problems to dig out of but we have been very, very careful in managing this very on the popular program in ways that allowed us to get the american people's money back from the financial system to save them as i said over $400 billion in potential losses. and we have in a much stronger position as a country today to come out of this stronger. we've seen dramatic amounts of money we can meet to the challenges we face as a country today. let me switchgears to the federal debt for a moment, and i'm sure we'll come back to tarp, i have no doubt about it. i mentioned in my opening remarks, i have great concern

about where we're going to end up in 2020, where our federal debt held by the public will be about 77.2% of gdp, which would be the highest percentage of federal debt to gdp since world war ii or 1950, when i was born. i have three questions i would like to ask with regard to this. actually, it's probably four, i know you'll indulge. given the size of the federal doubt, is treasury crowding out investment in the private sector? obviously, to what extent are investors buying treasury bonds instead of investing in businesses. given the trouble in the world economy, how difficult is it to attract buyers of treasury debt, and are you increasing interest rates in order to attract those investors. who's investing in treasury debt, and are you concerned about our dependence on foreign investors, foreign government,

sovereign wealth fundses and the like to finance our deficit spending? >> excellent questions, let me start by saying, as we discussed when i was here last year, you were right to point out that our deficits are too high, they are unsustainably high. if you just look at over the next ten years, they're unsustainably high, and they get dramatically worse, if congress doesn't act to reform our medicare and social security. they get dramatically worse in the succeeding decades, they are too high, they are unsustainable. and if we do not ability to address them, we will face much greater challenges. america will be poorer as a country. you're right to highlight these challenges p.m. we're deeply committed to making sure we start the process now of building consensus on the policies to bring those deficits is down. on your specific questions. is government borrowing -- crowding out investment? no, it's not. in a financial crisis in a recession like this, the only

fiscally responsible way to act as a country is to make sure you are providing temporary targeted support to get an economy back on track, growing again. and the best measure of what i just said, to answer your second question, u.s. long term interest rates is really remarkably low. and it reflects the fact that for the moment, again, given the echos of this crisis, the most responsible thing we could do as a country is to make sure we're providing the support and investments necessary to lay a foundation for strong sustainable private sector growth. these things need to be temporary and targeted and that's why we proposed in the president's budget to begin the process in fy-11 of bringing down these deficits overtime. one more thing that goes to your third question. today the american people are providing most of the financing for our deficits for these temporary exceptionally high deficits.

over the last year or so, in particular, you've seen the savings rate of americans start to rise again. private savings rates rise from a modest negative -- at the same time our deficit -- which is the amount of money we're borrowing from the rest of the world has fallen sharply. if you step back generally, what you're seeing so far is a very high level of confidence among foreign investors in our economy, in our financial system, and a willingness of americans to provide the financing the government needs temporarily to help get through this basic crisis. you are right to underscore that these deficits are too high. as soon as we are confident that we have a self-sustaining recovery in place, it's important we shift at that point to bring those deficits back down to earth. >> i appreciate your answers. but if we're still at a trillion

dollar deficit at 2020, when will the savings actually materialize? >> thank you for raising that. for an economy like ours, we need to make sure we're bringing the deficit down too a level that stabilizing or our overall debt burden is a level that's acceptable and not threaten future growth rates. for an economy like ours, requires we bring our deficits to bee lee 3% of gdp. it sounds like a magic number, but it's just -- given the structure of our economy, that's what it takes to stabilize the overall debt burden of our economy to an acceptable level. what we've proposed in the president's budget is a series of detailed measures that would bring our deficit down over the next four years to below 4% of gdp. that's not far enough. we were very explicit in the budget saying that's not far enough. that's one reason why the president's proposed to form a bipartisan fiscal commission, and ask a set of national states

men to step back from politics and try to take a fresh look at measures that help get us down further over the next five to ten years, but also begin to propose measures that deal with the long term deficits in the future decades which will be damaging. >> you have great faith that that will work. >> no, it's -- you can't -- as you know, congress has to enact policies that restore gravity to the nation's fiscal position. we have proposed a series of detailed measures that begin that process, but we're following a model of president reagan who proposed and ran, helped to salvage the -- i think the best example of the bipartisan reform, we're proposing that model to bring sustainability back to the nation's finances. >> one more quick question, and then i'll be finished. how do you balance the desire for short term benefits to the

economy versus the long term risk to the future generations of -- to future generations of increasing debt? i feel like we're being greedy or something? >> no, i think again -- when an economy is facing the risk of a great depression. a economy living with the echos of the worst financial crisis in generations, the only possible -- the only credible response of any government, and the only thing that's fiscally responsible is to temporarily provide the kind of support on the tax side and the investment side that can help re-establish a foundation for growth. that is what we did in the recovery act, and our financial recovery efforts, and we're still in the period now where as an economy, the best thing for us to do right now is provide modest additional targeted support for job creation and investment. but that will not work or be effective, unless we can make people confident. in the united states and around the world, that we're going to find the will as a country to start to bring those deficits

down. the imperative right now is still job creation reinforcing growth. but once we're confident we have an economy that's growing again, then the right thing for the country to do is bring those deficits down. that's how you balance them. if you make sure these investments we make today are temporary and targeted, and they're focused on thing that will restart growth and job creation, you're doing the responsible thing, the effective thing to help restore our nation's finances. these deficits are high today as you know -- they're high today overwhelmingly because of the policy choices made by the country over the past proceeding 8 years, and because of the consequence of the recession. when we came in office, we had a -- before we did one thing, asked congress to propose one change to policy,we had a deficit in -- about $1.6 trillion more than 10% of gdp, and that was the legacy of the

recession and the policy choices the country made. those choices left us with very high projected future deficits, unsustainably high debt burdens and we're going to have to work together to dig our way out of that. >> thank you. >> just a quick comment. not a question, but -- it seems to me that we never had major wars where we didn't raise taxes, so we're all guilty of the $2 trillion that it will cost us over the next generation just to pay for the last two involvements. but there is one resolution on the house floor today that we can all be fiscally conservative about and vote to get out of afghanistan. now, mr. fattah, the way i see this, your phillies will play the cardinals for a chance to get yankees in the fall.

if we looked a year ark the first go moves the year we lost more than a million an a half jobs. these two months we've seen job losses of 50,000 in totality. but we've seen a major increase in temporary hiring and hours worked. all that is a prelude of what all of us i think expect to see net plus in job growth. and going forward. the stock market was at 6,000 yesterday, a year ago and it's now at 10,500. purchasing is up. manufacturing is up. if you look at all of the indicators, they're pointing in the right direction. there are still naysayers and there are people who are principally responsible for the conditions we find ourselves in who are critics of the work of this administration. i want to go through some of the details.

now eight years before that, we had allan greenspan in here. we had the discussion that a $5 trillion surplus could take the country to be debt free at the conclusion of the bush administration. a bunch of decisions were made. rather than surpluses to erase a $5 trillion national debt and an intellectual discussion about the economics profiled the nation that was debt free, we had double the debt. and as it was the case at the end of world war ii, in part for national defense. i don't think anyone would suggest that we should have forfeited world war ii rather than run up some debt or should we concede to bin laden and company, you know, and sacrifice the lives of americans because we're afraid to spend money. so in part we spent on national

security. and we also did tax cuts and so on. the point i want to get to now is there's been a lot of discussions and with the ranking member about the deficit. i want to talk about the debt. the deficit is just what the gap is year to year. we've seen the president set up the debt commission with erskine bowles and senator simkins. we've seen the vice president say that this national debt is a national security issue. the secretary of state last week said it's a national security issue. you have made comments about the challenges that it presents in the international framework of our dealings. what do you -- i know that you're sure to feel in the tax economy office, previous treasury departments looked at broad base tax reform.

