>> i wasn't clear. >> you're saying end users either the mark or margin requirements? >> yes. >> they can choose. >> they can choose with their end user exemption, they can choose to clear and they can choose whether clear, if they choose to clear. or they can choose not to clear and then they are subject to, again, the capital requirements and regulations.

because they didn't become more systemically relevant to the economy. >> probably didn't say that right. it is clear versus unclear, and she just said. >> thank you. >> madam chair many? >> yes, sir. >> i've been waiting patiently. >> i know you have. >> on the bipartisan agreement. >> we are grateful. >> could i be recognized at this point? >> absolutely. >> i appreciate all the dissertations offered by the witnesses, feel they all deserve a doctoral piece of work in a land university in america. in regards to the issues that we've been talking about. but i want to speak in support of bipartisan substitute amendment that we will consider right now. and i really want to thank the chair and the ranking member for working so diligently to come to

an agreement just over a week ago. that's been in six month effort, folks. that's staff on both sides working for six months to come up with a bipartisan agreement. time and again, i hear our constituents calling for democrats and republicans to work together. they want us to roll up our sleeves and do the work we should be doing. and like senator conrad has indicated on the ag committee we like to think that we do that, and while enjoy serving on the ag committee and enjoy serving on the ag committee, been an house for 16 years, now 13 years here, it's been my observation that our differences are regional, not political. the high road of humility is not often bothered by heavy traffic in washington and we are a humble group. we don't pat ourselves on the back that much, and we on the high plains, we engage in a from

a disagreement with our colleagues from elsewhere. i understand that. at the end of the day we know their positions and we know they respect the farmers and ranchers and our state. not some ideological strategy. i am very disappointed in sitting here listening to all this, it appears the ag committee is at a different place today. i know we want to work together. we want to move forward. smothered ourselves into humankind is and hope that it doesn't girdle. bipartisan work that was the result of months of good faith negotiation betwe this committee's leadership has been tossed away. at the last possible moment. i don't know why. it happen, but we have a chance to correct that today by voting for this substitute. i understand there are 17 different is, now down to 12. there was a draft before but i've not had an opportunity, as indicated by the senator from

montana, to look and see what really is the difference between the bipartisan agreement that we worked on for six months, and then all of a sudden something else that is popped out of the woodwork. not that i'm saying that is bad or good. we just haven't had a chance to consider it. i told senator sachs be that i support his effort on a bipartisan package. the bipartisan substitute is not ago i would've written. in the words of the immortal bob hope, it's not the best possible bill, but the best deal possible. i imagine it is not the bill that senator chambliss would have reckoned. but i commit to working in a bipartisan fashion between to clean up these markets. and, therefore, i will support the bipartisan major. i would tell my colleagues across the aisle that disagreement is tough. the chairman knows it. the ranking member knows it. it is measured. it strikes at the heart of the problem. i will give you three examples. first, the bipartisan agreement

requires the participants to report swap transaction of data to the public regulators. senator harkin, no more training in the dark under this amendment. and your comments are right on the money. second come we've all heard the cries of the specters of the market place are driving up commodity prices it is packaged in the cftc the ability to set limits on both exchanges traded and over-the-counter transactions. this combined with my earlier point, the cftc woman who is trading, what, with, whom they're getting and how much is being traded. third, the bipartisan package forces those entities holding the majority of all swap transaction to clear their trades, swap dealers come hedge funds, high literature financial institutions and major swap participants that contribute to over financial instability must move the risk off their books and onto a clearinghouse that we've heard about repositories

after repositories after repositories. what we need is a clean house. i would to just that to my good friend, senator conrad, that to protect the ball or marketer at the same time the bipartisan package does target the systemic risk, the negotiators of this package to careful steps to avoid unintended consequences so those responsible for the financial mess of two years ago are held a candle and others aren't ended certainly swept up. so i really encourage my colleagues to support a bipartisan approach in regards to this legislation. let's try to work together and not let any political pressure sway our commitment to each other and our constituents. so as of now, and as it has been a very considerable months on this congress, the bridge of cooperation has been washed out. we apparently are not going to swim. and the bipartisan bill is on the other side. i am now writing country western

music. [laughter] >> i don't know the 17 different is that i don't know the 12 differences. i didn't particularly -- i wasn't particularly fond of the bill but i thought it was a good bipartisan bill and i was ready to support it. and then i learned yesterday when had our meeting on the republican side, everybody agree, i think we can support this. and then this doesn't exist. it's been replaced. we have a different market i don't know what's in that market i'm willing to work with everyone here to make it a better mark, but i don't see anything wrong with the bipartisan substitute after six months of working on it. and more to the point it seems to me that has been the case and a lot of major legislation around here where we have an agreement, we have a bipartisan agreement. and then all of a sudden it is gone. what it's like charlie rich, singing behind closed doors. that's what's happened. and deals are made and things happen, and those of us on our side of the aisle simply are left out. and i don't like it.

