track, i am troubled that the president's budget proposes to

double the debt in five years and triple it in ten. i'm concerned that the long term debt of this administration poses a threat to the sustainability of our economy. where will the money come from to pay these debts, china, where you have recently visited, saudi arabia, sovereign wealth funds? will this public borrowing crowd out private investment and slow the recovery? who ultimately will pay for this, our children and our grandchildren? we need to assess what we're doing to our country's long term financial health. finally, mr. secretary, i remain very concerned as i indicated to you in our conversation yesterday about the management accountability and transparency of the t.a.r.p. funds. originally t.a.r.p. was envisioned

yet to articulate how it will measure whether this injection of capital has been an effective use of taxpayer dollars. i'm concerned that we're being asked simply to trust that this large infusion of capital into the economy will lift us out of

a severe financial crisis whose complex origins are still being untangled. secretary geithner and commissioner shulman, you both face great challenges in managing the federal government's finances and attempting to reintegrate our economy. these truly are extraordinary times and i'm going to work very closely with you and i pledge to do so, as well as with our chairman, to make sure that you have the staff, the authority and the resources that you need to serve the american people. thank you, mr. chairman. >> thank you, senator collins. i will invite my colleagues to make brief opening statements. senator lautenberg, i recognize you. >> thank you very much. greetings, secretary geithner. you have taken on a formidable task and so far i think this ball game certainly is going your way but we are quite a distance from the ninth inning.

as we meet today, the economy's slowly beginning to show signs of a possible recovery and the challenges still remain. this recovery will require strong reforms to face our financial system on a firm footing. we have got to give the regulators the tools that they need to predict and prevent financial crisis. we have got to change corporate culture that says the people, the leadership at the top, can often take its compensation without regard for what happens with the employees or future investing or the wellbeing of the company and taxpayers. i am still on the board at columbia business school. i was out of the senate for a couple years, took the hiatus,

and what i proposed was that salaries at the top be related to salaries at the bottom and instead of letting the ratio split as it has from 40 times typically in the '80s to 400 times, recent times, and also, and i don't know, mr. secretary, what kind of latitude you have or what kind of authority you have to suggest conduct in the ceo's office, but one of the things i think that we have to look at while we change this corporate culture is to make it clear that when an executive retires, that the reward ought to be, my view, in the performance of the company after the leader leaves and the

bonuses should be expanded as time goes by, and not simply related to stock price, because stock price may be at the expense of investing in the future of the business. anyway, we're glad to see you here. i urge you to carry on, work hard. >> senator nelson? >> thank you, mr. chairman. secretary, we're glad you're here. we appreciate the effort that you are providing and the progress that we hope will come, will in fact come. when i go home, i have people come to me complaining about the bailouts, complaining about t.a.r.p., complaining about putting the auto industry into bankruptcy, and they're all concerned about that. they're concerned also about the growing deficit and the increasing budget. the one thing that they're now becoming alarmed about is

government ownership of stock and when we come to the questions, i've got some questions about that, because they come to me and say look, aren't we drifting into socialism at a rapid rate, and i assure them that our goal is not to hold the stock holdings or warrants or any other financial instruments that we shouldn't be holding, that our goal is to get these companies so that they're functioning on their own so that they're either publicly traded or that they're privately owned, but not government owned. so i'll be asking you for reassurance on that side, because i hope and i believe that our goal is just as i've stated it, to help these companies get on their feet and when on their feet, to become private once again, not to have the kind of public ownership that we currently have. so i'll be anxious to get your take on that. thank you, mr. chairman. >> senator tester? >> thank you, mr. chairman.