everyone who is knowledgeable in this says we have to raise some revenue. we have to cut our long-term costs on entitlements and we have to engage in broad base tax reform. now the reagan treasury department and the bush treasury department 20 years apart. they were fatally deficient and wouldn't work. they looked at the flat tax, said it wouldn't work. so my question to you is as we go forward, we need to have a deficit commission which we have in place. i'm happy to see they're going to make appointments. can you look at long term entitlements. and that's great. what i'm interested to know is what you think about an idea of a dedicated revenue focused entirely on paying down the national debt going forward as part of a constellation of

things. we pass statutory pay-go and so on. but revenue source dedicated to debt what you think about that as a generality. and then specifically, i have proposed a transaction fee on nonstop, nonfinancial markets activity, penny on a dollar, dedicated entirely to the debt. i'd like to know what you think about that specifically. >> congressman, you're right to point out that we have an unsustainable fiscal pgs and we'll have to bring our commitments more into balance over time. now what we've asked this commission to do, what the president charged the commission with doing is to, as i said, step back in politics, take a fresh look. everything's on the table. no preconditions. and to see if they can come up with a recommendation on a bipartisan basis that will help address both problems. not just the long term problem

of the next four decades. but the more immediate problem of how we get the budget down to a more sustainable level over the next five to ten years. both are necessary. both are partst commission's mandate. it's not just the very long term problems of entitlement reform. now they're going to take a look at a range of ideas. i'm sure they'll take a look at a range of ideas from both sides of the aisle. again, what we want to do is get a group of people together who can nomy recovers, this growth gets established and it will be time

then to start to move. >> has treasury looked at any new ideas? >> treasury is a great -- >> -- revenue raises. >> treasury has a great tradition in tax policy and eliminati elsewhere of looking at all ideas. and, you know, we along with l lnb, we're going to help educate the american people about the challenges ahead. >> i understand. i appreciate. that the commission, obviously, has to have ideas that have been rigorousry analyzed in your department is most capable. so that they can make an informed choice. >> we will provide that as we always have attempted to add traditionally. >> then the last question is can we get the proposal that i made in hr 4646 analyzed by your department, torn apart and looked at to see whether it can

be a part of perhaps addressing some of these issues? >> again, we generally try not to tear apart proposals, but we will take a careful look at anything you all propose us to look at. >> i ask the chairman to submit it to you officially. thank you. >> the "washington post" reported that greece's problems have only partially to do with speculators, more to do with false economic data, broken tax system, run away spending. the greeks report that only 5,000 people make over 136,000 in their whole country. as greece got on the heroin of

borrowed money, goldman was the crack dealer and did not disclose these increasing liabilities to the eu financial system, to the imf, or to the fed. it would seem not only should we very carefully review any requests he has, you have had any frank discussions with goldman about their very questionable role in this? >> they are digging their way out of the position. he has a lot of challenges to face. but he's beginning that process. and he also walked us through their discussions with the europeans to try to make sure they're managing through this carefully.

now it is very important that they work with europe to put in place a comprehensive set of reforms to provide oversight over the derivatives markets. it's important to us and them. and as you know, we proposed in the house has passed a sweeping set of reforms and bring oversight to all participates in those markets, move the standardized parts of the markets on to clearing houses, bring transparency to the markets, make sure that our enforcement authorities, the sec have the ability to police, to go after, to deter fraud and manipulation. we are going to work very closely with the europeans to support the reforms. part of the imperative is bring as much transparency as we can. >> now to the question. >> i can't comment on any on going investigations. but, of course, as you heard the

federal reserve chairman say, we're taking a careful look at these things as you would expect them to do. >> and so you have called goldman sachs and said what's up? >> i'm not going to kplent on anything specifically, but i will draw your attention to the statements made about it chairman of the federal reserve board and the sec. >> okay. >> they're going to take a careful look at this stuff, again, as you would expect them to do. >> as treasury secretary, you oversea much of the enforcements regime of the united states. we passed legislation in 1996 and the clinton administration to sanction any entity which invests more than $20 million in the energy sector of iran. congressional research services have identified 25 companies that appear to have violated this. we now learned that the u.s. government has provided $107 billion to companies who are in direct violation of the sanctions act. we also understand that the xm

bank extended $4.5 billion to entities which are directly violated the iran sanctions act. 49 of the companies have no plans to suspend any activities in iran. also, just a few blocks from your office, the world bank is about to send 258 million dollars to the finance ministry of the islamic republic of iran. since we own about 20% of the ibrd, that's $50 million in u.s. taxpayer dollars that will be paid to the ahmadinejad treasury. we understand that dalian industrial made a $700 million investment in iran oil refineries and direct violation of the act. that in 2009 the u.s. army contracted $111 million with them.

petrogras invested $100 million in iran oil. that is five times the trigger level of the act. they offered a $2 million credit. mazda is in business with the iranian revolutionary guard corps. and, yet, still is winning u.s. government contracts using u.s. taxpayer dollars. any update? >> let me start by commending you for the support you provide a more aggressive approach. i think you're right on that issue. we're committed to working with countries around the world to put in place a stronger, more effective enforcement regime globally. as you know, the activities in the government and nuclear front to support terrorists in the region are a substantial threat to our national security interest, interests around the region and we're working very hard to build support for a stronger u.n. resolution. we're working can countries to encourage them to more

aggressively enforce the existing sanctions regimes. the united states is running a very effective program now to tighten those existing sanctions using the authority we have and we're going to build on that record. and as you know, the treasury plays a very important role on the financial side. we've had remarkable success in making access to finance around the world. >> but no success in stopping u.s. taxpayer money going from companies who are directed by, no success whatsoever. i raised this with you before. no success, no effort whatsoever to stop world bank payment. >> i want to -- you know a lot about this, congressman. i know you've written the secretary of state about the concerns you began with which are enforcement of the -- >> iran sanctions act. let me address the world bank concerns directly. the world banks approved into

new loans to iran since 1985. >> that's not the issue. >> you're right. i'm coming to it. there are only two loans outstand wrg the world bank is still dispersing. those are two loans that go to water projects that are consistent with the humanitarian exemption that is under the u.n. resolution, permitted under the u.n. resolution. >> i don't have a lot of time. are you naive enough to think that the money -- >> i don't have a naive bone in my body, congressman. but as you know -- >> let me ask the question. are you naive enough to think that $258 million paid from the world bank to the ahmadinejad treasury goes to those projects? >> u.s. worked very effectively across administrations to make sure the world bank was not authorizing any new loans as been successful policy of the government for a long period of time. the only two loans outstanding are the two loans that go to permitted under the u.n. resolution to support

humanitarian and development projects. now i just want you to know that we agree with you and share your objective of making sure we're working around the world as we have been doing to tighten the effectiveness of the existing enforcement regime. you're right to point out that it is a on going challenge. you can't stay still. if you don't keep intensifying the sanctions, people get around the regimes. but for us to be effective, we have to work with countries around the world to tighten up the net. we're committed to that. >> i just would hope that this is -- right now, given "the new york times" article, it's throes do about what is happening with other governments and more that the u.s. government stops contracting with companies that do business with iran. >> that i wouldn't agree with. but, again, we have more in common than this than we do on many other issues. but the critical thing for us to is to make sure that we're not just using the authority that congress provides to make sure we get other countries to move

us with as they are doing on a, i would say, we're having some impact now. and it's getting some traction. >> thank you, mr. chair. >> there's no way that no reflection on you, mr. secretary, no way that we can pass up this moment just to note that if any of those folks have invested $2 in cuba it would be a major scandal throughout the country. >> thank you, mr. chairman. thank you for being here mr. secretary. i have questions related to two different areas. the first is the proposal the president to you some of the t.a.r.p. funding to encourage small banks, community banks to lend to small businesses. i'd like to know what the status of that is and what conditions or measures can be put in place to make sure that the small banks don't simply hold on to the money? i've heard -- well, we've all gotten unstoppable feedback from small businesses in our districts that institutions they've had long relationships

with with perfect credit siftry, won't lend to them. they are arguing that the regulators -- the banks will tell them the regulators won't let them lend. i don't know whether that is a excuse the banks are using or whether regulators are putting on that pressure am i'm also hearing feedback, though, that banks, the small banks are saying, hey, you know, if we get the money we'll keep it. we're not going to necessarily use it to lend. so in order to avoid some of the pitfalls that characterize the support for the big banks that didn't always turn around and lend it, what precautions are put in place, and the second question is on the jobs issue. this recovery so far looks different than prior recoveries. it's not been as robust even though the gdp growth in the last quarter was encouraging. still the job numbers are sluggish. and i'm interested to know your both sense of why the jobs

