trough in April 2010, the St. Louis 
Federal Reserve Financial Stress Index has increased over 
elevenfold, although it has fallen by nearly half since the 
post-crisis peak in June 2010. The recent trend suggests that 
financial stress continues moving towards its long-run norm. 
The index has decreased over three standard deviations since 
October 2008, the month when the TARP was initiated.

   FIGURE 17: ST. LOUIS FEDERAL RESERVE FINANCIAL STRESS INDEX \410\

      
---------------------------------------------------------------------------
    \410\ Federal Reserve Bank of St. Louis, Series STLFSI: Business/
Fiscal: Other Economic Indicators (Instrument: St. Louis Financial 
Stress Index, Frequency: Weekly) (online at research.stlouisfed.org/
fred2/categories/98) (accessed Oct. 12, 2010). The index includes 18 
weekly data series, beginning in December 1993 to the present. The 
series are: effective federal funds rate, 2-year Treasury, 10-year 
Treasury, 30-year Treasury, Baa-rated corporate, Merrill Lynch High 
Yield Corporate Master II Index, Merrill Lynch Asset-Backed Master BBB-
rated, 10-year Treasury minus 3-month Treasury, Corporate Baa-rated 
bond minus 10-year Treasury, Merrill Lynch High Yield Corporate Master 
II Index minus 10-year Treasury, 3-month LIBOR-OIS spread, 3-month TED 
spread, 3-month commercial paper minus 3-month Treasury, the J.P. 
Morgan Emerging Markets Bond Index Plus, Chicago Board Options Exchange 
Market Volatility Index, Merrill Lynch Bond Market Volatility Index (1-
month), 10-year nominal Treasury yield minus 10-year Treasury Inflation 
Protected Security yield, and Vanguard Financials Exchange-Traded Fund 
(equities). The index is constructed using principal components 
analysis after the data series are de-meaned and divided by their 
respective standard deviations to make them comparable units. The 
standard deviation of the index is set to 1. For more details on the 
construction of this index, see Federal Reserve Bank of St. Louis, 
National Economic Trends Appendix: The St. Louis Fed's Financial Stress 
Index (Jan. 2010) (online at research.stlouisfed.org/publications/net/
NETJan2010Appendix.pdf).
[GRAPHIC] [TIFF OMITTED] 61540A.003

    Volatility has decreased recently. The Chicago Board 
Options Exchange Volatility Index (VIX) has fallen about half 
since the post-crisis peak in May 2010 and has fallen nearly 15 
percent since its slightly elevated level in August. However, 
volatility is still nearly 50 percent higher than its post-
crisis low on April 12, 2010.

    FIGURE 18: CHICAGO BOARD OPTIONS EXCHANGE VOLATILITY INDEX \411\

      
---------------------------------------------------------------------------
    \411\ Data accessed through Bloomberg data service on October 4, 
2010. The CBOE VIX is a key measure of market expectations of near-term 
volatility. CBOE, The CBOE Volatility Index--VIX 2009 (online at 
www.cboe.com/micro/vix/vixwhite.pdf) (accessed Oct. 12, 2010).
[GRAPHIC] [TIFF OMITTED] 61540A.004

            b. Interest Rates, Spreads, and Issuance
    As of October 4, 2010, the 3-Month and 1-Month London 
Interbank Offer Rates (LIBOR), the prices at which banks lend 
and borrow from each other, were 0.291 and 0.257, respectively. 
Rates have fallen by nearly half since post-crisis highs in 
June 2010 and have remained nearly constant since our September 
report. Over the longer term, however, interest rates remain 
extremely low relative to pre-crisis levels.\412\
---------------------------------------------------------------------------
    \412\ Data accessed through Bloomberg data service on October 4, 
2010.

                       FIGURE 19: 3-MONTH AND 1-MONTH LIBOR RATES (AS OF OCTOBER 6, 2010)
----------------------------------------------------------------------------------------------------------------
                                                     Current Rates (as of 10/ Percent Change from Data Available
                     Indicator                               4/2010)           at Time of Last Report (9/6/2010)
----------------------------------------------------------------------------------------------------------------
3-Month LIBOR \413\................................                    0.291                             (0.01)%
1-Month LIBOR \414\................................                    0.257                             (0.00)%
----------------------------------------------------------------------------------------------------------------
\413\ Data accessed through Bloomberg data service on October 4, 2010.
\414\ Data accessed through Bloomberg data service on October 4, 2010.

    However, in spite of extremely low interest rates, the non-
Agency U.S. mortgage-backed securities (MBS) market remains 
moribund, with August issuance below $1 billion, and a 77-
percent decrease in issuance year to date between 2010 and 
2009.\415\
---------------------------------------------------------------------------
    \415\ SIFMA, US Mortgage-Related Securities Issuance (online at 
www.sifma.org/uploadedFiles/Research/Statistics/
SIFMA_USMortgageRelatedIssuance.xls) (accessed Oct. 7, 2010).
---------------------------------------------------------------------------
    Since the Panel's September report, interest rate spreads 
have stayed fairly constant. Thirty-year mortgage interest 
rates and 10-year Treasury bond yields have both remained 
relatively unchanged as well. The conventional mortgage spread, 
which measures the 30-year fixed mortgage rate over 10-year 
Treasury bond yields, has risen very slightly since late 
August.\416\
---------------------------------------------------------------------------
    \416\ Board of Governors of the Federal Reserve System, Federal 
Reserve Statistical Release H.15: Selected Interest Rates: Historical 
Data (Instrument: Conventional Mortgages, Frequency: Weekly) (online at 
www.federalreserve.gov/releases/h15/data/Weekly_Thursday_/
H15_MORTG_NA.txt) (accessed Oct. 5, 2010) (hereinafter ``Federal 
Reserve Statistical Release H.15'').
---------------------------------------------------------------------------
    The TED spread, which serves as an indicator for perceived 
risk in the financial markets, has been falling since June, and 
is currently lower than pre-crisis levels.\417\ The LIBOR-OIS 
spread reflects the health of the banking system. While it 
increased over threefold from early April to July, it has been 
falling since mid-July and is now averaging pre-crisis 
levels.\418\ Decreases in the LIBOR-OIS spread and the TED 
spread suggest that hesitation among banks to lend to 
counterparties has recently declined.
---------------------------------------------------------------------------
    \417\ Federal Reserve Bank of Minneapolis, Measuring Perceived 
Risk--The TED Spread (Dec. 2008) (online at www.minneapolisfed.org/
publications_papers/pub_display.cfm?id=4120).
    \418\ Data accessed through Bloomberg data service on Oct. 5, 2010.
---------------------------------------------------------------------------

                      FIGURE 20: TED SPREAD \419\

      
---------------------------------------------------------------------------
    \419\ Data accessed through Bloomberg data service on Oct. 4, 2010.
    [GRAPHIC] [TIFF OMITTED] 61540A.005
    
                   FIGURE 21: LIBOR-OIS SPREAD \420\

      
---------------------------------------------------------------------------
    \420\ Data accessed through Bloomberg data service on Oct. 4, 2010.
    [GRAPHIC] [TIFF OMITTED] 61540A.006
    
    The interest rate spread for AA asset-backed commercial 
paper, which is considered mid-investment grade, has fallen by 
about 4 percent since the Panel's September report. The 
interest rate spread on A2/P2 commercial paper, a lower grade 
investment than AA asset-backed commercial paper, has fallen by 
nearly 6 percent since the Panel's September report. This 
indicates healthier fundraising conditions.

                    FIGURE 22: INTEREST RATE SPREADS
------------------------------------------------------------------------
                                                          Percent Change
                                          Current Spread    Since Last
                Indicator                  (as of 9/30/    Report (9/2/
                                               2010)           2010)
                                                             (Percent)
------------------------------------------------------------------------
Conventional mortgage rate spread \421\             1.8             4.0
 (percentage points)....................
TED spread (basis points)...............           13.06          (15.4)
Overnight AA asset-backed commercial                0.08           (4.1)
 paper interest rate spread \422\
 (percentage points)....................
Overnight A2/P2 nonfinancial commercial             0.16           (6.2)
 paper interest rate spread \423\
 (percentage points)....................
------------------------------------------------------------------------
\421\ Federal Reserve Statistical Release H.15, supra note 416; Board of
  Governors of the Federal Reserve System, Federal Reserve Statistical
  Release H.15: Selected Interest Rates: Historical Data (Instrument:
  U.S. Government Securities/Treasury Constant Maturities/Nominal 10-
  Year, Frequency: Weekly) (online at www.federalreserve.gov/releases/
  h15/data/Weekly_Friday_/H15_TCMNOM_Y10.txt) (accessed Oct. 5, 2010).
\422\ Board of Governors of the Federal Reserve System, Federal Reserve
  Statistical Release: Commercial Paper Rates and Outstandings: Data
  Download Program (Instrument: AA Asset-Backed Discount Rate,
  Frequency: Daily) (online at www.federalreserve.gov/DataDownload/
  Choose.aspx?rel=CP) (accessed Oct. 5, 2010); Board of Governors of the
  Federal Reserve System, Federal Reserve Statistical Release:
  Commercial Paper Rates and Outstandings: Data Download Program
  (Instrument: AA Nonfinancial Discount Rate, Frequency: Daily) (online
  at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed
  Oct. 5, 2010). In order to provide a more complete comparison, this
  metric utilizes the average of the interest rate spread for the last
  five days of the month.
\423\ Board of Governors of the Federal Reserve System, Federal Reserve
  Statistical Release: Commercial Paper Rates and Outstandings: Data
  Download Program (Instrument: A2/P2 Nonfinancial Discount Rate,
  Frequency: Daily) (online at www.federalreserve.gov/DataDownload/
  Choose.aspx?rel=CP) (accessed Oct. 5, 2010). In order to provide a
  more complete comparison, this metric utilizes the average of the
  interest rate spread for the last five days of the month.

    The spread between Moody's Baa Corporate Bond Yield Index 
and 30-year constant maturity U.S. Treasury Bond yields doubled 
from late April to mid-June. The spread has leveled-off since a 
spike in mid-June to its current level of approximately 2 
percent. This spread indicates the difference in perceived risk 
between corporate and government bonds, and a declining spread 
could indicate waning concerns about the riskiness of corporate 
bonds.

 FIGURE 23: MOODY'S BAA CORPORATE BOND INDEX AND 30-YEAR U.S. TREASURY 
                            BOND YIELD \424\

      
---------------------------------------------------------------------------
    \424\ Federal Reserve Bank of St. Louis, Series DGS30: Selected 
Interest Rates (Instrument: 30-Year Treasury Constant Maturity Rate, 
Frequency: Daily) (online at research.stlouisfed.org/fred2/) (accessed 
Oct. 5, 2010) (hereinafter ``Series DGS30: Selected Interest Rates''). 
Corporate Baa rate data accessed through Bloomberg data service on Oct. 
5, 2010.
[GRAPHIC] [TIFF OMITTED] 61540A.007


    Corporate bond market issuance data corroborate this 
analysis, with a near doubling in fixed-rate callable issuance 
between July and August 2010.\425\
---------------------------------------------------------------------------
    \425\ SIFMA, US Corporate Bond Issuance (online at www.sifma.org/
uploadedFiles/Research/Statistics/SIFMA_USCorporateBondIssuance.xls) 
(accessed Oct. 7, 2010).
---------------------------------------------------------------------------
            c. Condition of the Banks
    Since the Panel's last report, 11 additional banks have 
failed, with an approximate total asset value of $2.5 billion. 
The number of failures from January through August 2010 has 
nearly reached the level for all of calendar year 2009. In 
general, banks failing in 2009 and 2010 have been small and 
medium-sized institutions; while they are failing in high 
numbers, their aggregate asset size has been relatively small.