mr. shulman, secretary @@@@%@ r" storm raging and what great damage to everybody. the federal government has

responded to the economic crisis with aggressive and unprecedented, but unfortunately, i believe ad hoc, actions to taxpayer-funded bailouts are too big to fail private corporations, a trillion dollar stimulus, foreclosure rescue programs to name a few. we've seen positive signs of green chutes, but there's some wonder whethering they'll wither away with continuing problems in the housing sector and consumer debt remaining high and significant deleveraging occurring in the financial sector and lingering question about the solvency of banks. are we seeing a dead-cat bounce in the markets? economic and financial experts are telling us that economic recovery cannot occur until we've addressed the root cause, the credit crisis and that's what t.a.r.p. was supposed to do, but it got out on the wrong foot last fall, in my view, and it's still there and president

obama told us in january we can't have a recovery until we get the toxic assets out. this is the -- these are questions i want to follow up with. the size of the stimulus also is now causing questions from the federal reserve if we get in a position of monetizing our debt, we will face an unprecedented disaster an got way, perhaps of argentina and tripling the debt in ten years seems to me to be a risky approach. we've seen the united kingdom which was recently warned about its credit rating and perhaps that's the coal mine for our nation's own future. thank you, mr. chairman. >> thank you very much, sen. mr. secretary, the floor is yours. it's a pleasure to be before you, my first time appearing

before you about the treasury's budget and i look forward to having a close working relationship and i look forward to having to answer the very important questions you raise in your opening statements. while we see some initial signs of economic improvement, and i think you could say that the force of the storm is weakening a bit. and although the financial system has begun to heal, our country faces substantial economic and financial challenges. the president and administration are working to meet these challenges and we're working hard to get our americans back to work and to get our economy back to a growth path again by committing to restoring fiscal discipline and fiscal recovery and by making the health care reform in energy and education necessary to improve the productive capacity of our economy and to ensure that over the longer term we enhance the competitiveness of the u.s. economy. to achieve these goals we're working to repair and reform our financial system so it works for, not against recovery. we're working to restore growth

and meet our fiscal goals by redesigning our tax code, bolstering enforcement. we're working to advance our interests globally, working with other countries to promote economic recovery and financial repair and to ensure more open markets for u.s. businesses and to protect our nation's national security interests, we are deploying all of the tools at our disposal to exclude terrorists, proliferators and others from the international financial stage and thereby secure financial system and promote threats to our security. the fiscal year 2010 budget, the year before you will allow treasury to pursue these core missions. the $13.4 billion request includes a $676 million or 5.3% increase over the enacted 2009 levels. just a few brief highlights about the budget request. of the increase we're seeking $14 million would bolster the tax policy offices.

these offices, domestic finance and tax policy are at the center of the administration's efforts to support strong design, rigorous analysis, improve the financial system, reform the financial system and implement reforms to our tax policies and tax code. we include in the budget a $137 million request to more than double our community development financial institutions and our cdfi fund to ensure that the benefits of our financial efforts reach beyond major bank and businesses to help economically distressed communities. these communities were underserved by our financial system before the current crisis and they've been deeply hurt by the failures that the crisis has exacerbated. we propose a total of $332 million for new irs enforcement efforts including a $128 million to add 800 new irs employees to combat off-shore tax evasion and improve compliance with the u.s.

international tax laws by businesses and high-income individuals. another $130 million would go to bolster the security of irs information technology and improve the efficiency of its business systems and upgrade its fraud detection capability. although not directly under the jurisdiction of the subcommittee i wanted to note also that our budget includes funds to meet our international obligations and have a global response to the crisis in this global economic system that we live in today. as we seek these additional funds we've cut back on programs that are either ineffective or we believe can be safely delayed. just one example, even as we're trying to increase capital investment for the irs our budget would open the capital by 65% for a savings of $17 million. i want to say a few words about the treasury staff.

i'd be honored of leading a team of exceptionally smart and dedicated individuals who are working very hard to make our government more effective. they're performing a great service for our country under challenging circumstances. i'm very grateful to them, and i think if you look at the scale of what we set in motion in the last six months they've done extraordinary things in a very short period of time. thank you, mr. chairman. i'd be happy to answer any questions. >> mr. secretary, many of the questions we ask will be policy questions, somewhat global in scope. i'll try to bring those home to the actual budget aspects of this hearing as best i can. let me start with a topic you won't be surprised and i'm interested in, mortgage foreclosure. i have brought before the senate twice now unsuccessfully an attempt to change the bankruptcy code so that we can create more incentives for renegotiating mortgages in foreclosure. i failed in both efforts and the last effort was opposed by