aren't bouncing back as quickly as in prior recessions and what are the most significant things that we can do to stimulate that job growth? >> excellent questions. first on the small business lending. we're proposing really four separate things to help address this problem. one is that we have a series of well designed target attacks measures that go directly to small businesses, expensing, depreciation, zero capital gains and small businesses, new jobs tax credit. the second is to expand substantially the existing guarantee programs. variety of specific proposals in the president's plan. we think those will be very effective. those are important. but they're not sufficient. we are encouraging the supervisors, they are independent of the treasury. but we're encouraging them to make sure they're providing a more balanced amount of guidance to the examiners across the country. so examiners don't overcorrect and contribute unnecessarily to tightening of credit conditions

that would hurt viable businesses. in addition to that, we propose, as you said, a $30 billion small business lending fund that would give capital to small community bank that's commit to use that capital to expand lending. design this in a way that to lend the money out. if you go above a certain baseline, then we reduce the dividend you pay the treasury over time. our view that is a pretty powerful set of proposals. you can't be certain that they'll take a dollar of capital and increase lending. but if small banks who could otherwise raise capital and they can't raise capital, don't have access to capital, then they were cut lending. and that has a pretty negative effect on business access to credit. so capital is a very infective way of helping mitigate this problem. >> on that last point, though, what baseline are you using to measure whether they increase

lending? and also, do you buy what the banks are saying about the kind of regulatory straitjacket they're in or do you think they're using that as a fall guy? >> i think you said it right. supervisor made me do it. in every recession what happens is that there is a risk that examiners after a period where in lined sight they look too easy, tend to overcorrect. i think it's good that leaders of our supervisors across the country and this is the fdic, the fed, the ots need to make

sure they're leaning against that tendency to overcorrect in a recession. that can cause a lot of damage, too. >> at the level in 2009, we designed that in a way, we think that is a realistic baseline. you can't force money through the pipes. we can't force banks to lend. we think the design this in is way that o would substantially increase the odds that were really helping mitigate the small business credit problem where it remains. on the jobs front, you know, you won't have jobs without growth. growth has to come first. there's always a lag. but i think most economists across the kun twroi say we're

on the verge now of seeing a us is staustained level of job groh for the country as a whole. i think the best story looking back of why unemployment increased so much and why job losses were so steep was just that you saw a shattering damage to confidence. people were too scared to do anything. and they cut back dramatically because of the fear that they faced a very long period november demand for the products. that's going to take time to heal. but it's beginning to heal. as your colleague said, you're seeing the signs of hours increasing, temp employment increasing. why do you think this looks different? >> i think in many ways, growth came quickly, stronger and more

broad based. in that sense, it's encouraging. because is a huge overinvestment in real estate, there was no way that recovery was not going to be dampened by those forces. as house holes save more, start to reduce the debt burdens. so we're seeing the necessary inevitable consequence of a recession that is born in part of a very damaging financial real estate boom that was fed by excessive borrowing and lending. >> thank you, mr. secretary. thank you, mr. chair. >> thank you. >> thank you, mr. chairman. i heard you talk a lot this

afternoon about the importance of bringing down the deficit, controlling spending. and a appreciate you saying those things. i wanted to know if you would tell us for the record, could you explain how the creation of the obama health care entitlement will help bring down deficits? they estimate the reforms in prospect would reduce the ten-year deficit and would substantially reduce the rate of growth in health care expenditures over the succeeding decades. >> you are talking about the senate bill? >> well, i would say that you can take the senate bill and the senate bill as with suggested change that's the administration put out a few weeks ago. but they're all in the same

basic ballpark. you say that a meaningful reduction in the ten-year numbers and very substantial reduction in the succeeding decades. that's because, as you know, that biggest driver of our long-term deficits is the rate of growth and health care expenditures. it is much more important, than our group is aging. >> but the reductions they see in the future are all based on assumed reductions in health care expenditures and lighter years? >> well, again, doing what they always do, they take proposals congress is considering and they quantify those estimates on future spending by the congress. >> right. >> they're doing what they always do in that case. >> and you recognize the proposals entail six years of spending with ten years of revenue? >> what i said is accurate in their estimates of the fiscal year. >> you're talking about cbo?

>> yes. the most important thing to point out as i know you understand is if you care about the fiscal position of the united states, if you're worried about the long term deficit, there is no way to deal with that without reforming the health care system in a way that reduces the rate of growth. >> those of us on the fiscal conservative side are approaching it from the perspective of focusing on making health care affordable and portable so can you buy it across state lines and shop. i want to be able to buy coverage from a carrier in arizona or texas. that law needs to be changed. on medical malpractice reform, protect doctors from frivolous lawsuits has worked so well in texas on allowing small businesses to pool the ability to negotiate better rates together. quo do those things without -- and bring down the cost of health insurance and make it more portable. that's where the focus needs to be. but, you know, i have to tell you know, they pay attention.

and it just defies common sense to believe that we can -- that as your proposals do, expand coverage to 20 million to 30 million new people, are going to be brought in to this new entitlement which is clear lit mother, this is the mother of all entitlement programs. you're going to bring in 20 to 30 million new people. >> all i'm doing is -- you're going to reduce deficits and it is not credible. >> all i'm saying is that the estimates of cbo, do you believe those estimates are accurate? >> i believe they're the best estimates we have. they have the virtue of being a fair arbitor of the proposals now in congress. but can you challenge those things. those are the not the ones that congress will use. >> we are, as you have said, in an unsustainable position.

there is no doubt that we could become greece and -- >> i want to say, there is no risk of that. >> that will not happen in the united states. >> we're spending money as of june 1st. my office calculatesed and if you look at the available revenue avs june 1st this year, everything we spend beyond that and i have to say that opening remarks earlier, mr. chairman, if i can say quickly, we're kicking the bush administration. you can't just blame others for the scale of the debt of deficit. the deficits that you inherited were way too high. i voted against virtually all of those major issues. but this -- nancy pelosi and president obama managed to spend over $2.5 trillion in one year. that's just a big ticket items. you spent more money and less time than any administration in the history of united states and created more debt than any other

administration in your budgets than any administration history of the country. so it just isn't credible. you don't -- you damage -- >> i will be happy to measure our record on fiscal responsibility with the record of the previous eight years. let me give you one example. i was a career service member in the treasury department. i left in 2001. at that point the cbo projected, future surpluses of $5 trillion. eight years later, those surpluses turned into $8 trillion in projected future deficits. i would be happy to compare the basic records of what we achieved in that period of time in the clinton -- on fiscal responsibility with the record of the succeeding eight years and i'll stand not to make -- it's a fair thing. i think the important thing to recognize is over that period of time when we demonstrate the as a country that we were able to produce surpluses we saw a record of strong private investment growth, strong productivity growth.

>> because of tax cuts. >> no. >> no. >> in the -- >> bush administration. >> no. i'm comparing the growth record of the previous eight years. the growth record of the eight years under the bush administration was -- did not compare faborably. it was worse on growth, worse on any basic measure of basic returns. and, again, worse on the thing you care about a lot which is on basic test of fiscal responsibility. >> obviously my time -- >> you and i can't change the past. i know you voted against a lot of those proposals. but we can't change the past. we have to stand together and admit that deficits matter. tax cuts are not free the we have to pay for stuff we propose to enact and bring our fiscal deficits down to a point where they're sustainable over a period of time. >> thank you. we want you to live up to those words. that's all. >> mr. crenshaw? >> thank you, mr. chairman. welcome back to the committee. i got two questions. one kind of has to do with

philosophy of managing these assets and the other is just kind of a quick question about the tax collections. and you mentioned that the t.a.r.p. funds are being repaid quicker and in a greater amount than first thought. i think that's good news. and i think we ought to do everything we can to maximize those dollars. but it looks like there are two different -- when you look at aig, you know, it seems to be, again, we own -- we're majority, i guess, shareholder. and so i guess we're involved in their decisions. it seems to me i read they sold two life companies last week, $51 billion which will go back to the american taxpayers. that's good news. but if the philosophy there is to sell off these assets, it seems to me sooner or later you'll run out of assets to sell. as a rule a company that's kind of been downsized. and you wonder what kind of

capability it will have to make any further payments. i think they have over $100 billion. i think they pay back $15, maybe. so we're still on the hook. on the other hand, when i look at general motors, as i understand it, if you take general motors, chrysler and gmac, we maybe gave them $80 billion. i think general motors was about $50 billion of that. then i read where you said we're going to lose $30 billion on the general motors deal. but it, i guess it seems like the philosophy there is to gm is kind of -- they reinstated the dealerships. they're increasing the sales. maybe their market share is going to increase. so you would think. that's one way to deal with the situation. you would think if they become an on going entity and grow and increase sales and market share, they'll be even in a better position to pay back, you the $.