as a matter of fact, i'm sick and tired of being sick and tired about it. so without i appreciate all of the talk that has been gone on so far. i would hope people would vote bipartisan agreement that it took us six months to get here, and about one week and one day to change directions that i don't know why. i think we ought to vote for the bill that both of these people have worked very hard to put together, and i credit senator chambliss and a certain across the chairman, and i like your pearls. [laughter] >> madam chairman speck thank you, i appreciate that. and i appreciate your concern and plea in looking at coming to a bipartisan agreement. i, too, delay, but is the best way to move forward. it certainly would look for in terms of being there. i would just say that as we did worked diligently over those months and the staff did a

tremendous job, our staff working together to find that common ground, and in that staff proposal that was again a good agreement in terms of bipartisan issues that we can do. unfortunately, there were a few issues that were left to the end. unfortunate there were some of the more difficult issues where we do have differences. we also are caught by time constraints in order to make sure that we, as the agriculture committee as are a part of this process which is absolutely in my opinion necessary, and so i think moving towards the floor we will be able to resolve some of those issues that may still remain. i don't think there's even -- well, i think there's less of that as limited with senator baucus, probably more like four or five, in that instance. running out of time, just coming down to the wire, i know that i'm devoted to continue to work in that effort. and having work with senator chambliss for years, i know he is as will and will continue as

a committee to work together to find how we can improve upon this bill. and as i said before, i believe democrats and republicans want to get this right. and i'm dedicated to making sure that as the acumen we will do that. we work together to make sure that everyone brings to the table the issues to get the best deal that we possibly can when we come off the floor. i appreciate the senator's comments, and all of the patients of the members of this committee. i don't have a formal motion on your amendment, but i think that's exactly what we've been debating and discussing. and i appreciate a theater. also want to thank the cftc and treasure for being here to help and to question in terms of your perspective and your understanding of your responsibility. so if there's no other further debate on the amendment, yes because i hate to take up more time. this chart was and that by mr. gensler. the three pie charts.

it's my understanding of him to answer the question about what's served between the lincoln mark and the chambliss substitute, is if you look at those three charts i'm told that the lincoln, chairman's market would cover both the blue and the red in both trading and clearing. the champ is substitute would cover only the blue. in terms of dealing. but neither one in trading. so as far as i am informed, if you look at this pie chart, reporting other financial institutions can you can see how much that covers. the nonfinancial doesn't make up much of anything. the lincoln, the chairman's mark, both the blue and the red. champa substitute only covers the blue. if i mistake and that i would like to have someone correct me.

>> does anybody have a copy of that? >> we did not. well, chairman gensler seems to have plenty of copies, as he does. >> i would like to ask mr. gibson if my comment is correct. >> i don't have a copy of it and i don't know what's blue and what's red. but what i can do is undermine a minute, every single transaction will be reported in one form or another. to the cftc or the sec. 100% of it. >> i understand that 100%. addition to any dispute about that or any misunderstanding. >> i'm not talking about the reported that a document clearing and trading. >> you're not going to clear end users under the chairman's mark. don't be mistaken about that. >> i think the point is if we're going to keep working on this and to pie charts and this that and the other, and consider red and blue and the difference is

why don't we work with the bipartisan bill that we started six months ago on and use that as the base bill and go ahead with all these other concerns? i don't get it. >> as i mentioned before we can surely continue to work on these, but everyone -- i have put forward a mark that i feel is the storms and the most necessary in terms of circumstances that we are dealing with. as i said the minor disgrace that we had still exist and we work through us as we work to the floor. >> i think the senator from iowa raise a good point. i think it should come from all those to look at these three charts here to get an answer to the question that the senator asked. i think it's quite a loss to give of the various different approaches of the bill. be answered that that question will explain a lot.

>> since it is chairman gensler's pie chart i will let him. >> these are statistics from the bank of international summit ,-comcomma to international statistics. not collated by us. out of the worldwide market. there are three charts, currencies, interest rates and commodities. the middle one i was just you because i memorized it. the blue is transactions between a swap dealer and a swap do. could be one in europe and one here, but between to swap dealers. the red is a swap dealer during a transaction with an insurance company, a leasing company, a hedge fund. and the green is what we are calling commercial end-users, bubankf international settlements is a financial industry. a transaction between a large swap dinner, it may be a retailer. or a manufactured. so i believe it's quite clear, and treasure can comment on, the

senator staff can comment, but the bill covers all of the red and the blue on these charged. and says that needs to come to clearing and trading, only if it's standardized. if it is a customized transaction are still existed under exempted from clear entry. and only if there is enough volume as well. but it covers that. and the green is exempted from the clearing and trading if they are hedging. just have to show that they are hedging. that is, as i understand the bill, i think it is a strong bill. >> if i might, madam chair. the question -- is it on? the senator from iowa raised about the distinction between, which the chambliss substitute -- >> the substitute doesn't have a trading requirement. it does have posted trade transparency but it doesn't have a train requirement as the senator said.