   FIGURE 24: BANK FAILURES AS A PERCENTAGE OF TOTAL BANKS AND BANK 
               FAILURES BY TOTAL ASSETS (1990-2010) \426\

      
---------------------------------------------------------------------------
    \426\ The disparity between the number of and total assets of 
failed banks in 2008 is driven primarily by the failure of Washington 
Mutual Bank, which held $307 billion in assets. The 2010 year-to-date 
percentage of bank failures includes failures through August. The total 
number of FDIC-insured institutions as of March 31, 2010, is 7,932 
commercial banks and savings institutions. As of October 7, 2010, there 
have been 129 failed institutions. Federal Deposit Insurance 
Corporation, Failures and Assistance Transactions (online at 
www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30) (accessed Oct. 7, 2010). 
Asset totals adjusted for deflation into 2005 dollars using the GDP 
implicit price deflator. The quarterly values were averaged into a 
yearly value. Series DGS30: Selected Interest Rates, supra note 424.
[GRAPHIC] [TIFF OMITTED] 61540A.008


    In its September 2010 report, \427\ the Panel analyzed in 
detail the condition of the so-called ``too big to fail'' 
banks: the 19 institutions stress-tested under the Supervisory 
Capital Assessment Program. While in the aggregate these banks 
have improved their net income and capital ratios significantly 
since the crisis, they still remain vulnerable to problems in 
the residential and commercial real estate markets. Nearly $97 
billion in real estate loans are at least 90 days past due as 
of the second quarter of 2010.
---------------------------------------------------------------------------
    \427\ Congressional Oversight Panel, September Oversight Report: 
Assessing the TARP on the Eve of its Expiration, at 81 (Sept. 16, 2010) 
(online at cop.senate.gov/documents/cop-091610-report.pdf).
---------------------------------------------------------------------------

 FIGURE 25: TOTAL REAL ESTATE LOANS 90+ DAYS PAST DUE AT STRESS-TESTED 
                              BANKS \428\

---------------------------------------------------------------------------
    \428\ SNL Financial. All loans secured by real estate, for the 
fully consolidated bank (includes loans secured by real estate with 
original maturities of 60 months or less made to finance land 
development or construction, loans secured by farmland, loans secured 
by 1-4 family residential properties, loans secured by multifamily (5 
or more) residential properties, loans secured by nonfarm residential 
properties) that are 90 days or more past due and upon which the bank 
continues to accrue interest.
[GRAPHIC] [TIFF OMITTED] 61540A.009

3. Housing Indices

    Foreclosure actions, which consist of default notices, 
scheduled auctions, and bank repossessions, increased 4 percent 
in August to 338,836. This metric is over 21 percent above the 
foreclosure action level at the time of the EESA enactment. 
Five states accounted for more than 50 percent of the national 
total, with California alone accounting for 20 percent.\429\ 
Sales of new homes stayed constant at 288,000, but remain 
extremely low.\430\ The Case-Shiller 20-City Composite as well 
as the FHFA Housing Price Index decreased slightly in July 
2010. The Case-Shiller and FHFA indices are respectively 6 
percent and 5 percent below their levels in October 2008.\431\
---------------------------------------------------------------------------
    \429\ RealtyTrac, Foreclosure Activity Press Releases, Foreclosure 
Activity Increases 4 Percent in August (Sept. 16, 2010) (online at 
www.realtytrac.com/content/press-releases/foreclosure-activity-
increases-4-percent-in-august-6041).
    \430\ Sales of new homes in May 2010 were 276,000, the lowest rate 
since 1963. It should be noted that this number likely reflects a 
shifting of sales from May to April prompted by the April expiration of 
tax credits designed to boost home sales. U.S. Census Bureau and U.S. 
Department of Housing and Urban Development, New Residential Sales in 
June 2010 (July 26, 2010) (online at www.census.gov/const/
newressales.pdf); U.S. Census Bureau, New Residential Sales--New One-
Family Houses Sold (online at www.census.gov/ftp/pub/const/
sold_cust.xls) (accessed Oct. 5, 2010).
    \431\ Most recent data available for July 2010. See Standard and 
Poor's, S&P/Case-Shiller Home Price Indices (Instrument: Case-Shiller 
20-City Composite Seasonally Adjusted, Frequency: Monthly) (accessed 
Oct. 5, 2010) (online at www.standardandpoors.com/indices/sp-case-
shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----) 
(hereinafter ``S&P/Case-Shiller Home Price Indices''); Federal Housing 
Finance Agency, U.S. and Census Division Monthly Purchase Only Index 
(Instrument: USA, Seasonally Adjusted) (online at www.fhfa.gov/
Default.aspx?Page=87) (accessed Oct. 5, 2010) (hereinafter ``U.S. and 
Census Division Monthly Purchase Only Index''). S&P has cautioned that 
the seasonal adjustment is probably being distorted by irregular 
factors. These distortions could include distressed sales and the 
various government programs. See Standard and Poor's, S&P/Case-Shiller 
Home Price Indices and Seasonal Adjustment, S&P Indices: Index Analysis 
(Apr. 2010).
---------------------------------------------------------------------------
    Additionally, Case-Shiller futures prices indicate a market 
expectation that home-price values for the major Metropolitan 
Statistical Areas \432\ (``MSAs'') will generally decrease 
through the end of 2010 and beginning of 2011.\433\ These 
futures are cash-settled to a weighted composite index of U.S. 
housing prices in the top 10 MSAs, as well as to those specific 
markets, and are used both to hedge by businesses whose profits 
and losses are related to any area of the housing industry and 
to balance portfolios by businesses seeking exposure to an 
uncorrelated asset class. As such, futures prices are a 
composite indicator of market information known to date and can 
be used to indicate market expectations for future home prices.
---------------------------------------------------------------------------
    \432\ The general concept of a Metropolitan Statistical Area is 
that of a core area containing a substantial population nucleus, 
together with adjacent communities having a high degree of economic and 
social integration with the core. U.S. Census Bureau, About 
Metropolitan and Micropolitan Statistical Areas (online at 
www.census.gov/population/www/metroareas/aboutmetro.html) (accessed 
Oct. 7, 2010).
    \433\ Data accessed through Bloomberg data service on Oct. 5, 2010. 
The Case-Shiller Futures contract is traded on the CME and is settled 
to the Case-Shiller Index two months after the previous calendar 
quarter. For example, the February contract is settled against the spot 
value of the S&P Case-Shiller Home Price Index values representing the 
fourth calendar quarter of the previous year, which is released in 
February one day after the settlement of the contract. Note that most 
close observers believe that the accuracy of these futures contracts as 
forecasts diminishes the farther out one looks.

                                          FIGURE 26: HOUSING INDICATORS
----------------------------------------------------------------------------------------------------------------
                                                                         Percent Change from     Percent Change
                       Indicator                          Most Recent     Data Available at      Since October
                                                          Monthly Data   Time of Last Report          2008
----------------------------------------------------------------------------------------------------------------
Monthly foreclosure actions \434\......................      338,836                    4.2%              21.2%
S&P/Case-Shiller Composite 20 Index \435\..............          147.6                 (0.1)              (5.6)
FHFA Housing Price Index \436\.........................          192.4                 (0.5)              (4.8)
----------------------------------------------------------------------------------------------------------------
\434\ RealtyTrac, Foreclosures (online at www.realtytrac.com/home/) (accessed Oct. 12, 2010). Most recent data
  available for August 2010.
\435\ See S&P/Case-Shiller Home Price Indices, supra note 431. Most recent data available for July 2010.
\436\ U.S. and Census Division Monthly Purchase Only Index, supra note 431. Most recent data available for July
  2010.

   FIGURE 27: CASE-SHILLER HOME PRICE INDEX AND FUTURES VALUES \437\

      
---------------------------------------------------------------------------
    \437\ All data normalized to 100 at January 2000. Futures data 
accessed through Bloomberg data service on October 5, 2010. S&P/Case-
Shiller Home Price Indices, supra note 431.
[GRAPHIC] [TIFF OMITTED] 61540A.010

                          G. Financial Update

    Each month, the Panel summarizes the resources that the 
federal government has committed to the rescue and recovery of 
the financial system. The following financial update provides: 
(1) an updated accounting of the TARP, including a tally of 
dividend income, repayments, and warrant dispositions that the 
program has received as of August 31, 2010; and (2) an updated 
accounting of the full federal resource commitment as of 
September 29, 2010.