help me understand the two different philosophies. since we must be involved in those decisions and is it shortsighted on aig? i'm not asking whether we should just, you know, broke it up early on. but we own it. and we want to get paid back as much as we can. so those are two different case studies. explain to me how, you know, it's working and how you think that works in the long run? >> excellent question. it is difficult judgment. the two basic objectives we try to balance are to maximize the returns to the taxpayer, minimize the risk of loss to the taxpayer and we want to, frankly, get out as quickly as we can. those two objectives will sometimes be in conflict, as you said. so we're going to try to balance them. these companies where you have -- we're reluctant share holders are in dramatically different positions. the precise strategy we adopt is going to differ because of the different conditions. we have to manage these in a way to minimize any risk of loss, maximize the achievable return. but we want to get out as

quickly as we can. we don't want to have the american government involved in these companies a day longer than it is necessary. we'll do it as quickly as we can subject to that constraint. we don't want to go through the risk of unnecessary loss in that case. the board of aig is making remarkable progress in reducing the risk and restructuring the company in a way that is going to reduce the expected loss to the taxpayer very, very dramatically. they came down dramatically. we're still exposed to substantial risk of loss as we are in the auto companies. but we're going to be very careful in managing those in a way to balance those two basic objectives. again, i think we're being consistent in applying them. but where they differ, it's because of the inherent differences in the position of those companies and the opportunities we have to get out earlier. >> and the second question, a brief question. i read in your testimony where there are going to be new initiatives in terms of tax

collection. you spend $250 million which will, according to your testimony, that's going to bring in another $2 billion. every time i read that, i can't help but kind of ask the question, how do you know, how do you determine that spending $25x@@@@@ a i&'a gda a c$a a a " the tax gap. it's like a piggy bank and say all you have to do is spend $1 billion you get this and i have always wondered. are there any facts and figures that kind of verify that and how do you decide to limit the $250 billion to $250 million to say that will give us $2 billion and somebody says, well, gee, four times that gives you four times

the money. >> we as the same questions. we had a discussion about what makes sense in this area. i think what he'll tell you, he said when we were up here before and we'll provide in writing, those are conservative estimates based on in the past of putting more resources in targeted areas to generate better compliance. i think they're conservative. i've seen much higher estimates than that. on the same question i asked, why not more? if the return is that high, why not more? the point is just that there is judgment about this pace which they can really bring on capable people to do this. it's amazing how quickly can you scale up the operations. we're trying to be relatively careful given that we don't live in a world with unlimited resources. we're confident you're going to see a high return. that is the bestance i can g.i. i'll be happy to follow up. >> i appreciate that. i guess you've stolen the idea of all the mebdz mbers of congr.

we can't spend extra $250 million to get another $2 billion. youmaxed out on that. >> cbo is the arbitor to the extent that can you actually justify investments on some return like that. we don't get to decide. you get to decide based on those estimates. >> thank you. thank you, mr. chairman. >> mr. secretary, the work you've been doing with the recovery act funds is starting to take hold. and we have that little pinhole at the light at the end of the tunnel that we're going to as the recovery funds continue to get out there in the next couple quarters, we'll have a wider hole into the tunnel. that having been said, you know, i come from the state of florida where the foreclosure crisis definitely puts a break on the progress that we're -- we've been able to make even with those t.a.r.p. and stimulus funds out there. the data that i've seen

nationwide is about 25% of all homeowners are up side down. in my state, it's 46%. and in south florida in particular, it's 46% of all homeowners being underwater. so the home affordable -- the home affordable modification program is struggling because you have so many up side down homeowners. so can you talk about the hardest hit fund and how that's going to start to address the problem in a more effective manner? specifically, just to give you an example, the foreclosure crisis, more than 97,000 foreclosures in my three-county area in the last year. i mean we've got to get that turned around. and one of the most frustrating experiences that people have is both with the hamp program and, you know, the banks refuse to work with homeowners. they won't modify loans. they give them the run around. i've dealt with constituents who

spent months and months, willing constituents who can afford to make mortgage payments but who the bank will absolutely not work with. so what's -- why not walk away? what's the point of continuing up side down? >> you're exactly right. i agree with everything you said. it's important to step back for a second and say what has happened over the past year and important to emphasize this before i respond directly to your question. >> a year ago today if you looked at expectations, people thought the house prices would decline across the country. and instead, we've seen more than six months of relative stability in house prices across the country on average for the first time. and that is very, very important to confidence because, of course, houses are such an important source of economic stuart to many americans. the hamp program, as you know, is provided very, very substantial cash flow relief to now one million americans.

one million americans are getting now an average of $500 a month in their pockets because of the program. they're not just able to stay in their homes but they're having very, very substantial reduction in their size of the mortgage obligations. this is a very large, very substantial tax cut. we're seeing very substantial increases in conversions to p m permane permanent. you're right to emphasize there is a huge amount of pain and damage still across the country not just in florida and the other states targeted by this initiative. it's still just devastating damage. and, again, it's fundamentally -- people who did not borrow too much who are very responsible, just the victims of the broader collapse, irresponsibility of everybody else and we have an obligation as a government and country to help those people who we can legitimately help stay in their homes. now this program targets five states where the problems are most acute.

the combination of house price declines and employment are more acute. we're providing substantial resources to experiment in the assistance for the unemployed, for people who are underwater, modifying mortgage programs. we want to support innovation to stay level. and there is maybe lessons in that for other states. but we're also looking at, and we're looking carefully at a series of other enhancements to the existing program to try to reach more people who are unemployed and to help deal with the substantial number of americans still who are -- because they're under water, as you put it, can't refinance, can't sell their homes. so we're looking at ways to try to reach more people. but it is very terrible out there in the housing market and it's important we keep working at trying to make sure we're reaching more people. and i want to end where you ended which is to say that it is very important for the servicers across the country to do a better job at helping these people get help. >> but they're not. >> and it is just -- again, the one thung we do that is very

important is you can see now in the public domain every month very, very detailed numbers on how services are doing reaching the people. you can see how one bank is doing compared to another. the american people can see if their bank and servicer is doing well or poorly. i'll say my view is none of them are doing enough. they need to put substantial more resources in this program. and they need to do a better job of making sure they're reaching the people that we can legitimately reach. >> medically, how can we insure that happens? i tell you, i stand in front of town hall meeting after town hall meet wrg i have constituents, legitimately stand up and say, we all do, legitimately stand up and say we bailed them out. my bank wouldn't even be in business any more. >> exactly. that's why people are so angry about it. we put in place a variety of things. we have a detailed second look to make sure people who are eligible are not denied. we have teams of people that go into the servicers and see how they're doing. we're trying to put enormous pressure on them. we have a long way to go and they can do it dramatically

better. >> one more question, mr. chairman. that's on the -- i know you're going to be shocked i'm asking a question about cuba. i, you know, feel a sense of obligation. in the last week or so we had the tragic death of orlando's person who was on a 8 5-day hunger strike and others continue to protest the abuses of the castro regime. i'm particularly concerned about the pro-democracy efforts on the island and getting the funds that we have appropriated for the last two fiscal years to them. what's being done to expedite the licensing process to insure that direct assistance and aid is being sent quickly to those pro-democracy organizations, the money is sort of being sat on right now for the last two fiscal years. i realize we need to be careful and we need to make sure that they're going to legitimate dissident organizations and insuring that there is a