virtually all of the banking institutions of the united states, save one, citigroup, to support our efforts. the mortgage banking association reported that 10.7% of mortgage loans were delinquent or in foreclosure in the first quarter. the highest level ever recorded since the survey was launched in 1972. also, for the first time, most mortgages in foreclosure were prime loan, 49.8% compared to 42.2% subprime which we initially identified as our major concern. foreclosures bounced up 32% to 342,000 during the year over year period ending in april according to realty track. the obama administration's making home affordable program has resulted in only 55,000 mortgage modifications in the last two months. according to the washington post, experts say foreclosure prevention programs will not be successful unless they address

homeowners who owe more than their properties are worth. i sensed that this was the catalyst that led us into this recession. it is my feeling that the previous administration and so far this administration, has failed to come up with an approach which is dramatically and could dramatically turn around this increasing number of mortgage foreclosures. a year ago the estimate was 2 million. this year it's 8 million. ultimately one out of every six home mortgages faces foreclosure based on current predictions. do you agree that we need to strengthen incentives to modify more mortgages to turn this economy around and wouldn't it help -- wouldn't that help spur participation in treasury's own mortgage modification program and can you suggest a better method to give homeowners more leverage to change the bankruptcy code? >> you're right the housing is at the center of this crisis and of course, millions of americans are losing the home including

many who were very responsible and are suffering enormous damage simply because of the action of those borrowers who lived way beyond their means and those banks that made a bunch of loans they should not have made, and i agree with you. i think the government should have moved earlier to address this crisis. we were late as a country and behind the curve. i do believe that the president's program is a -- it does provide a very powerful set of incentives to induce a substantial increase in modifications. we're at the very early stage of implementing that program. it's true we've been in office now six months and this program was laid out in terms of the detail only a few months ago, but there is a substantial increase in efforts to put out notifications to potentially eligible borrowers and i expect to see a substantial acceleration of the pace of modifications. this program does create significant incentives for services to participate and it

also does reach homeowners significantly under water. it won't reach all homeowners. there are some homeowners who simply borrowed and got themselves into a point where they have a completely unsustainable mortgage and are unable to retain their house, but the program is designed to reach homeowners that are living today with significant amounts of negative ltvs, negative equity. the program has been successful in helping bring down interest rates working alongside the fed. it has been successful in substantially increasing refinancing so that more americans can take advantage of the lower rates and as i said, we're just beginning to see the effects of these very substantial incentives we put in place to encourage modifications. realistically, i don't think we're going to know until probably early fall whether we've got the incentives right and whether they'll prove powerful enough, but our judgment is that this is the best package of incentives which

offers the best return for the taxpayers's resources to help address the housing crisis. >> i asked this question of this predecessor and perhaps in a little different form, and still remain skeptical, but the voluntary approach to mortgage renegotiation is going to save us from this crisis that we're facing. i think until we get an honest approach that really results in substantial renegotiation of mortgages that the real estate industry and the housing industry will continue to be weak. i don't know how we can build a strong american economy if our homes are losing value and we face our neighbors facing forbe closure as we go across this country. >> senator, i understand your concern and commend your focus and leadership on this perspective, but this program is a dramatically different program from what was tried under the previous administration.

the financial incentives that we put in place here are very substantial and it came alongside a substantial change in policies by fannie and freddie to help finance even for homeowners that were slightly under water. so i think we all want to see results and you should judge us by our results and it will take longer to judge whether this is as powerful as we expect it to be. now, i think if you step back and look at what's happened in the housing market over the last six months or so, partly because of the effect of the recovery program and confidence, partly because of the impact of the fed's programs and the treasury's programs, the pace of decline in home prices has started to slow and that is early signs of us being able to look to the other side of this, but realistically, i think you can associate a challenging period ahead for many homeowners and many homeowners at risk of losing their homes and that's why we want the programs to work. >> senator collins, i might say

each member will have five minutes and more than one round. >> thank you mr. chairman, mr. secretary i want to follow up on the discussion we had about the use of t.a.r.p. funds. it troubles me that banks have received billions of dollars without having to demonstrate that they've increased lending as a result, and without having to be fully accountable and transparent in the expenditure of funds they have received. i mentioned to you that i've seen in my state a large recipient of t.a.r.p. funding constrain credit to actually cut off lines of credit to cease lending to a non-profit hospital in my state, a major retail er. so i don't see on the grassroots le