1. The TARP

            a. Program Updates \438\
---------------------------------------------------------------------------
    \438\ U.S. Department of the Treasury, Cumulative Dividends, 
Interest and Distributions Report as of August 31, 2010 (Sept. 10, 
2010) (online at financialstability.gov/docs/dividends-interest-
reports/August%202010%20Dividends%20and%20Interest%20Report.pdf) 
(hereinafter ``Cumulative Dividends, Interest and Distributions Report 
as of August 31, 2010''); Treasury Transactions Report, supra note 128.
---------------------------------------------------------------------------
    Treasury's spending authority under the TARP officially 
expired on October 3, 2010. Though it can no longer make new 
funding commitments, Treasury can continue to provide funding 
for programs with which it has existing contracts and previous 
commitments. As of September 30, 2010, $396.5 billion had been 
spent under the TARP's $475 billion ceiling.\439\ Of the amount 
outstanding, $209.4 billion has been repaid, while Treasury has 
incurred $6.1 billion in losses associated with its CPP and 
AIFP investments. There are currently $181 billion in funds 
outstanding.
---------------------------------------------------------------------------
    \439\ The original $700 billion TARP ceiling was reduced by $1.26 
billion as part of the Helping Families Save Their Homes Act of 2009. 
12 U.S.C. Sec. 5225(a)-(b); Helping Families Save Their Homes Act of 
2009, Pub. L. No. 111-22 Sec. 40. On June 30, 2010, the House-Senate 
Conference Committee agreed to reduce the amount authorized under the 
TARP from $700 billion to $475 billion as part of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act that was signed into law on 
July 21, 2010. See Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. No. 111-203 (2010); The White House, Remarks by 
the President at Signing of Dodd-Frank Wall Street Reform and Consumer 
Protection Act (July 21, 2010) (online at www.whitehouse.gov/the-press-
office/remarks-president-signing-dodd-frank-wall-street-reform-and-
consumer-protection-act).
---------------------------------------------------------------------------
            CPP Repayments
    As of September 30, 2010, 110 banks have fully redeemed 
their CPP preferred shares either through capital repayment or 
exchanges for investments under the CDCI. These institutions 
have repaid a total of $152.8 billion of the $204.9 billion 
committed to CPP. The amount of funds currently outstanding in 
the program is $49.6 billion.
    During the month of September, Treasury's CPP investment 
amount was reduced by $5.3 billion. A significant portion of 
this amount ($4.9 billion) came from proceeds earned from the 
third round of sales of Citigroup common stock. As of September 
30, 2010, Treasury still holds 3.6 billion shares of Citigroup 
common equity with a face value of $11.7 billion. In addition, 
Treasury received $220 million in repayments for its preferred 
and subordinated debt investments in 12 participating 
institutions. Another 17 institutions also exchanged $253 
million of CPP funds for an equivalent investment under the 
CDCI.
    The reduction in outstanding CPP funds also includes a net 
loss from Treasury's investments in South Financial Group, Inc. 
and TIB Financial Corp. These two institutions received a total 
of $384 million through CPP. On September 30, 2010, Treasury 
sold the preferred stock and warrants issued by South Financial 
to Toronto-Dominion Bank (TD Bank) for $130.6 million as part 
of the company's acquisition of South Financial.\440\ Treasury 
also sold the preferred shares and warrants it received from 
TIB Financial for $12.2 million to North American Financial 
Holdings, Inc.\441\ As a result of these sales, Treasury 
incurred a loss of $241.7 million, bringing total losses on CPP 
investments to $2.6 billion.
---------------------------------------------------------------------------
    \440\ Treasury Transactions Report, supra note 128; TD Bank 
Financial Group, TD Bank Marks Another Important Milestone in Expansion 
of U.S. Footprint (Oct. 1, 2010) (online at td.mediaroom.com/
index.php?s=43&item=1045).
    \441\ As part of its $175 billion investment in TIB Financial 
Corp., North American Financial Holdings, Inc. also agreed to purchase 
37,000 shares of CPP preferred stock, along with related warrants, from 
Treasury. TIB Financial Corp., TIB Financial Corp. Announces Closing of 
$175 Million Investment From North American Financial Holdings, Inc. 
(Sept. 30, 2010) (online at www.tibfinancialcorp.com/
file.aspx?IID=108287&FID=10162725).
---------------------------------------------------------------------------
            b. Income: Dividends, Interest, and Warrant Sales
    As of September 30, 2010, 45 institutions have repurchased 
their warrants for common shares that Treasury received in 
conjunction with its preferred stock investments. Treasury 
received $19.7 million from six banks that agreed to repurchase 
their warrants in September. Treasury has also sold the 
warrants for common shares for 15 other institutions at 
auction. On September 16, 2010, Treasury held an auction for 13 
million warrants to purchase common shares of Lincoln National 
Corporation. The offering yielded $213.7 million in net 
proceeds to Treasury. On September 21, 2010, Treasury also 
auctioned off 52 million warrants issued by the Hartford 
Financial Services Group, Inc. for $706.3 million in proceeds.
    In addition to warrant disposition proceeds, Treasury also 
receives dividend payments on the preferred shares that it 
holds, usually 5 percent per annum for the first five years and 
9 percent per annum thereafter.\442\ In total, Treasury has 
received approximately $25.3 billion in net income from warrant 
repurchases, dividends, interest payments, and other proceeds 
deriving from TARP investments (after deducting losses).\443\ 
For further information on TARP profit and loss, see Figure 29.
---------------------------------------------------------------------------
    \442\ U.S. Department of the Treasury, Securities Purchase 
Agreement for Public Institutions (online at 
www.financialstability.gov/docs/CPP/spa.pdf) (accessed Oct. 12, 2010).
    \443\ Cumulative Dividends, Interest and Distributions Report as of 
August 31, 2010, supra note 438; Treasury Transactions Report, supra 
note 128. Treasury also received an additional $1.2 billion in 
participation fees from its Guarantee Program for Money Market Funds. 
U.S. Department of the Treasury, Treasury Announces Expiration of 
Guarantee Program for Money Market Funds (Sept. 18, 2009) (online at 
www.ustreas.gov/press/releases/tg293.htm).
---------------------------------------------------------------------------
            c. TARP Accounting

                              FIGURE 28: TARP ACCOUNTING (AS OF SEPTEMBER 30, 2010)
                                             [billions of dollars] i
----------------------------------------------------------------------------------------------------------------
                                                              Total
                                 Maximum       Actual      Repayments/      Total        Funding       Funding
           Program                Amount       Funding       Reduced       Losses       Currently     Available
                                 Allotted                   Exposure                   Outstanding
----------------------------------------------------------------------------------------------------------------
Capital Purchase Program            $204.9       $204.9    ii ($152.8)    iii ($2.6)        $49.6           $0
 (CPP).......................
Targeted Investment Program           40.0         40.0         (40.0)          0             0              0
 (TIP).......................
Asset Guarantee Program (AGP)          5.0       iv 5.0        v (5.0)          0             0              0
AIG Investment Program                69.8      vi 49.1           0             0            49.1           20.7
 (AIGIP).....................
Auto Industry Financing               81.3         81.3         (10.8)     vii (3.5)    viii 67.1            0
 Program (AIFP)..............
Auto Supplier Support Program          0.4          0.4          (0.4)          0             0              0
 (ASSP) ix...................
Term Asset-Backed Securities         x 4.3       xi 0.1           0             0             0.1            4.2
 Loan Facility (TALF)........
Public-Private Investment             22.4    xiii 14.2      xiv (0.4)          0            13.8            8.2
 Program (PPIP) xii..........
SBA 7(a) Securities Purchase.          0.4       xv 0.36          0             0             0.36           0
Home Affordable Modification          29.9          0.5           0             0             0.5           29.4
 Program (HAMP)..............
Hardest Hit Fund (HHF).......      xvi 7.6     xvii 0.06          0             0             0.06           7.5
FHA Refinance Program........          8.1          0             0             0             0              8.1
Community Development Capital          0.8    xviii 0.57          0             0             0.57           0
 Initiative (CDCI)...........
    Total....................         $475        396.48       (209.4)         (6.1)        181.07          78.2
----------------------------------------------------------------------------------------------------------------
i Figures affected by rounding. Unless otherwise noted, data in this table are from the following source: U.S.
  Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September
  30, 2010 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
  10%20Transactions%20Report%20as%20of%209-30-10.pdf).
ii Total amount repaid under CPP includes $13.4 billion Treasury received as part of its sales of Citigroup
  common stock. As of September 30, 2010, Treasury had sold 4.1 billion Citigroup common shares for $16.4
  billion in gross proceeds. Treasury has received $3 billion in net profit from the sale of Citigroup common
  stock. In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion shares of the
  company's common stock at $3.25 per share. U.S. Department of the Treasury, Troubled Asset Relief Program
  Transactions Report for the Period Ending September 30, 2010, at 13, 14 (Oct. 4, 2010) (online at
  financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf); U.S.
  Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 25 (Oct. 2010) (online
  at www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
Total CPP repayments also include amounts repaid by institutions that exchanged their CPP investments for
  investments under the CDCI, as well as proceeds earned from the sale of preferred stock and warrants issued by
  South Financial Group, Inc. and TIB Financial Corp.
iii On the TARP Transactions Report, Treasury has classified the investments it made in two institutions, CIT
  Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as losses. In addition, Treasury sold
  its preferred ownership interests, along with warrants, in South Financial Group, Inc. and TIB Financial Corp.
  to non-TARP participating institutions. These shares were sold at prices below the value of the original CPP
  investment. Therefore, Treasury's net current CPP investment is $49.6 billion due to the $2.6 billion in
  losses thus far. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the
  Period Ending September 30, 2010, at 13, 14 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-
  reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
iv The $5 billion AGP guarantee for Citigroup was unused since Treasury was not required to make any guarantee
  payments during the life of the program. U.S. Department of the Treasury, Troubled Asset Relief Program: Two-
  Year Retrospective, at 31 (Oct. 2010) (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
v Although this $5 billion is no longer exposed as part of the AGP, Treasury did not receive a repayment in the
  same sense as with other investments. Treasury did receive other income as consideration for the guarantee,
  which is not a repayment and is accounted for in Figure 29.
vi AIG has completely utilized the $40 billion that was made available on November 25, 2008 in exchange for the
  company's preferred stock. It has also drawn down $7.5 billion of the $29.8 billion made available on April
  17, 2009. This figure also reflects $1.6 billion in accumulated but unpaid dividends owed by AIG to Treasury
  due to the restructuring of Treasury's investment from cumulative preferred shares to non-cumulative shares.
  AIG expects to draw down up to $22.3 billion in outstanding funds from the TARP as part of its plan to repay
  the revolving credit facility provided by the Federal Reserve Bank of New York. American International Group,
  Inc., Form 10-K for the Fiscal Year Ended December 31, 2009, at 45 (Feb. 26, 2010) (online at www.sec.gov/
  Archives/edgar/data/5272/000104746910001465/a2196553z10-k.htm); American International Group, Inc., AIG
  Announces Plan to Repay U.S. Government (Sept. 30, 2010) (online at www.aigcorporate.com/newsroom/
  2010_September/AIGAnnouncesPlantoRepay30Sept2010.pdf); U.S. Department of the Treasury, Troubled Asset Relief
  Program Transactions Report for the Period Ending September 30, 2010, at 21 (Oct. 4, 2010) (online at
  financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
vii On May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion loan to Chrysler
  Holding. The payment represented a $1.6 billion loss from the termination of the debt obligation. U.S.
  Department of the Treasury, Chrysler Financial Parent Company Repays $1.9 Billion in Settlement of Original
  Chrysler Loan (May 17, 2010) (online at www.financialstability.gov/latest/pr_05172010c.html). Also, following
  the bankruptcy proceedings for Old Chrysler, which extinguished the $1.9 billion debtor-in-possession (DIP)
  loan provided to Old Chrysler, Treasury retained the right to recover the proceeds from the liquidation of
  specified collateral. To date, Treasury has collected $40.2 million in proceeds from the sale of collateral,
  and it does not expect a significant recovery from the liquidation proceeds. Treasury includes these proceeds
  as part of the $10.8 billion repaid under the AIFP. U.S. Department of the Treasury, Troubled Assets Relief
  Program Monthly 105(a) Report--August 2010 (Sept. 10, 2010) (online at financialstability.gov/docs/
  105CongressionalReports/August%202010%20105(a)%20Report_final_9%2010%2010.pdf); Treasury conversations with
  Panel staff (Aug. 19, 2010); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions
  Report for the Period Ending September 30, 2010, at 18 (Oct. 4, 2010) (online at financialstability.gov/docs/
  transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
viii On the TARP Transactions Report, the $1.9 billion Chrysler debtor-in-possession loan, which was
  extinguished April 30, 2010, was deducted from Treasury's AIFP investment amount. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 30, 2010, at 18
  (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
  10%20Transactions%20Report%20as%20of%209-30-10.pdf). See note vii, supra, for details on losses from
  Treasury's investment in Chrysler.
ix On April 5, 2010, Treasury terminated its commitment to lend to the GM SPV under the ASSP. On April 7, 2010,
  it terminated its commitment to lend to the Chrysler SPV. In total, Treasury received $413 million in
  repayments from loans provided by this program ($290 million from the GM SPV and $123 million from the
  Chrysler SPV). Further, Treasury received $101 million in proceeds from additional notes associated with this
  program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period
  Ending September 30, 2010, at 19 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-
  4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
x For the TALF program, one dollar of TARP funds was committed for every $10 of funds obligated by the Federal
  Reserve. The program was intended to be a $200 billion initiative, and the TARP was responsible for the first
  $20 billion in loan-losses, if any were incurred. The loan is incrementally funded. When the program closed in
  June 2010, a total of $43 billion in loans was outstanding under the TALF program, and the TARP's commitments
  constituted $4.3 billion. The Federal Reserve Board of Governors agreed that it was appropriate for Treasury
  to reduce TALF credit protection from TARP to $4.3 billion. Board of Governors of the Federal Reserve System,
  Federal Reserve Announces Agreement with the Treasury Department Regarding a Reduction of Credit Protection
  Provided for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 2010) (online at
  www.federalreserve.gov/newsevents/press/monetary/20100720a.htm).
xi As of September 30, 2010, Treasury had provided $105 million to TALF LLC. This total includes accrued payable
  interest. Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1), at 5 (Sept. 30, 2010)
  (online at www.federalreserve.gov/releases/h41/20100930/h41.pdf).
xii On July 19, 2010, Treasury released its third quarterly report on the Legacy Securities Public-Private
  Investment Partnership (PPIP). As of June 30, 2010, the total value of assets held by the PPIP managers was
  $16 billion. Non-agency Residential Mortgage-Backed Securities represented 85 percent of the total; CMBS
  represented the balance. U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program,
  Program Update--Quarter Ended June 30, 2010, at 3, 4 (July 19, 2010) (online at www.financialstability.gov/
  docs/111.pdf).
xiii U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at i (Oct. 2010)
  (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
xiv As of September 30, 2010, Treasury has received $428 million in capital repayments from two PPIP fund
  managers. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period
  Ending September 30, 2010, at 23 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-
  4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xv Treasury made $64 million in purchases under the SBA 7(a) Securities Purchase Program in September. As of
  September 30, 2010, Treasury's purchases totaled $322.9 million. U.S. Department of the Treasury, Troubled
  Asset Relief Program Transactions Report for the Period Ending September 30, 2010, at 22 (Oct. 4, 2010)
  (online at financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-
  10.pdf). Treasury will not make additional purchases pursuant to the expiration of its purchasing authority
  under EESA. U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 43
  (Oct. 2010) (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
xvi As part of its revisions to TARP allocations upon enactment of the Dodd-Frank Wall Street Reform and
  Consumer Protection Act, Treasury allocated an additional $2 billion in TARP funds to mortgage assistance for
  unemployed borrowers through the Hardest Hit Fund (HHF). U.S. Department of the Treasury, Obama Administration
  Announces Additional Support for Targeted Foreclosure-Prevention Programs to Help Homeowners Struggling with
  Unemployment (Aug. 11, 2010) (online at www.ustreas.gov/press/releases/tg823.htm). Another $3.5 billion was
  allocated among the 18 states and the District of Columbia currently participating in HHF. The amount each
  state received during this round of funding is proportional to its population. U.S. Department of the
  Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 72 (Oct. 2010) (online at
  www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
  Additional information provided by Treasury staff (Sept. 28, 2010).
xvii This figure represents the total amount paid to date to state Housing Finance Agencies (HFAs). As of
  October 12, 2010, six state HFAs have drawn down funds from their total investment amount. Data provided by
  Treasury (Oct. 12, 2010).
xviii Seventy-three Community Development Financial Institutions (CDFIs) entered the CDCI in September. Among
  these institutions, 17 banks exchanged their CPP investments for an equivalent investment amount under the
  CDCI. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  September 30, 2010, at 1-13, 16-17 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/
  10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf). Treasury closed the program on September 30, 2010,
  after investing $570 million in 84 CDFIs. U.S. Department of the Treasury, Treasury Announces Special
  Financial Stabilization Initiative Investments of $570 Million in 84 Community Development Financial
  Institutions in Underserved Areas (Sept. 30, 2010) (online at financialstability.gov/latest/
  pr_09302010b.html).