pro-democracy movement. but it is sitting in the treasury in washington isn't going to accomplish that. >> congressman, i share your concern and objective in this stuff. i'd be happy to try to respond in more detail in what we can do. i'm happy to come talk to you. >> that will be great. >> and walk through that with you. there are strong feelings. >> particularly in this room. >> particularly in this room. >> and we're doing our best to make sure that we're enforcing the laws as written and we're meeting objectivesst congress. >> so can you follow up with me in more detail? >> of course. on the issue as raised by any of your colleagues, i'll be happy to listen more carefully. >> i want to press you a little bit more though. there are funds that we've appropriated for the last two fiscal years that aren't being spent. and -- >> i'm not trying to be unresponsive, i have to talk to colleagues a little bit more to understand what it is. >> the article that i just read the other day talked about how the, you know, your department

is making sure that there are safeguards put in place and that we have the accountability measures. but it's an extraordinarily long time to be examining that without -- >> we have careful people and their obligation is to make sure that they're implemention will law and following the intent of congress. i'm sure that's what they're doing. i'll take a look at it. >> thank you so much. thank you. i yield back, mr. chairman. >> thank you. mr. secretary, as i noted in my hearing with irs commissioner a couple weeks ago, i'm concerned by several proposed cuts to programs that provide important services for low income and working families including the volunteering tax assistant, grant program and tax counseling for the elderly program. do you believe that these cuts reflect the appropriate priorities as we struggle to recover from the economic down turn? and then let me just say that, you know, irs, similar to the

immigration department, some of those agencies that -- not that they have bad reputations but they have a lot of people complaining about them all the time. and so when i saw the irs begin to move in this direction, i said what a wonderful way of not only helping people but also helping the image of the agency. because now you're going to assist those who need help for those forums and everything else. so is it a real saving that's budget and the message that goes out. the people that need help the most are going to be cut out? >> i understand your concerns. i'd be happy to listen to those concerns in more detail. we both believe that these are sensible proposals because they help us to increase resources you're providing to improve tax services generally. and we think that will help the same people that these programs help. but be happy to talk to you about it in more detail. you know, we're making difficult

choices trying to make sure how we're using scarce resources as effectively against these things. we're proposing very substantial increases in programs to improve taxpayer services generally. and we think that will help reach some of the same people that these programs you referred to are designed to reach. >> right. but these programs were created with the intent of both helping and showing that there was a desire to help. aren't you concerned about the message that you're sending? >> the irs is going to continue to work very hard to do the right thing and earn the respect and confidence of the american people.

the commissioner has done a very, very good job in helping improve the record of service, irs employees, too. i respect your concerns. >> you know, if this was a course in legislative politics 101, the professor would say shouldn't come before serrano cutting the programs. it's going to do well. i suspect there are other folks on this panel that feel the same way. this is one statement we can make on behalf of a community that needs help. how big do you think the tax gap is? >> we put out a very detailed

report in last year. it went through the latest estimates of the size of the gap and the sources of that gap. and as you highlight in your opening statement, the president and his budget is proposed a variety of ways to help make some progress reducing that gap. one of the proposals is to reform the tax treatment of overseas earnings of american companies. if you have two companies in your district, you don't want them facing different tax treatment. you don't want to create incestives to shift jobs overseas. we propose changes to the program that help address that issue. but, you noi, there's a range of proposals in the president's budget that will make head way. we're making a lot of progress, not just with switzerland but a range of countries around the world to reduce opportunities for asian and we're committed to working at this. we're going to keep at it. but the report that we laid out last year which we provided the

committee again is a very good, detailed analysis of the sources, principal drivers of the gap and the policies that we think would have the highest return and starting to close that gap. >> well, before i turn it over to miss emerson, let me ask my cuba @@@@@@@ @ @ @ @ @ @ @ @ @ @ r@ @ visiting their families. the department is also implementing a provision that

relaxes the terms under which payment may be received to exports of agricultural and medical goods to cuba. mr. secretary, please update us as to how implementation is proceeding with respect to these two areas of u.s. transactions with cuba. >> well, i can't do that just in the hearing today. i'd be happy to do it in writing. my sense is that it's going reasonably well. but, of course, there are other perspectives and i'll try to respond to other concerns you have. i'll be happy to respond in more detail in writing. >> we will hold you to that and ask you to write to us and tell us what's going on. and with that, i turn to miss emerson. >> mr. secretary, looking back on the financial crisis, i, like all my colleagues and many americans, are very upset with the lack of oversight, recollect torre oversight that led to the climate in which our entire financial system was undermind.

our small banks in missouri survive pretty well. you know, we're tough. we have good people. but life still isn't getting a lot easier for them. as surviving banks continue to do their best to serve their customers, i do hope the treasury and the fdic will give every consideration to fair descriptions of the risks they face and the deposit insurance fund assessments that are based on those measurements of risk. and also hope that looking at the ultimate analysis of the financial crisis, something would be done in the future. to perhaps allow fdic to get more involved with or perhaps offer guidance to american banks and they identify as actually facing increasing risks. perhaps by putting the bank back on the right track we can limit the must be of banks that must close their doors. obviously, the number of

customers who have to turn to the deposit insurance fund to be made whole and very obvious lack of consumer confidence in financial products. but my real question focuses on one enforcement aspect of this matter. do you all look at the financial statements of failed banks to see if they've misrepresented their financial condition, if executives took unreasonable compensation or bonuses out right before the bank failed? can you all at treasury call bab excessive compensation from such a bank? because obviously the alternative is that the deposit insurance fund ends up making up the difference when they tried to make depositors whole. and i think there is a senate effort on this. but i am just curious if, in fact, you can claw back under those certain circumstances. >> congressman, i think i'm correct in saying, but i'll be careful and correct this if i

get it wrong, in the recovery act, i believe that congress passed a series of provisions to provide greater constraints and encourage reforms in executive compensation in institution that's took financial resources from the government. as part of that, if i'm not mistaken, the government was given the authority to claw back compensation if there was clear misrepresentation of financial data. but i'll take a more careful look at the way the law is written and happy to respond in more detail in writing. it's a sensible provision. i, of course, fully would support that basic objective. you know, we are trying to make sure we're bringing about fundamental reform and competition practice as cross the financial industry. we want to make sure in the future, not just -- well in the future we want to make sure you don't see a repeat of the set of compensation practice that's provided huge returns for taking lots of risk and no exposure to down side. >> i appreciate that.

i'll be grateful to get a written response. let me can x. you about too big to fail. our banks control 80% of the u.s. deposits. and i guess that winds them the mondayicer of too big to fail. >> i'm sorry. >> am i incorrect on my banks control 80% of the u.s. deposits? >> keep going. i'll be happy to give the details. i think that is a little high. it may not be. >> i'm going to support your concerns. so let me -- >> so the financial crisis pretty well proved that too big to fail is a misnomer without the guarantee of huge amounts of capital from the u.s. government. and we keep borrowing money at the present rate, we may even test the hypothesis of whether the u.s. treasury is too big to fail. but let me ask you, is it good to have institutions like these dominating the american market for our savings? you know, it makes me think about the old ma bell, if you will, which was dissembled in

1984. could you unwind those big bank that's are too big to fail without government taxpayer assistance? >> critical issue, critical tests of the financial reform plan, whether we fix this or not, whether we address this problem of too big to fail, you can't have a financial system where the management of the firm, the boards of directors, equity holders expect the government to come in and save them from their mistakes in an event they manage themselves to the edge of the cliff as we saw happen to so many institutions in this crisis. that is something we need to fix and end. the only way to do it is to make sure, first, you have the ability and the authority to constrain risk taking by those institutions ahead of the fall. that means much more conservative capital requirements, constraints on risk taking, applied more effectively, more evenly across the institutions. that's necessary. it's not sufficient. you also want to make sure that

if they get themselves to the point where they can't survive without government assistance, you want to make sure the government has at built and tools and the authority to take them over temporarily, break them up, wind them down, sell the businesses off. and make sure that taxpayer is not exposed to risk of loss. this is the third thing that is important as we proposed. if the government is exposed to any risk of loss in doing that, that we recoup that loss in the form of a fee applied to the financial system over time, as we proposed in the president's proposed fee on banks. so you need the ability to limit risk taking ahead of the crash. you are need it to prevent the future crisis. but in the event that they're able to mismanage themselves, the ability to step in and put them through a quasi bankruptcy regime and do that in a way that doesn't leave the taxpayer exposed to any risk of loss. those are the things we cannot do that today with the existing authority that the executive branch has. >> no, i understand that. i appreciate that. but i guess what i'm saying

is -- and perhaps you don't want to directly answer my question and i won't be offended if you don't, which is if we have to take apart those banks today, would we have to use taxpayer funds to do so? >> well, i don't -- i'm not -- >> if we have to unwind the big banks? >> like i say, i'm being responsive to your question which is right now, and this is a tragic failure of government in the united states, we still do not have the authority to deal with the potential failure of a major firm, a future aig. we don't have that today. and it is -- we can't fix that without legislation to give us the authority to do that. so if we get that legislation and we can meet your test. we have the ability to manage its failure safely without leaving the taxpayer exposed to risk of loss or a bunch of innocent victims xpaexposed to damage. >> the analogy with ma bell

rings pretty true because back in 1984 the congress said, hey this is anti-competitive. and let's just, you know, let's just go ahead and break it apart. so, to me, five banks having, you know, even if it's close to 80%, to me is a monopoly and obviously i don't think it's healthy for this country. and i say that, too, because i don't even know if the fdic, if one of these banks failed, i don't know if the fdic will be able to hold the enormous liabilities of deposit insurance. i don't think they could. >> i'm agreeing with you which is that a critical comparative of financial reform is to make sure we have the tools and the authority to do just what you said. >> so what authority -- >> without the taxpayer being exposed or businesses failing across the country being exposed to the collateral damage of their failure. >> instead of even allowing all become too big to fail maybe we should give somebody the authority -- >> to limit their risk taking. >> exactly. >> you read it in january.

right now we have a cap on the share of the nation's deposits, any individual bank can hold. that is a necessary constraint. it's a good idea, a good thing for just the reasons you said. but it has this following effect which is unfortunate. you can become bigger over time as long as you fund yourselves with other sources, more risky sources of funding. it's a well designed constraint but has the effect of allowing size and concentration but in more risky forms. we propose to complement the cap with additional cap on total size so you don't have a level of excessive concentration, consolidation over time. for some perspective we have a system of 9,000 banks in this country. a great strength of our system is not only do we have a set of large institutions that operate globally, much stronger today than they were two, three, four years ago. but we have 9,000 banks across the country meeting the needs in

their communities. that provides a great source of competition, resilience and strength. we very much want to preserve that. >> i appreciate that. mr. chairman, i have to leave for about 20, 30 minutes. i'll be back. thanks. >> thank you, mr. chairman. mr. secretary, i want to go back over -- not go back over, but deal with some issues that have been raised. first of all, i heard the greece finance minister yesterday on cnbc. he was asked a question about goldman sachs. what he said was that the activities that goldman sachs were involved in were perfectly legal at the time and were a part of the interactions that were taking place on behalf of a number of countries. i don't want -- you know, to

have on the record allegations of violating any opportunity for a response because i'm actually appreciative on the small business lending side. they have taken some $500 million and created a fund to try to aid in providing credit to small businesses. and i appreciate that, along with the point that you made earlier about bank of america's decision on the debit card overdraft charges. i think we ought to be careful as we go forward that we delineate, you know, where appropriate criticism should be levied and where it shouldn't be. but i wanted to get to a couple points. we have had a number of dialogues over mortgage foreclosure. the program that i created in pennsylvania, the housing emergency emergency foreclosure

program run through the housing and finance agency which provides actual relief in terms of payment of mortgage payments for people who are unemployed through no fault of their own. it's helped over a couple decades tens of thousands of families in our state at no loss to the taxpayers because it tags onto the back end of the mortgages, those payments or as a small percentage of ongoing mortgages. there is no loss, it worked well. we have had a moment in time in which many of the mortgage foreclosures were because of lending practices. the vast majority of the foreclosures we face now are related to unemployment. there's no ability for someone who's unemployed to pay mortgages. if we want to keep them in their home there has to be some effort. that's why i'm happy that the house agreed with me and we passed some $3 billion in the

reform bill that you complimented us on earlier in your statement and you urged the senate to act. i hope you are urging the senate to keep the $3 billion in place. i was pleased to see the billion and a half provided to what were termed to be the hardest hits states. now, states are a geographical place, but they are hardest hit. there are a lot of ways we could delineate where people need the most help. i'm for us helping taxpayers who have been law-abiding, hard-working, who saved enough money to buy a home and are making mortgage payments. if they lost a job because of a recession that they have had no fault in, for us to take on the other hand, tens of thousands -- i think it's close to $90,000 it costs the taxpayers to foreclosure on a home when we could intercede to help. we have a record of doing that in pennsylvania to the tune of an average of $6,000 a family we

have been able to maintain people in their homes, not ruin their credit rating, destabilize neighborhoods. so i wanted to mention that again and put it in thor record and ask -- the record and ask you to comment on that and comment on the new lending record, good experience and i compliment you for the design of it. it's a good example of how initiative at the state and local level is a good thing for

us to encourage and reinforce. we will support the efforts you described in the house bill to provide more oxygen resources for the programs. you're actually right. one of the most effective ways to get small business lending to increase in communities where credit is through the cdfi program. and we have, as you know, we have not just put substantial additional budget resources into the new market tax credit program but we announced recently that we would give capital to -- we provide a program for cdfis to get capital from the treasury at attractive conservative dend rates. i think it will be ane if he can tif program. we are putting it in place right away. that's under the t.a.r.p. and we think it will have a good return in communities where typically

what happens is investment dries up quickest, credit flees most quickly, comes back latest. this is a very good economic case for trying to make sure that we're getting resources targeted to the communities, the decisions that could do a good job. you and i were in philadelphia together highlighting one example of the kind of program. we're committed to that. >> last question. on commercial real estate which is the new -- not new, but the challenge of the greatest, i think, concern in the horizon now. where we have -- and i know of instances in philadelphia and i assume they are not isolated, where you have commercial real estate mortgages that have been paid, that are vanilla deals that there are no issues. versus hardship cases. i'm not talking about hardship cases, but where you have the deals that are still being

yanked. is there any thought yet about how we might go about not having a round of foreclosures when we don't have to have them in the commercial side? >> it's still going to be a big challenge. i think commercial real estate challenges, it will take a while to work through the problem. we have put in place a series of programs and i know you're familiar with them, to help ease the process, but it will still be very difficult. one of the reasons we proposed the small business lending fund is to make sure we are getting capital to small community banks that are among the hardest hit by what's happened in commercial real estate. we think the nmix of programs t get capital to those who need it and getting securities markets more liquid again is the best thing we can do to ease the transition. it will be difficult for a time. happy to talk to you about it. >> i have an idea. i would be interested in whether there could be dialogue about

what we might be able to do in that area. thank you. >> mr. chairman, i want to end where the congressman began. i think it's important to recognize that, of course, banks are different. not all institutions were the same, but i would say across the american financial system you saw banks and finance companies doing things that caused a dramatic loss of trust and confidence in the american financial system. and i think they all need to work much harder to earn back the trust and confidence of their customers, of the americans, the investors and of people around the world. i think they have a long way to go. i'd like to see them all doing more to help restore basic trust and confidence in their customers and the american people. you highlighted examples of things people are doing. we could see more of it. they have a lot more to do. one thing they can do is help make sure we get financial reform passed that puts in place a level playing field of strong protections, deals with the too big to fail problem.