                                                             FIGURE 29: TARP PROFIT AND LOSS
                                                                  [millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Warrant
                                                            Dividendsxx     Interestxxi     Disposition   Other Proceeds    Lossesxxiii
                   TARP Initiativexix                      (as of 8/31/    (as of 8/31/    Proceedsxxii    (as of 8/31/    (as of 9/30/        Total
                                                               2010)           2010)       (as of 9/30/        2010)           2010)
                                                                                               2010)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total...................................................         $16,540            $912          $8,160          $5,768        ($6,034)         $25,346
CPP.....................................................           9,754              49           6,904      xxiv 3,015         (2,576)          17,194
TIP.....................................................           3,004              --           1,256              --              --           4,260
AIFP....................................................       xxv 3,371             802              --         xxvi 15         (3,458)             730
ASSP....................................................              --              15              --       xxvii 101              --             116
AGP.....................................................             411              --               0    xxviii 2,246              --           2,657
PPIP....................................................              --              46              --        xxix 115              --             161
SBA 7(a)................................................              --               1              --              --              --               1
Bank of America Guarantee...............................              --              --              --         xxx 276              --             276
--------------------------------------------------------------------------------------------------------------------------------------------------------
xix AIG is not listed on this table because no profit or loss has been recorded to date for AIG. Its missed dividends were capitalized as part of the
  issuance of Series E preferred shares and are not considered to be outstanding. Treasury currently holds non-cumulative preferred shares, meaning AIG
  is not penalized for non-payment. Therefore, no profit or loss has been realized on Treasury's AIG investment to date.
xx U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of August 31, 2010 (Sept. 10, 2010) (online at
  financialstability.gov/docs/dividends-interest-reports/August%202010%20Dividends%20and%20Interest%20Report.pdf).
xxi U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of August 31, 2010 (Sept. 10, 2010) (online at
  financialstability.gov/docs/dividends-interest-reports/August%202010%20Dividends%20and%20Interest%20Report.pdf).
xxii U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 30, 2010, at 13, 20 (Oct. 4,
  2010) (online at financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xxiii In the TARP Transactions Report, Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast
  National Bancorp ($4.1 million), as losses. Treasury has also sold its preferred ownership interests and warrants from South Financial Group, Inc. and
  TIB Financial Corp. This represents a $241.7 million loss on its CPP investments in these two banks. Two TARP recipients, UCBH Holdings, Inc. ($298.7
  million) and a banking subsidiary of Midwest Banc Holdings, Inc. ($89.4 million), are currently in bankruptcy proceedings. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 30, 2010 (Oct. 4, 2010) (online at financialstability.gov/
  docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf). Finally, Sonoma Valley Bancorp, which received $8.7 million in CPP
  funding, was placed into receivership on August 20, 2010. Federal Deposit Insurance Corporation, Westamerica Bank, San Rafael, California, Assumes All
  of the Deposits of Sonoma Valley Bank, Sonoma, California (Aug. 20, 2010) (online at www.fdic.gov/news/news/press/2010/pr10196.html).
xxiv This figure represents net proceeds to Treasury from the sale of Citigroup common stock to date. For details on Treasury's sales of Citigroup
  common stock, see Section Two and note ii, supra. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period
  Ending September 30, 2010 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-
  10.pdf).
xxv This figure includes $815 million in dividends from GMAC preferred stock, trust preferred securities, and mandatory convertible preferred shares.
  The dividend total also includes a $748.6 million senior unsecured note from Treasury's investment in General Motors. Data provided by Treasury.
xxvi Treasury received proceeds from an additional note connected with the loan made to Chrysler Financial on January 16, 2009. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 30, 2010, at 18 (Oct. 4, 2010) (online at
  financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xxvii This represents the total proceeds from additional notes connected with Treasury's investments in GM Supplier Receivables LLC and Chrysler
  Receivables SPV LLC. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 30, 2010, at
  19 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xxviii As a fee for taking a second-loss position of up to $5 billion on a $301 billion pool of ring-fenced Citigroup assets as part of the AGP,
  Treasury received $4.03 billion in Citigroup preferred stock and warrants. Treasury exchanged these preferred stocks for trust preferred securities in
  June 2009. Following the early termination of the guarantee in December 2009, Treasury cancelled $1.8 billion of the trust preferred securities,
  leaving Treasury with a premium of $2.23 billion in Citigroup trust preferred securities. On September 30, 2010, Treasury sold these securities for
  $2.25 billion in total proceeds. At the end of Citigroup's participation in the FDIC's TLGP, the FDIC may transfer $800 million of $3.02 billion in
  Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to Treasury. U.S. Department of the Treasury, Troubled Asset
  Relief Program Transactions Report for the Period Ending September 30, 2010, at 20 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-
  reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf); U.S. Department of the Treasury, Board of Governors of the Federal Reserve System,
  Federal Deposit Insurance Corporation, and Citigroup Inc., Termination Agreement, at 1 (Dec. 23, 2009) (online at www.financialstability.gov/docs/
  Citi%20AGP%20Termination%20Agreement%20-%20Fully%20Executed%20Version.pdf); U.S. Department of the Treasury, Treasury Announces Further Sales of
  Citigroup Securities and Cumulative Return to Taxpayers of $41.6 Billion (Sept. 30, 2010) (online at financialstability.gov/latest/pr_09302010c.html);
  Federal Deposit Insurance Corporation, 2009 Annual Report, at 87 (June 30, 2010) (online at www.fdic.gov/about/strategic/report/2009annualreport/
  AR09final.pdf).
xxix As of August 31, 2010, Treasury has earned $93.9 million in membership interest distributions from the PPIP. Additionally, Treasury has earned
  $20.6 million in total proceeds following the termination of the TCW fund. See U.S. Department of the Treasury, Cumulative Dividends, Interest and
  Distributions Report as of August 31, 2010, at 12-13 (Sept. 10, 2010) (online at financialstability.gov/docs/dividends-interest-reports/
  August%202010%20Dividends%20and%20Interest%20Report.pdf); see U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for
  the Period Ending September 30, 2010, at 23 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
  10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xxx Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America regarding a similar guarantee, the parties never reached an
  agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as though the guarantee had been in place during
  the negotiations period. This agreement resulted in payments of $276 million to Treasury, $57 million to the Federal Reserve, and $92 million to the
  FDIC. U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Bank of America
  Corporation, Termination Agreement, at 1-2 (Sept. 21, 2009) (online at www.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-
  %20executed.pdf).