that is a good thing for the country. i think it is a good thing for the future of the american economy. it's a fair thing to ask them to support. hopefully they will work with us to get a strong package of reforms in place as the house has already passed. >> with my $3 billion emergency mortgage fund intact. >> so far you have proposed seven bills. i like it. >> this has already passed by the house. it's in the wall street reform bill. >> the other one is on the way -- >> thank you. the secretary promised a rigorous examination of the idea, pros and cons. >> to tear apart, but we will do a careful, balanced analysis. >> i think any idea should be able to with stand analysis. >> thank you. >> thank you, mr. chairman. mr. secretary, the bailout bill which passed in the last months of the bush administration which i strenuously opposed did contain language that had a requirement that t.a.r.p. money

repaid to the treasury be used for deficit reduction, which i wanted to ask -- do you agree that's important? >> absolutely. the important thing to recognize is that we have now taken back replaced with private money more than two-thirds of the investments that my predecessor had to make, and he did the right thing. that was a necessary thing to do. we have back more than two-thirds of that. i think more than $170 billion of the american people's money and under the law that goes to reduce the deficits and the debt. >> and should not be reallocated for another purpose? >> again, congress under the laws of the land can decide what it does with the resources, but we have saved substantial resources for the american people and would like to make sure we are devoting those to the right priorities for the country. of course we face two priorities now which is getting the economy back on track and digging out of the fiscal hole we inherited -- >> wait, wait.

you inherited some -- you inherited a fiscal hole. >> that's right. >> but you dug the hole three times deeper. >> that's not true. you know the fact in this is when we came to office -- >> you dug the hole much deeperer. >> no, no. all we did was try to rescue an economy in collapse, a financial system at the edge of failure. we did that in the most careful effective way we could. those actions, as you have seen, have had a very substantial effect in restoring growth. >> set aside whatever your intent was in spending the money. it is a fact that the annual budget of the united states in 2007 was about $1 trillion. in 2008 was $1.1 trillion. in 2009 it was $1.2 trillion. and yet in a little over 12, 13 months that the obama administration has been in office, your administration and the pelosi/reid-led congress

have managed to spend in the course of a single year, you signed $3.3 trillion worth of new spending into law. >> congressman, i would be happy to go through the numbers. >> you have spent less time than any congress in the history of the united states. it defies common sense for this administration to pretend that you're paying attention to deficit reduction. it just doesn't square with reality. >> congressman, faced with the worst economy in generations, the president and congress acted. if we had not, the economy would have fallen off the cliff. the economy would be declining still. our deficits would be larger. if you care about fiscal responsibility there is no way you could have argued that the response for the government should have been to stand b back, let this economy collapse, let the system collapse. that would have been far more costly, not just the fiscal

position of the united states but to people across the country. there is no fiscal responsibility in a crisis that would have justified standing back and not acting. >> let's set aside the bailout because that was under the bush administration. the stimulus bill, $780 million. the omnibus, $439 billion. supplement supplemental, consolidated appropriations bill 446. the level of spending is unprecedented. the level of debt that you have asked our kids to pay off is unprecedented. >> no, i -- >> the deficit is unprecedented. >> again, i -- >> it is important. we want you to live up to what your words are. >> great thing about this country -- >> we have not seen it. >> we get to debate what makes sense for the american people. you can look at the actions we proposed, congress enacted and said you would prefer we do nothing or more in the form of

tax cuts but we put in place a set of well designed targeted measures that were absolutely essentially to break the back of the worst economic crisis in generations. we are at the beginning of the process of healing the damage that was done. i completely agree with you that we have to recognize, make sure the american people understand that we are going to have to dig our way out of this hole. >> by spending more money. >> that's not -- again, in this budget, the president's budget proposes specific measures on the tax and expenditure side to bring our deficit down dramatically over the next four years. >> you agree the bush tax cutses should be allowed to expire and -- >> that's not true. as congress legislated we propose to allow the tax cuts on the most fortunate 2% to 3% of americans to expire as scheduled in 2011. now, we have also proposed a freeze on nondefense discretionary spending for three

years and also other cuts over that period of time. some of those proposals will cut our deficits to below 4% of gdp in four years. now, you're going to propose different ways to do it. you may propose more aggressive ways to do it, but the basic imperative we share is to recognize as i think you do that deficits matter. we have to bring them down. >> i appreciate your vigorous defense of the proposals of the administration, but this is why the country is upset. what you say doesn't square with your actions. >> no, you can measure it by exactly what we are proposing -- >> you spent more money in less time than any administration in history. you have driven the deficits to unprecedented levels and you're trying to sell a bill of goods claiming you will create the mother of all entitlements, ensure 30 million more americans and save you money. no one believes that. >> don't expect you to agree, but the great thing in our country is we can have a national debate on what makes sense. >> that's true. that's why the november election will be a tidal wave.

>> thank you. everything that went wrong started in january 20 of last year. >> oh, no. >> i need a chance on the house floor to pull out of afghanistan, let's see how fiscal conservatives vote on that. i must take issue on something. you threw into the package the omnibus bill. >> yes. >> if i recall that was the regular appropriations bill that has to be constitutionally passed every year. >> right. >> i guess you were saying we should shut down government. >> i had a problem, mr. chairman, with the 85% increase in nondefense discretionary spending over the course of the last two years. that's what worried me. >> mr. chairman, could i say one thing. this is fun for both of us. >> we are enjoying this friendly debate. >> my chairman and i get along well. that's what makes it a great country -- friendly debate. >> with all respect to both of you, this is quite an accomplishment. he didn't blame anything on immigrants today.

>> congressman, i want to point out one thing about this. it's important for people to recognize, in the president's budget. we propose to leave nondiscretionary -- nondefense discretionary expenditures, a measure of the discretionary government four years out at the same level in real terms that we inherited at the last year of of the bush administration. so we are proposing enough restraint to make sure the temporary things we did to save the economy from collapse go away and we bring ourselves down to the size of government, taking out defense and security, that is where it was in real terms when we came into office. >> four years from now. >> yeah, but if you would like to get there overnight, happy to work with you on that. but we are going to try to get there by restraining expenditures in a way that is careful and balanced and allows us to come out and heal the damage cause bid the crisis.

i respect your views. i'm glad that here you are making a vigorous case for fiscal responsibility. we need more people to do it. it's a good thing for the country. >> mr. chairman, you will enjoy this. one quick follow up with your permission. >> yes. >> do you still have the zimbabwe bank note in your wallet? >> i don't carry my wallet anymore, but i remember our exchange from last year. but as you recall you showed me the pink version. i had a better one. >> i had a 50 billion dollar bank note from zimbabwe. i was impressed that the secretary had a trillion dollar -- ten trillion dollar bank note from zimbabwe. we're going to help you get the deficit in balance. >> good for people like you to make the case of the country that deficits matter. >> thank you, mr. chairman. >> what i learned about capitalism is every so often you have to invest to make things

happen and banks and other folks were not investing so government invested some. i think at the end of the day we'll get a good return. mr. secretary, on march 4 of last year you stated that the administration had laid out a clear path forward to helping up to nine million families restructure or refinance mortgages to a payment that is affordable, now and into the future. unfortunately the latest treasury report on the program shows only @@@@@@p @ @ @ @ @ @

but the number that matters now is a million. the million is growing. we're going to reach as many as we can. >> what was the 116,000? >> that's the number of permanent today. but remember, when you get a temporary modification your mortgage obligations get reduced substantially, right from that point. now, of course, we want to see people eligible for permanent modifications get permanent modifications. for people who got -- and it's now a million family ace cross the country, they are seeing an immediate substantial sustained

reduction in their mortgage obligation so they have a chance of staying in their homes. of course we'll make sure we are reaching as many people as we can. as many of those temporary modifications are converted into permane permanent. we are seeinging the numbers increase, and we'll keep working on that. >> can i make a suggestion? to issue yet another report that tells us what you just told us so people don't rely on the other one they know. >> absolutely. >> i'm asking my question based on that information. >> we did not claim, mr. chairman, that we would reach nine million americans through that program. we thought as it was originally designed it would reach up to three and a half. we may not reach that target but that was over a period of time. the architects of the program say we are on track to reach the initial objectives but we'll do what we can to make sure we reach as many people as we can. >> okay. in the 2011 budget proposal for the cdfi fund you propose

zeroing out two existing programs -- the bank enterprise award program which provides assistance to banks that demonstrated increased lending activity in low income neighborhoods and the capital magna fund which provides competitive grants for constructing, preservinging rehabilitating or acquiring affordable housing in low income neighborhoods as well as other economic development projects in communities with a housing in question is located. would you please explain why the administration made the decision not to request funding for these two programs? >> mr. chairman, as you know, governing requires making choices among competing priorities with scarce resources. what we did and you need to expect us to do is to take a careful look at these programs and make sure we are allocating resources where they have the highest return. after careful reflection with the knowledge that many people like these two programs we proposed to cut funding on we