            d. CPP Unpaid Dividend and Interest Payments \444\
---------------------------------------------------------------------------
    \444\ Cumulative Dividends, Interest and Distributions Report as of 
August 31, 2010, supra note 438.
---------------------------------------------------------------------------
    As of August 31, 2010, 123 institutions have at least one 
outstanding dividend payment on preferred stock issued under 
CPP.\445\ Among these institutions, 98 are not current on 
cumulative dividends, which amount to $129.8 million in missed 
payments, while another 25 banks have not paid $8 million in 
non-cumulative dividends. Of the $49.6 billion currently 
outstanding in CPP funding, Treasury's investments in banks 
with non-current dividend payments total $3.6 billion. A 
majority of the banks that remain delinquent on dividend 
payments have under $1 billion in total assets on their balance 
sheets. Also, there are 16 institutions that previously 
deferred dividend payments, but have since repaid all accrued 
and unpaid dividends.\446\
---------------------------------------------------------------------------
    \445\ Does not include banks with missed dividend payments that 
have either repaid all delinquent dividends, exited TARP, gone into 
receivership, or filed for bankruptcy.
    \446\ Among the institutions with no outstanding dividend payments 
is Sterling Financial Corporation (WA). On April 29, 2010, Sterling 
Financial exchanged its original $303 million preferred equity 
investment for an equivalent amount in mandatory convertible preferred 
stock. This investment was subsequently converted to 379 million shares 
of common stock. Following the exchange, no dividend payments remained 
outstanding with respect to the preferred investment. Treasury 
Transactions Report, supra note 128; Cumulative Dividends, Interest and 
Distributions Report as of August 31, 2010, supra note 438, at 18.
---------------------------------------------------------------------------
    There are six banks that have failed to make six dividend 
payments, while one bank has missed all seven quarterly 
payments. These institutions have received a total of $207.1 
million in CPP funding. Under the terms of the CPP, after a 
bank fails to pay dividends for six periods, Treasury has the 
right to elect two individuals to the company's board of 
directors.\447\ Figure 30 below provides further details on the 
distribution and the number of institutions that have missed 
dividend payments.
---------------------------------------------------------------------------
    \447\ U.S. Department of the Treasury, Frequently Asked Questions 
Capital Purchase Program (CPP): Related to Missed Dividend (or 
Interest) Payments and Director Nomination (online at 
www.financialstability.gov/docs/CPP/CPP%20Directors%20FAQs.pdf) 
(accessed Oct. 12, 2010).
---------------------------------------------------------------------------
    In addition, eight CPP participants have missed at least 
one interest payment, totaling $3.6 million in non-current 
interest payments. Treasury's total investments in these non-
public institutions represent less than $1 billion in CPP 
funding.

                      FIGURE 30: CPP MISSED DIVIDEND PAYMENTS (AS OF AUGUST 31, 2010) \448\
----------------------------------------------------------------------------------------------------------------
        Number of Missed Payments            1        2        3        4        5        6        7      Total
----------------------------------------------------------------------------------------------------------------
Cumulative Dividends:
Number of Banks, by asset size..........       30       19       18       18       10        3        0       98
    Under $1B...........................       21       15       12       11        5        1        0       65
    $1B-$10B............................        8        4        4        7        5        2        0       30
    Over $10B...........................        1        0        2        0        0        0        0        3
Non-Cumulative Dividends:
Number of Banks, by asset size..........        2        5        6        3        5        3        1       25
    Under $1B...........................        1        5        5        3        5        3        1       23
    $1B-$10B............................        1        0        1        0        0        0        0        2
    Over $10B...........................        0        0        0        0        0        0        0        0
Total Missed Payments...................  .......  .......  .......  .......  .......  .......  .......      123
----------------------------------------------------------------------------------------------------------------

      
---------------------------------------------------------------------------
    \448\ Cumulative Dividends, Interest and Distributions Report as of 
August 31, 2010, supra note 438. Data on total bank assets compiled 
using SNL Financial data service (accessed Oct. 5, 2010).
---------------------------------------------------------------------------
            e. Rate of Return
    As of September 2, 2010, the average internal rate of 
return for all public financial institutions that participated 
in the CPP and fully repaid the U.S. government (including 
preferred shares, dividends, and warrants) was 10.3 percent. 
The internal rate of return is the annualized effective 
compounded return rate that can be earned on invested capital.
    Treasury received $713.7 million and $216.6 million from 
auctions for Hartford Financial Services Group, Inc. and 
Lincoln National Corporation warrants, respectively. These 
proceeds represent 151 and 119 percent of the Panel's best 
valuation estimate at the disposition date. As of September 30, 
2010, Treasury has received $8.1 billion in total proceeds from 
warrant repurchases and auctions.
    The Panel's estimates on individual rates of return also 
indicate negative values for the two CPP investments that were 
sold in September. The internal rates of return for South 
Financial Group and TIB Financial Corp. were -34.2 percent and 
-38 percent as Treasury sold its CPP preferred equity in these 
two companies for an aggregate loss of $241.7 million.
            f. Warrant Disposition

               FIGURE 31: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY REPAID CPP FUNDS (AS OF OCTOBER 5, 2010)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Panel's Best
                                                                               Warrant         Warrant          Valuation       Price/
                        Institution                            Investment     Repurchase  Repurchase/ Sale     Estimate at     Estimate   IRR (Percent)
                                                                  Date           Date          Amount          Disposition      Ratio
                                                                                                                  Date
--------------------------------------------------------------------------------------------------------------------------------------------------------
Old National Bancorp.......................................      12/12/2008     5/8/2009        $1,200,000        $2,150,000      0.558           9.3
Iberiabank Corporation.....................................       12/5/2008    5/20/2009         1,200,000         2,010,000      0.597           9.4
Firstmerit Corporation.....................................        1/9/2009    5/27/2009         5,025,000         4,260,000      1.180          20.3
Sun Bancorp, Inc...........................................        1/9/2009    5/27/2009         2,100,000         5,580,000      0.376          15.3
Independent Bank Corp......................................        1/9/2009    5/27/2009         2,200,000         3,870,000      0.568          15.6
Alliance Financial Corporation.............................      12/19/2008    6/17/2009           900,000         1,580,000      0.570          13.8
First Niagara Financial Group..............................      11/21/2008    6/24/2009         2,700,000         3,050,000      0.885           8.0
Berkshire Hills Bancorp, Inc...............................      12/19/2008    6/24/2009         1,040,000         1,620,000      0.642          11.3
Somerset Hills Bancorp.....................................       1/16/2009    6/24/2009           275,000           580,000      0.474          16.6
SCBT Financial Corporation.................................       1/16/2009    6/24/2009         1,400,000         2,290,000      0.611          11.7
HF Financial Corp..........................................      11/21/2008    6/30/2009           650,000         1,240,000      0.524          10.1
State Street...............................................      10/28/2008     7/8/2009        60,000,000        54,200,000      1.107           9.9
U.S. Bancorp...............................................      11/14/2008    7/15/2009       139,000,000       135,100,000      1.029           8.7
The Goldman Sachs Group, Inc...............................      10/28/2008    7/22/2009     1,100,000,000     1,128,400,000      0.975          22.8
BB&T Corp..................................................      11/14/2008    7/22/2009        67,010,402        68,200,000      0.983           8.7
American Express Company...................................        1/9/2009    7/29/2009       340,000,000       391,200,000      0.869          29.5
Bank of New York Mellon Corp...............................      10/28/2008     8/5/2009       136,000,000       155,700,000      0.873          12.3
Morgan Stanley.............................................      10/28/2008    8/12/2009       950,000,000     1,039,800,000      0.914          20.2
Northern Trust Corporation.................................      11/14/2008    8/26/2009        87,000,000        89,800,000      0.969          14.5
Old Line Bancshares Inc....................................       12/5/2008     9/2/2009           225,000           500,000      0.450          10.4
Bancorp Rhode Island, Inc..................................      12/19/2008    9/30/2009         1,400,000         1,400,000      1.000          12.6
Centerstate Banks of Florida Inc...........................      11/21/2008   10/28/2009           212,000           220,000      0.964           5.9
Manhattan Bancorp..........................................       12/5/2008   10/14/2009            63,364           140,000      0.453           9.8
CVB Financial Corp.........................................       12/5/2008   10/28/2009         1,307,000         3,522,198      0.371           6.4
Bank of the Ozarks.........................................      12/12/2008   11/24/2009         2,650,000         3,500,000      0.757           9.0
Capital One Financial......................................      11/14/2008    12/3/2009       148,731,030       232,000,000      0.641          12.0
JPMorgan Chase & Co........................................      10/28/2008   12/10/2009       950,318,243     1,006,587,697      0.944          10.9
TCF Financial Corp.........................................       1/16/2009   12/16/2009         9,599,964        11,825,830      0.812          11.0
LSB Corporation............................................      12/12/2008   12/16/2009           560,000           535,202      1.046           9.0
Wainwright Bank & Trust Company............................      12/19/2008   12/16/2009           568,700         1,071,494      0.531           7.8
Wesbanco Bank, Inc.........................................       12/5/2008   12/23/2009           950,000         2,387,617      0.398           6.7
Union First Market Bankshares Corporation (Union Bankshares      12/19/2008   12/23/2009           450,000         1,130,418      0.398           5.8
 Corporation)..............................................
Trustmark Corporation......................................      11/21/2008   12/30/2009        10,000,000        11,573,699      0.864           9.4
Flushing Financial Corporation.............................      12/19/2008   12/30/2009           900,000         2,861,919      0.314           6.5
OceanFirst Financial Corporation...........................       1/16/2009     2/3/2010           430,797           279,359      1.542           6.2
Monarch Financial Holdings, Inc............................      12/19/2008    2/10/2010           260,000           623,434      0.417           6.7
Bank of America............................................    \449\ 10/28/     3/3/2010     1,566,210,714     1,006,416,684      1.533           6.5
                                                                       2008
                                                             \450\ 1/9/2009
                                                                \451\ 1/14/
                                                                       2009
Washington Federal Inc./Washington Federal Savings & Loan        11/14/2008     3/9/2010        15,623,222        10,166,404      1.537          18.6
 Association...............................................
Signature Bank.............................................      12/12/2008    3/10/2010        11,320,751        11,458,577      0.988          32.4
Texas Capital Bancshares, Inc..............................       1/16/2009    3/11/2010         6,709,061         8,316,604      0.807          30.1
Umpqua Holdings Corp.......................................      11/14/2008    3/31/2010         4,500,000         5,162,400      0.872           6.6
City National Corporation..................................      11/21/2008     4/7/2010        18,500,000        24,376,448      0.759           8.5
First Litchfield Financial Corporation.....................      12/12/2008     4/7/2010         1,488,046         1,863,158      0.799          15.9
PNC Financial Services Group Inc...........................      12/31/2008    4/29/2010       324,195,686       346,800,388      0.935           8.7
Comerica Inc...............................................      11/14/2008     5/4/2010       183,673,472       276,426,071      0.664          10.8
Valley National Bancorp....................................      11/14/2008    5/18/2010         5,571,592         5,955,884      0.935           8.3
Wells Fargo Bank...........................................      10/28/2008    5/20/2010       849,014,998     1,064,247,725      0.798           7.8
First Financial Bancorp....................................      12/23/2008     6/2/2010         3,116,284         3,051,431      1.021           8.2
Sterling Bancshares, Inc./Sterling Bank....................      12/12/2008     6/9/2010         3,007,891         5,287,665      0.569          10.8
SVB Financial Group........................................      12/12/2008    6/16/2010         6,820,000         7,884,633      0.865           7.7
Discover Financial Services................................       3/13/2009     7/7/2010       172,000,000       166,182,652      1.035          17.1
Bar Harbor Bancshares......................................       1/16/2009    7/28/2010           250,000           518,511      0.482           6.2
Citizens & Northern Corporation............................       1/16/2009     8/4/2010           400,000           468,164      0.854           5.9
Columbia Banking System, Inc...............................      11/21/2008    8/11/2010         3,301,647         3,291,329      1.003           7.3
Hartford Financial Services Group, Inc.....................       6/26/2009    9/21/2010       713,687,430       472,221,996      1.511          30.3
Lincoln National Corporation...............................       7/10/2009    9/16/2010       216,620,887       181,431,182      1.194          27.1
Fulton Financial Corporation...............................      12/23/2008     9/8/2010        10,800,000        15,616,013      0.692           6.7
The Bancorp, Inc./The Bancorp Bank.........................      12/12/2008     9/8/2010         4,753,985         9,947,683      0.478          12.8
South Financial Group, Inc./Carolina First Bank............       12/5/2008    9/30/2010           400,000         1,164,486      0.343         (34.2)
TIB Financial Corp./TIB Bank...............................       12/5/2008    9/30/2010            40,000           235,757      0.170         (38.0)
    Total \452\............................................  ..............  ...........    $8,148,332,166    $7,999,280,713      1.019          10.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
\449\ Investment date for Bank of America in CPP.
\450\ Investment date for Merrill Lynch in CPP.
\451\ Investment date for Bank of America in TIP.
\452\ Total warrant repurchase/sale amount does not include $11.5 million in proceeds from private institutions whose warrants for preferred stock were
  immediately exercised.


 FIGURE 32: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF OCTOBER 5,
                                  2010)
                          [Dollars in millions]
------------------------------------------------------------------------
                                             Warrant Valuation
   Financial Institutions with    --------------------------------------
       Warrants Outstanding            Low          High         Best
                                     Estimate     Estimate     Estimate
------------------------------------------------------------------------
Citigroup, Inc.\453\.............       $15.90    $1,134.42       $84.61
SunTrust Banks, Inc..............        18.90       375.09       141.10
Regions Financial Corporation....        11.62       213.46        99.85
Fifth Third Bancorp..............        83.86       377.93       170.00
KeyCorp..........................        21.91       176.85        81.47
AIG..............................       282.18     1,824.23       783.69
All Other Banks..................       845.40     3,832.34     1,794.84
    Total........................    $1,279.77    $7,934.32    $3,155.56
------------------------------------------------------------------------
\453\ Includes warrants issued under CPP, AGP, and TIP.

2. Federal Financial Stability Efforts

            a. Federal Reserve and FDIC Programs
    In addition to the direct expenditures Treasury has 
undertaken through the TARP, the federal government has engaged 
in a much broader program directed at stabilizing the U.S. 
financial system. Many of these initiatives explicitly augment 
funds allocated by Treasury under specific TARP initiatives, 
such as FDIC and Federal Reserve asset guarantees for 
Citigroup, or operate in tandem with Treasury programs, such as 
the interaction between PPIP and TALF. Other programs, like the 
Federal Reserve's extension of credit through its Section 13(3) 
facilities and SPVs and the FDIC's Temporary Liquidity 
Guarantee Program, operate independently of the TARP.
            b. Total Financial Stability Resources
    Beginning in its April 2009 report, the Panel broadly 
classified the resources that the federal government has 
devoted to stabilizing the economy through myriad new programs 
and initiatives as outlays, loans, or guarantees. With the 
reductions in funding for certain TARP programs, the Panel 
calculates the total value of these resources to be over $2.5 
trillion. However, this would translate into the ultimate 
``cost'' of the stabilization effort only if: (1) assets do not 
appreciate; (2) no dividends are received, no warrants are 
exercised, and no TARP funds are repaid; (3) all loans default 
and are written off; and (4) all guarantees are exercised and 
subsequently written off.
    With respect to the FDIC and Federal Reserve programs, the 
risk of loss varies significantly across the programs 
considered here, as do the mechanisms providing protection for 
the taxpayer against such risk. As discussed in the Panel's 
November 2009 report, the FDIC assesses a premium of up to 100 
basis points on TLGP debt guarantees.\454\ In contrast, the 
Federal Reserve's liquidity programs are generally available 
only to borrowers with good credit, and the loans are over-
collateralized and with recourse to other assets of the 
borrower. If the assets securing a Federal Reserve loan realize 
a decline in value greater than the ``haircut,'' the Federal 
Reserve is able to demand more collateral from the borrower. 
Similarly, should a borrower default on a recourse loan, the 
Federal Reserve can turn to the borrower's other assets to make 
the Federal Reserve whole. In this way, the risk to the 
taxpayer on recourse loans only materializes if the borrower 
enters bankruptcy.
---------------------------------------------------------------------------
    \454\ Congressional Oversight Panel, November Oversight Report: 
Guarantees and Contingent Payments in TARP and Related Programs, at 36 
(Nov. 6, 2009) (online at cop.senate.gov/documents/cop-110609-
report.pdf).
---------------------------------------------------------------------------
            c. Credit Union Assistance
    Apart from the assistance credit unions have recently 
received through the CDCI, the National Credit Union 
Administration (NCUA), the federal agency charged with 
regulating federal credit unions (FCUs), has also made efforts 
to stabilize the corporate credit union (CCU) system. Corporate 
credit unions provide correspondent services, as well as 
liquidity and investment services to retail (or consumer) 
credit unions.\455\ Since March 2009, the NCUA has placed five 
CCUs into conservatorship due to their exposure to 
underperforming private-label mortgage-backed securities. The 
NCUA estimates that these five institutions, which have $72 
billion in assets and provide services for 4,600 retail credit 
unions, hold more than 90 percent of the MBS in the corporate 
credit union system.\456\
---------------------------------------------------------------------------
    \455\ National Credit Union Administration, Corporate System 
Resolution: Corporate Credit Unions Frequently Asked Questions (FAQs), 
at 1 (online at www.ncua.gov/Resources/CorporateCU/CSR/CSR-6.pdf).
    \456\ National Credit Union Administration, Corporate System 
Resolution: National Credit Union Administration Virtual Town Hall, at 
14 (Sept. 27, 2010) (online at www.ncua.gov/Resources/CorporateCU/CSR/
10-0927WebinarSlides.pdf); National Credit Union Administration, Fact 
Sheet: Corporate Credit Union Conservatorships (Sept. 14, 2010) (online 
at www.ncua.gov/Resources/CorporateCU/CSR/CSR-14.pdf).
---------------------------------------------------------------------------
    To assist in the NCUA's stabilization efforts, the 
Temporary Corporate Credit Union Stabilization Fund 
(``Stabilization Fund'') was created to help cover costs 
associated with CCU conservatorships and liquidations. The 
Stabilization Fund was established on May 20, 2009, as part of 
the Helping Families Save Their Homes Act of 2009, and allows 
the NCUA to borrow up to $6 billion from the Treasury on a 
revolving basis.\457\ As of August 2010, the NCUA had drawn 
$1.5 billion from the Stabilization Fund, and had planned to 
repay this balance by the end of September.\458\
---------------------------------------------------------------------------
    \457\ National Credit Union Administration, Board Action Memorandum 
(June 15, 2010) (online at www.ncua.gov/GenInfo/BoardandAction/
DraftBoardActions/2010/Jun/
Item6aBAMSFAssessmentJune2010(1%20billion)FINAL.pdf).
    \458\ Id.
---------------------------------------------------------------------------
            d. Mortgage Purchase Programs
    On September 7, 2008, Treasury announced the GSE Mortgage 
Backed Securities Purchase Program. The Housing and Economic 
Recovery Act of 2008 provided Treasury with the authority to 
purchase MBS guaranteed by government-sponsored enterprises 
(GSEs) through December 31, 2009. Treasury purchased 
approximately $225 billion in GSE MBS by the time its authority 
expired.\459\ As of September 2010, there was approximately 
$159.6 billion in MBS still outstanding under this 
program.\460\
---------------------------------------------------------------------------
    \459\ U.S. Department of the Treasury, FY2011 Budget in Brief, at 
138 (Feb. 2010) (online at www.treas.gov/offices/management/budget/
budgetinbrief/fy2011/FY%202011%20BIB%20(2).pdf).
    \460\ U.S. Department of the Treasury, MBS Purchase Program: 
Portfolio by Month (online at www.financialstability.gov/docs/
September%202010%20Portfolio%20by%20month.pdf) (accessed Oct. 12, 
2010).
---------------------------------------------------------------------------
    In March 2009, the Federal Reserve authorized purchases of 
$1.25 MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie 
Mae, and $200 billion of agency debt securities from Fannie 
Mae, Freddie Mac, and the Federal Home Loan Banks.\461\ The 
intended purchase amount for agency debt securities was 
subsequently decreased to $175 billion.\462\ All purchasing 
activity was completed on March 31, 2010. As of September 29, 
2010, the Federal Reserve holds $1.08 trillion of agency MBS 
and $154 billion of agency debt.\463\
---------------------------------------------------------------------------
    \461\ Board of Governors of the Federal Reserve System, Federal 
Reserve System Monthly Report on Credit and Liquidity Programs and the 
Balance Sheet, at 5 (Sept. 2010) (online at www.federalreserve.gov/
monetarypolicy/files/monthlyclbsreport201009.pdf).
    \462\ Id. at 5.
    \463\ Board of Governors of the Federal Reserve System, Factors 
Affecting Reserve Balances (H.4.1) (Sept. 30, 2010) (online at 
www.federalreserve.gov/releases/h41/) (accessed Oct. 12, 2010).