thought the resources would be better used in supporting the signature cdfi program which has so much support across the country, such a good record of success. we took a careful look and we thought those resources would be better used in support of the signature cdfi program. i think i'm confident that's the right judgment. again, we're making choices and trying to demonstrate to you that we'll use resources you allocate to us carefully and take a look at programs that even if they help may not provide high enough return for the resources we are providing. >> okay. just for the record, you know, it doesn't sit well with me or other members of the congress that the first page of my questions to you, i asked why cuts to the program serving low income taxpayers and on this the one i'm asking you similar questions. so it would seem either that i'm asking all the questions that lean on one side or we are taking hits again, directing hits at the low income parts of

the country. >> on balance we have proposed a significant expansion in these two signature programs which are cdfi and new market as the tax credit program for reasons that we both agree, these programs have a great record of reaching some of the hardest hit communities in our country with a very good record of success leveraging private money to help make sure our taxpayer dollars are used effectively. they go to institutions with a good record of lending in their communities. so my own view is that we are increasing investments and reforming how we use them in ways to make them more effectivement. >> -- effective. >> i have one last question. she said she wanted to come back but we're getting to crunch time here. in the last year banks reduced their credit outstanding to commercial and industrial businesses by almost 20% or $300

billion. when businesses lose access to credit they cut back jobs and prolong the efforts at economic recovery. the financial press reported that the financial services sector paid out more than $100 billion in bonuses in the last couple of months. what do you think will be required to resume business lending in this country? do you agree that the obscene amount of money handed out for bonuses could have been retained and used to increase credit in our struggling economy by hundreds of billions of dollars? >> mr. chairman, what you have seen happen in terms of credit is a mix of two different things. one, as you saw, demand for credit fall very sharply as the economy growth slowed, the economy contracted. you have seen a substantial reduction in banks who were short capital. both those things are happening, but it's starting to ease. the best measure of whether credit is getting easier or tighter is the price of a loan. and the cost of credit has come

down dramatically across the country for a business, a family, a municipal government. that's a measure of progress we have achieved in trying to heal damage cause bid the financial system. now i completely agree what you have seen happen in compensation practices is unacceptable, outrageous. we are working very hard using the authority congress provided us to make sure we are bringing about durable reforms in how financial executives are compensated so they don't have the incentives to take a bunch of risks that leave the american people holding the bag. it's important. we have seen some progress, but not enough. we're going to keep working, making sure we encourage reforms that will make sure we don't get in this mess again. >> right. i know you realize that part of the lack of public confidence in what we are doing is when we continue to see this happen. >> absolutely. >> one last point and i won't make all the comments that go before the question. with the whole issue of t.a.r.p.

and the public feeling that the money is not going to the right place, with 20/20 hindsight, what more do you think could have been done from the onset of t.a.r.p. to ensure greatest transparency and accountability in hthe way the t.a.r.p. dollar were being used? >> mr. chairman, it's hard to say that even with the benefit of hindsight. but let me tell you what we are committed to and what we did. we made sure we put the precise financial terms of all the investments we made in the public domain on our website for everybody to see, right from the beginning. we have adopted a whole range of proposals by the various overseers, congress put in place to improve transparency of the program. we put in place a dramatic improvement in the access to information the american people and the terms to which they were provided. we'll continue to work on ways to do is that.

the important thing to reflect on as you look at how the program was run is we have now got back more than $170 billion from the financial system. we have reduced expected losses by more than $400 billion from where they were just a year ago. we saved substantial resources for the american people to devote to long-term fiscal challenges and not just near-term priorities. we have done it at much lower cost than people expected and have seen a dramatic improvement in credit conditions across the country. the american people can look at that record and see the detailed numbers on the return, on the risk of losses and they can see the benefits. but we all recognize there are a lot of challenges ahead of us still in small business credit, housing markets and commercial real estate. this is not over yet and we won't make the mistake many countries have made over time which is to pull back too quickly to stop before we have healed the damage. and this crisis caused a huge amount of damage.

we have a lot of challenges left. >> i would like to ask about freddie mac and fannie mae if i c can. >> one more. i have to go speak against the war, save some money. >> that's always good -- to save money. >> o okay. >> thank you, mr. secretary. i want to ask about fannie mae and freddie mac. the congress put records on the liability of the taxpayers and treasury had the authority to do so and lifted, i think, the caps on the amount of the exposure. but we have not yet seen a reform proposal out of the administration and the scale of the losses, of course, at freddie mac and fannie mae are immense. this is a scary situation. as a fiscal conservative i don't like to see the taxpayers put on the hook for this, particularly in an unlimited way. if you could, would you tell us what the administration's time

frame is, why we are still waiting to see reform for freddie mac and fannie mae and what will it entail to protect your kids and mine? >> what we have suggested, congressman, and we will put it in the public domain and i will testify on some broad objectives and principles to guide reform. we'll put out questions on strategy for public comment. this is a complicated issue. we want to take a look at the entire set of government agencies that act in the housing market and policies that contribute to this crisis. our expectation as we go through hearing and public comment will put together reform that we put forward to the congress next year. you asked a legitimate question which is why not now? i'll be honest. we are doing a lot of things. we thought to do it well and carefully, do it right we wanted to go through a process of more

careful reflection. if we rushed it, the risk is we would not achieve enough and not get consensus. my personal commitment is we are going to need fundamental reform on the housing market, not just on fannie mae and freddie mac but a range of other policies and instruments. what we allowed to happen was a national tragedy. it was avoidable. we should never have let those institutions get themselves in a situation where they took on that much risk without credible oversight, capital to back them. it's a terrible thing and it will require comprehensive reform to change it. >> the sooner the better. also, mr. chairman, it's important to ask about -- we haven't touched on the commercial market. we are about to see a tremendous number of resets on commercial mortgages and a lot of the properties have been dramatically devalued. the valuations have plummeted

for a lot of the properties. they have a lot of vacancies, businesses that have left and the banks are so spooky, of course, about real estate loans. and we've got potentially another tidal wave coming. what is the administration doing and this is an important question. what is the administration doing to attempt to mitigate the size of the commercial reset tsunami which we see coming which is conceivably as big, if not bigger than the residential mortgage problem? >> you're right. it's a challenge. it will be a challenge for the country to work through. again, as i said to your colleague earlier, the two things we think are most effective are to make sure we are getting capital to banks which could be small community banks which face exposure to losses but we want to make sure we are helping provide liquidity to the securitization markets which are helpful in this context. the programs put in place have

been helpful so far. they have made impacts so far, but there is a challenge still ahead. happy to hear suggestions from you. >> the chairman has been gracious giving me extra time, but the regulators are being unnecessarily aggressive in attempting to force banks to get real estate off their portfolios. it's not a good idea. the regulators, i think, are a part of the problem. you want to make sure the loans are prudent, that they will be repaid. in houston, i know of a tremendous number of blue chip borrowers with very long stable credit histories that never missed a payment and banks are turning down loans because the banks are hammered by regulators to get real estate off of their -- do you know what i'm talking about? what can you do about it? just giving breathing room to the banks on the regulation

side. if it's a safe investment, the guy's always paid his bills. you have seen reduction in the valuation, but come on. you know, keep learning money. what can you -- loaning money. what can you do there? >> it's a serious concern. this is a matter for the fdic, the occ, ots and the fed. what we are doing is encouraging them to continue to provide more care and balance and n the guidance to examiners across the country so they are not overdoing the tightening. not contributing to it. they put out guidance in november to help clarify how examiners should treat loans oh to eliminate some of the risk. i will certainly carry the message to them. >> ms. emerson and i and other members will submit questions for the record. we thank you, mr. secretary, for your time. we thank you for your direct answers. we want to work closely with you to make sure the recovery is strong and that the things you

inherited january of lastear are dealt with properly. we thank you for your time. >> thank you very much. >> the meeting the adjourned.