             FIGURE 33: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF SEPTEMBER 29, 2010)xxxi
                                              [Dollars in billions]
----------------------------------------------------------------------------------------------------------------
                                                     Treasury         Federal
                     Program                          (TARP)          Reserve          FDIC            Total
----------------------------------------------------------------------------------------------------------------
Total...........................................            $475        $1,414.6          $694.9        $2,584.5
    Outlays xxxii...............................           234.9         1,258.3           188.9         1,682.1
    Loans.......................................            23.4           156.3               0           179.7
    Guarantees xxxiii...........................             4.3               0             506           510.3
    Repaid and Unavailable TARP Funds...........           212.4               0               0           212.4
AIG xxxiv.......................................            69.8            84.7               0           154.5
    Outlays.....................................       xxxv 69.8      xxxvi 25.7               0            95.5
    Loans.......................................               0       xxxvii 59               0              59
    Guarantees..................................               0               0               0               0
Citigroup.......................................            11.6               0               0            11.6
    Outlays.....................................     xxxviii11.6               0               0            11.6
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Capital Purchase Program (Other)................            40.5               0               0            40.5
    Outlays.....................................      xxxix 40.5               0               0            40.5
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Capital Assistance Program......................             N/A               0               0          xl N/A
TALF............................................             4.3            38.7               0              43
    Outlays.....................................               0               0               0               0
    Loans.......................................               0       xlii 38.7               0            38.7
    Guarantees..................................         xli 4.3               0               0             4.3
PPIP (Loans) xliii..............................               0               0               0               0
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
PPIP (Securities)...............................       xliv 22.4               0               0            22.4
    Outlays.....................................             7.5               0               0             7.5
    Loans.......................................            14.9               0               0            14.9
    Guarantees..................................               0               0               0               0
Making Home Affordable Program/Foreclosure                 45.6                0               0            45.6
 Mitigation.....................................
    Outlays.....................................        xlv 45.6               0               0            45.6
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Automotive Industry Financing Program...........       xlvi 67.1               0               0            67.1
    Outlays.....................................            59.0               0               0            59.0
    Loans.......................................             8.1               0               0             8.1
    Guarantees..................................               0               0               0               0
Automotive Supplier Support Program.............             0.4               0               0             0.4
    Outlays.....................................               0               0               0               0
    Loans.......................................       xlvii 0.4               0               0             0.4
    Guarantees..................................               0               0               0               0
SBA 7(a) Securities Purchase....................     xlviii 0.36               0               0            0.36
    Outlays.....................................            0.36               0               0            0.36
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Community Development Capital Initiative........        xlix0.57               0               0            0.57
    Outlays.....................................               0               0               0               0
    Loans.......................................            0.57               0               0            0.57
    Guarantees..................................               0               0               0               0
Temporary Liquidity Guarantee Program...........               0               0             506             506
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0           l 506             506
Deposit Insurance Fund..........................               0               0           188.9           188.9
    Outlays.....................................               0               0        li 188.9           188.9
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Other Federal Reserve Credit Expansion..........               0         1,291.2               0         1,291.2
    Outlays.....................................               0     lii 1,232.6               0         1,232.6
    Loans.......................................               0       liii 58.6               0            58.6
    Guarantees..................................               0               0               0               0
----------------------------------------------------------------------------------------------------------------
xxxi All data in this figure are as of September 29, 2010, except for information regarding the FDIC's Temporary
  Liquidity Guarantee Program (TLGP). Those data figures are as of August 31, 2010.
xxxii The term ``outlays'' is used here to describe the use of Treasury funds under the TARP, which are broadly
  classifiable as purchases of debt or equity securities (e.g., debentures, preferred stock, exercised warrants,
  etc.). These values were calculated using (1) Treasury's actual reported expenditures, and (2) Treasury's
  anticipated funding levels as estimated by a variety of sources, including Treasury statements and GAO
  estimates. Anticipated funding levels are set at Treasury's discretion, have changed from initial
  announcements, and are subject to further change. Outlays used here represent investment and asset purchases--
  as well as commitments to make investments and asset purchases--and are not the same as budget outlays, which
  under section 123 of EESA are recorded on a ``credit reform'' basis.
xxxiii Although many of the guarantees may never be exercised or will be exercised only partially, the guarantee
  figures included here represent the federal government's greatest possible financial exposure.
xxxiv AIG received an $85 billion credit facility from the Federal Reserve Bank of New York (FRBNY) (reduced to
  $60 billion in November 2008, to $35 billion in December 2009, and then to $30 billion in September 2010). A
  Treasury trust received Series C preferred convertible stock in exchange for the facility and $0.5 million.
  The Series C shares amount to 79.9 percent ownership of common stock, minus the percentage of common shares
  acquired through warrants. U.S. Government Accountability Office, Troubled Asset Relief Program: Status of
  Government Assistance Provided to AIG (Sept. 2009) (GAO-09-975) (online at www.gao.gov/new.items/d09975.pdf).
  On September 30, 2010, AIG announced its plans to repay its outstanding obligations to Treasury, FRBNY, and
  the trust. For details on AIG's repayment plans, see Section Two. See also American International Group, AIG
  Announces Plan to Repay U.S. Government (Sept. 30, 2010) (online at www.aigcorporate.com/newsroom/
  2010_September/AIGAnnouncesPlantoRepay30Sept2010.pdf). For information regarding Treasury's TARP investments
  in AIG, see note vi, supra. U.S. Government Accountability Office, Troubled Asset Relief Program: Status of
  Government Assistance Provided to AIG (Sept. 2009) (GAO-09-975) (online at www.gao.gov/new.items/d09975.pdf).
  Additional information was also provided by Treasury in response to a Panel inquiry.
xxxv This number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November
  25, 2008, and a $30 billion investment made on April 17, 2009 (less a reduction of $165 million representing
  bonuses paid to AIG Financial Products employees). As of August 31, 2010, AIG had utilized $47.5 billion of
  the available $69.8 billion under the AIGIP/SSFI. U.S. Department of the Treasury, Troubled Assets Relief
  Program Monthly 105(a) Report--August 2010, at 5, 24 (Sept. 10, 2010) (online at www.financialstability.gov/
  docs/105CongressionalReports/August%202010%20105(a)%20Report_final_9%2010%2010.pdf).
xxxvi As part of the restructuring of the U.S. government's investment in AIG announced on March 2, 2009, the
  amount available to AIG through the Revolving Credit Facility was reduced by $25 billion in exchange for
  preferred equity interests in two special purpose vehicles, AIA Aurora LLC and ALICO Holdings LLC. These SPVs
  were established to hold the common stock of two AIG subsidiaries: American International Assurance Company
  Ltd. (AIA) and American Life Insurance Company (ALICO). As of September 29, 2010, the book value of the
  Federal Reserve Bank of New York's holdings in AIA Aurora LLC and ALICO Holdings LLC is $25.7 billion in
  preferred equity ($16.5 billion in AIA and $9.3 billion in ALICO). Federal Reserve Bank of New York, Factors
  Affecting Reserve Balances (H.4.1) (Sept. 30, 2010) (online at www.federalreserve.gov/releases/h41/20100930/).
xxxvii This number represents the full $30 billion that is available to AIG through its Revolving Credit
  Facility (RCF) with FRBNY ($18.9 billion had been drawn down as of September 29, 2010) and the outstanding
  principal of the loans extended to the Maiden Lane II and III SPVs to buy AIG assets (as of September 29,
  2010, $13.7 billion and $14.6 billion, respectively). The maximum amount available through the RCF decreased
  from $34 billion over the past two months, as a result of the sale of two AIG subsidiaries, as well as the
  company's sale of CME Group, Inc. common stock. The reduced ceiling also reflects a $3.95 billion repayment to
  the RCF from proceeds earned from a debt offering by the International Lease Finance Corporation (ILFC), an
  AIG subsidiary.
The amounts outstanding under the Maiden Lane II and III facilities do not reflect the accrued interest payable
  to FRBNY. Income from the purchased assets is used to pay down the loans to the SPVs, reducing the taxpayers'
  exposure to losses over time. Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1)
  (Sept. 30, 2010) (online at www.federalreserve.gov/releases/h41/20100930/Board of Governors of the Federal
  Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet,
  at 15 (July 2010) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201007.pdf); Board
  of Governors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity
  Programs and the Balance Sheet, at 16 (Aug. 2010) (online at www.federalreserve.gov/monetarypolicy/files/
  monthlyclbsreport201008.pdf); Board of Governors of the Federal Reserve System, Federal Reserve System Monthly
  Report on Credit and Liquidity Programs and the Balance Sheet, at 15 (Sept. 2010) (online at
  www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201009.pdf).
xxxviii This figure represents Treasury's $25 billion investment in Citigroup, minus $13.4 billion applied as a
  repayment for CPP funding. The amount repaid comes from the $16.4 billion in gross proceeds Treasury received
  from the sale of 4.1 billion Citigroup common shares. See note ii, supra (discussing the details of the sales
  of Citigroup common stock to date). U.S. Department of the Treasury, Troubled Asset Relief Program
  Transactions Report for the Period Ending September 30, 2010, at 13 (Oct. 4, 2010) (online at
  financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xxxix This figure represents the $204.9 billion Treasury disbursed under the CPP, minus the $25 billion
  investment in Citigroup identified above, $139.4 billion in repayments (excluding the amount repaid for the
  Citigroup investment) that are in ``repaid and unavailable'' TARP funds, and losses under the program. This
  figure does not account for future repayments of CPP investments and dividend payments from CPP investments.
  U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  September 30, 2010, at 13 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
  10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xl On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC, was in
  need of further capital from Treasury. GMAC, however, received further funding through the AIFP. Therefore,
  the Panel considers CAP unused and closed. U.S. Department of the Treasury, Treasury Announcement Regarding
  the Capital Assistance Program (Nov. 9, 2009) (online at www.financialstability.gov/latest/tg_11092009.html).
xli This figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as of September 29,
  2010, TALF LLC had drawn only $105 million of the available $4.3 billion. Board of Governors of the Federal
  Reserve System, Factors Affecting Reserve Balances (H.4.1) (Sept. 30, 2010) (online at www.federalreserve.gov/
  releases/h41/20100930/); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report
  for the Period Ending September 30, 2010 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-
  reports/10-4-10%20Transactions%20Report%20as%20of%209-30-10.pdf). On June 30, 2010, the Federal Reserve ceased
  issuing loans collateralized by newly issued CMBS. As of this date, investors had requested a total of $73.3
  billion in TALF loans ($13.2 billion in CMBS and $60.1 billion in non-CMBS) and $71 billion in TALF loans had
  been settled ($12 billion in CMBS and $59 billion in non-CMBS). Earlier, it ended its issues of loans
  collateralized by other TALF-eligible newly issued and legacy ABS (non-CMBS) on March 31, 2010. Federal
  Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Terms and Conditions (online at
  www.newyorkfed.org/markets/talf_terms.html) (accessed Oct. 12, 2010); Federal Reserve Bank of New York, Term
  Asset-Backed Securities Loan Facility: CMBS (online at www.newyorkfed.org/markets/cmbs_operations.html)
  (accessed Oct. 12, 2010); see Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility:
  CMBS (online at www.newyorkfed.org/markets/CMBS_recent_operations.html) (accessed Oct. 12, 2010); Federal
  Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at www.newyorkfed.org/
  markets/talf_operations.html) (accessed Oct. 12, 2010); see Federal Reserve Bank of New York, Term Asset-
  Backed Securities Loan Facility: non-CMBS (online at www.newyorkfed.org/markets/TALF_recent_operations.html)
  (accessed Oct. 12, 2010).
xlii This number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the value
  of Federal Reserve loans under the TALF. U.S. Department of the Treasury, Fact Sheet: Financial Stability
  Plan, at 4 (Feb. 10, 2009) (online at www.financialstability.gov/docs/fact-sheet.pdf) (describing the initial
  $20 billion Treasury contribution tied to $200 billion in Federal Reserve loans and announcing potential
  expansion to a $100 billion Treasury contribution tied to $1 trillion in Federal Reserve loans). Since only
  $43 billion in TALF loans remained outstanding when the program closed, Treasury is currently responsible for
  reimbursing the Federal Reserve Board only up to $4.3 billion in losses from these loans. Thus, the Federal
  Reserve's maximum potential exposure under the TALF is $38.7 billion. See Board of Governors of the Federal
  Reserve System, Factors Affecting Reserve Balances (H.4.1) (Sept. 30, 2010) (online at www.federalreserve.gov/
  releases/h41/20100930/).
xliii It is unlikely that resources will be expended under the PPIP Legacy Loans Program in its original design
  as a joint Treasury-FDIC program to purchase troubled assets from solvent banks. In several sales described in
  FDIC press releases, it appears that there is no Treasury participation, and FDIC activity is accounted for
  here as a component of the FDIC's Deposit Insurance Fund outlays. See, e.g., Federal Deposit Insurance
  Corporation, FDIC Statement on the Status of the Legacy Loans Program (June 3, 2009) (online at www.fdic.gov/
  news/news/press/2009/pr09084.html).
xliv This figure represents Treasury's final adjusted investment amount in PPIP. As of September 30, 2010,
  Treasury reported commitments of $14.9 billion in loans and $7.5 billion in membership interest associated
  with PPIP. On January 4, 2010, Treasury and one of the nine fund managers, TCW Senior Management Securities
  Fund, L.P. (TCW), entered into a ``Winding-Up and Liquidation Agreement.'' Treasury's final investment amount
  in TCW totaled $356 million. Following the liquidation of the fund, Treasury's initial $3.3 billion obligation
  to TCW was reallocated among the eight remaining funds on March 22, 2010. See U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending September 30, 2010, at 23 (Oct. 4,
  2010) (online at financialstability.gov/docs/transaction-reports/10-4-10%20Transactions%20Report%20as%20of%209-
  30-10.pdf).
xlv Of the $29.9 billion in TARP funding for HAMP, $28.8 billion has been allocated as of September 30, 2010.
  However, as of September 30, 2010, only $484.9 million in non-GSE payments has been disbursed under HAMP. U.S.
  Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September
  30, 2010 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
  10%20Transactions%20Report%20as%20of%209-30-10.pdf). Data provided to Panel staff by Treasury staff (Oct. 13,
  2010).
xlvi A substantial portion of the total $81.3 billion in loans extended under the AIFP has since been converted
  to common equity and preferred shares in restructured companies. $8.1 billion has been retained as first lien
  debt (with $1 billion committed to old GM and $7.1 billion to Chrysler). This figure ($67.1 billion)
  represents Treasury's current obligation under the AIFP after repayments and losses. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 30, 2010, at 18
  (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
  10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xlvii This figure represents Treasury's total adjusted investment amount in the ASSP. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 30, 2010, at 19
  (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
  10%20Transactions%20Report%20as%20of%209-30-10.pdf).
xlviii U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 43 (Oct. 2010)
  (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
xlix U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  September 30, 2010, at 17 (Oct. 4, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
  10%20Transactions%20Report%20as%20of%209-30-10.pdf).
l This figure represents the current maximum aggregate debt guarantees that could be made under the program,
  which is a function of the number and size of individual financial institutions participating. $292.6 billion
  of debt subject to the guarantee is currently outstanding, which represents approximately 57.8 percent of the
  current cap. Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance Under the Temporary
  Liquidity Guarantee Program: Debt Issuance Under Guarantee Program (Aug. 31, 2010) (online at www.fdic.gov/
  regulations/resources/TLGP/total_issuance08-10.html). The FDIC has collected $10.4 billion in fees and
  surcharges from this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance
  Corporation, Monthly Reports Related to the Temporary Liquidity Guarantee Program: Fees Under Temporary
  Liquidity Guarantee Debt Program (Aug. 31, 2010) (online at www.fdic.gov/regulations/resources/tlgp/
  fees.html).
li This figure represents the FDIC's provision for losses to its deposit insurance fund attributable to bank
  failures in the third and fourth quarters of 2008, the first, second, third, and fourth quarters of 2009, and
  the first quarter of 2010. Federal Deposit Insurance Corporation, Chief Financial Officer's (CFO) Report to
  the Board: DIF Income Statement--Second Quarter 2010 (online at www.fdic.gov/about/strategic/corporate/
  cfo_report_2ndqtr_10/income.html). For earlier reports, see Federal Deposit Insurance Corporation, Chief
  Financial Officer's (CFO) Report to the Board (online at www.fdic.gov/about/strategic/corporate/index.html)
  (accessed Oct. 12, 2010). This figure includes the FDIC's estimates of its future losses under loss-sharing
  agreements that it has entered into with banks acquiring assets of insolvent banks during these eight
  quarters. Under a loss-sharing agreement, as a condition of an acquiring bank's agreement to purchase the
  assets of an insolvent bank, the FDIC typically agrees to cover 80 percent of an acquiring bank's future
  losses on an initial portion of these assets and 95 percent of losses on another portion of assets. See, e.g.,
  Federal Deposit Insurance Corporation, Purchase and Assumption Agreement--Whole Bank, All Deposits--Among
  FDIC, Receiver of Guaranty Bank, Austin, Texas, Federal Deposit Insurance Corporation and Compass Bank, at 65-
  66 (Aug. 21, 2009) (online at www.fdic.gov/bank/individual/failed/guaranty-tx_p_and_a_w_addendum.pdf).
lii Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance sheet
  accounts for these facilities under Federal agency debt securities and mortgage-backed securities held by the
  Federal Reserve. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1)
  (Sept. 30, 2010) (online at www.federalreserve.gov/releases/h41/20100930/). Although the Federal Reserve does
  not employ the outlays, loans, and guarantees classification, its accounting clearly separates its mortgage-
  related purchasing programs from its liquidity programs. See, e.g., Board of Governors of the Federal Reserve
  System, Credit and Liquidity Programs and the Balance Sheet, at 2 (Nov. 2009) (online at
  www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport200911.pdf).
As of September 2010, there was $159.6 billion still outstanding under Treasury's GSE Mortgage Backed Securities
  Purchase Program. See U.S. Department of the Treasury, MBS Purchase Program: Portfolio by Month (online at
  www.financialstability.gov/docs/September%202010%20Portfolio%20by%20month.pdf) (accessed Oct. 5, 2010).
  Treasury has received $61.1 billion in principal repayments and $13.9 billion in interest payments from these
  securities. U.S. Department of the Treasury, MBS Purchase Program Principal and Interest Received (online at
  www.financialstability.gov/docs/September%202010%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.pdf)
  (accessed Oct. 5, 2010).
liii Federal Reserve Liquidity Facilities classified in this table as loans include primary credit, secondary
  credit, central bank liquidity swaps, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity
  Facility, loans outstanding to Commercial Paper Funding Facility LLC, seasonal credit, term auction credit,
  the Term Asset-Backed Securities Loan Facility, and loans outstanding to Bear Stearns (Maiden Lane LLC). Board
  of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Sept. 30, 2010)
  (online at www.federalreserve.gov/releases/h41/20100930/).

                  SECTION THREE: OVERSIGHT ACTIVITIES

    The Congressional Oversight Panel was established as part 
of the Emergency Economic Stabilization Act (EESA) and formed 
on November 26, 2008. Since then, the Panel has produced 23 
oversight reports, as well as a special report on regulatory 
reform, issued on January 29, 2009, and a special report on 
farm credit, issued on July 21, 2009. Since the release of the 
Panel's September oversight report, the following developments 
pertaining to the Panel's oversight of the TARP took place:
      The Panel held a hearing in Washington, DC on 
September 22, 2010, discussing Treasury's use of its 
exceptional contracting authority under EESA. The Panel heard 
testimony from Treasury officials, representatives from the 
firms that had received the three largest TARP-related 
contracts, as well as independent academic and industry 
experts.

Upcoming Reports and Hearings

    The Panel will release its next oversight report in 
November. The report will provide a progress update on 
Treasury's foreclosure mitigation programs, the Panel's fourth 
full-length report on the topic.
    The Panel is planning a hearing in Washington, DC on 
October 21, 2010, to discuss the standards and restrictions on 
executive compensation for recipients of TARP funds, as 
outlined in Section 111 of EESA.\464\ The Panel will hear 
testimony from Kenneth Feinberg, former Special Master for TARP 
Executive Compensation, as well as various academic and 
industry experts.
---------------------------------------------------------------------------
    \464\ 12 U.S.C. Sec. 5221. See also U.S. Department of the 
Treasury, Executive Compensation (Aug. 3, 2010) (online at 
www.financialstability.gov/about/executivecompensation.html).
---------------------------------------------------------------------------
    The Panel is planning a hearing in Washington, DC on 
October 27, 2010, to discuss the topic of the upcoming November 
report.
         SECTION FOUR: ABOUT THE CONGRESSIONAL OVERSIGHT PANEL

    In response to the escalating financial crisis, on October 
3, 2008, Congress provided Treasury with the authority to spend 
$700 billion to stabilize the U.S. economy, preserve home 
ownership, and promote economic growth. Congress created the 
Office of Financial Stability (OFS) within Treasury to 
implement the TARP. At the same time, Congress created the 
Congressional Oversight Panel to ``review the current state of 
financial markets and the regulatory system.'' The Panel is 
empowered to hold hearings, review official data, and write 
reports on actions taken by Treasury and financial institutions 
and their effect on the economy. Through regular reports, the 
Panel must 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's actions are in the best interests 
of the American people. In addition, Congress instructed the 
Panel to produce a special report on regulatory reform that 
analyzes ``the current state of the regulatory system and its 
effectiveness at overseeing the participants in the financial 
system and protecting consumers.'' The Panel issued this report 
in January 2009. Congress subsequently expanded the Panel's 
mandate by directing it to produce a special report on the 
availability of credit in the agricultural sector. The report 
was issued on July 21, 2009.
    On November 14, 2008, Senate Majority Leader Harry Reid and 
the Speaker of the House Nancy Pelosi appointed Richard H. 
Neiman, Superintendent of Banks for the State of New York, 
Damon Silvers, Director of Policy and Special Counsel of the 
American Federation of Labor and Congress of Industrial 
Organizations (AFL-CIO), and Elizabeth Warren, Leo Gottlieb 
Professor of Law at Harvard Law School, to the Panel. With the 
appointment on November 19, 2008, of Congressman Jeb Hensarling 
to the Panel by House Minority Leader John Boehner, the Panel 
had a quorum and met for the first time on November 26, 2008, 
electing Professor Warren as its chair. On December 16, 2008, 
Senate Minority Leader Mitch McConnell named Senator John E. 
Sununu to the Panel. Effective August 10, 2009, Senator Sununu 
resigned from the Panel, and on August 20, 2009, Senator 
McConnell announced the appointment of Paul Atkins, former 
Commissioner of the U.S. Securities and Exchange Commission, to 
fill the vacant seat. Effective December 9, 2009, Congressman 
Jeb Hensarling resigned from the Panel and House Minority 
Leader John Boehner announced the appointment of J. Mark 
McWatters to fill the vacant seat. Senate Minority Leader Mitch 
McConnell appointed Kenneth Troske, Sturgill Professor of 
Economics at the University of Kentucky, to fill the vacancy 
created by the resignation of Paul Atkins on May 21, 2010. 
Effective September 17, 2010, Elizabeth Warren resigned from 
the Panel, and on September 30, 2010, Senate Majority Leader 
Harry Reid announced the appointment of Senator Ted Kaufman to 
fill the vacant seat. On October 4, 2010, the Panel elected 
Senator Kaufman as its chair.