but on a clear requirement, the substitute, all of the red, would be treated like the green to answer all of the red and the green may be exempted. and that would be hedge funds or insurance companies, if they are hedging. and that's the concern that we are concerned that that would then make a future treasury secretary faced with a terrible decision of saying if i let the swap dealer fail, i'm going to bring down the insurance companies and all of your states. are bring down the leasing companies and all of your states. >> mr. chairman, wait a minute. some of these folks who are in red are going to be financial dealers, and there's going to be clearing there. major swaths of dealers. >> again, these are bank of international settlements so if you're right, they didn't categorize them her u.s. statutory construction.

so the blue is swap dealers to swap goes. it may be that some portion and the red would be a swap dealer. maybe some end of the wooden be under the statute. so you're right, that this is just illustrative. probably 30 to 40% of the market right now is swap your to swap dealer, which is logical. to have a lot of financial end-users and a lot of corporate end-users. what it is illustrative of is something like 50 to 60% of the market our financial companies entering into trades with swap dealers. and it is that which we feel is a distinction. it is a very real distinction between the substitute and the chairman sparked. >> yes? [inaudible] >> absolutely, without objection.

is there any other -- just. >> i first want to thank you for the great work of don is though, understanding we need so much more transparency here as a look at what happened in my state. they sent wall street got a cold but main street got pneumonia. were still sing the repercussions. i want to thank you for that and also your acknowledgment that derivatives to play a crucial role in our financial system. and your and disdain for end-users. i just had one question that was raised with me in this context, but some manufacturers are still, chairman gensler, that they will be swept into the major swappers to be a definition. could you address this? >> i don't believe that a manufacturer could be. i mean, it's always possible that if they were so systemically relevant and had a substantial book of business, but i think the clear intent of the language that's been written around major swappers disciplines, i know there's more

time to the floor and possibly conference, but i don't believe that's the intent, as i understandit, or the language. >> thank you. >> any further debate on the amendment? hearing none, i would like to move to that amendment. is there a second? >> second. >> good. the clerk will call the roll. this is on the chambliss substitute, the amendment. [roll call] [roll call]

[roll call] [roll call] [roll call] >> the amendment fails. are the other amendments? senator grassley?

[inaudible] >> on whistleblower provisions, and maybe no one else is interested in what you put in here, and i want to compliment you for including whistleblower protections. and i don't think i have to go into my background of being very interested in making sure that we have incentives and protections for whistleblowers. and that i have legislated in that area over a long period of time. i've been involved with the false liens act and serving oxon whistleblower protections. there are a number of problems with the way your provisions drafted adam want to bring to your attention without offering an amendment. in a number of ways, it mirrors other whistleblower protection laws. so from that standpoint i can't find fault with you, but there are some differences that make a difference when you compare it to how the courts respond. whistleblower laws are extensively litigated, and the

courts define how these laws will work. for example, the whistleblower protection in the false claims act has been substantially weakened by this supreme court. because of this, the negation it is imperative that we get something right from the start. i'm not come instead as this bill moves forward, instead of offering the amendment now, i'm going to work with a group of senators on the homeland security committee that i always worked with to make sure that whistleblowers are protected and that our whistleblower laws are uniform and defective become and will withstand the tests that await the courts. this provision in this bill, like the one in senator dodd financial reform bill, needs to be harmonized so that we don't risk weakening of the whistleblower laws that i fought so hard to get signed into law. we owe it to the whistleblowers to get it right, and from that standpoint, i don't, whether my view shared by people in

congress or bureaucrats in washington, but i believe whistleblowers are very patriotic people. they come forward when they know that something is wrong, when money is misspent. they come forward, expose themselves. most often whistleblowers ruin themselves professionally if they don't lose their job in the process. and i think everything we can do to make sure that they have the proper protection is necessary, take opportunity at the same time to correct things where the supreme court has weakened whistleblower protection laws, and the extent to which it isn't that harmonization or the extent to which we need to take a look at overturning supreme court decisions that we condemn, i want to take the opportunity of this legislation when it gets to the floor to do, both in the case of what you have included in the derivative bill as what senator dodd include in his bill. >> i thank senator grassley, and

as always feel like is brought to our attention a meaningful and helpful stuff. are the any further amendments? >> i don't have an amendment. >> sherm. >> just the common as well. i want to aye although that what the senator from kansas said. i think in terms of the process this is a very complicated, very complex piece of legislation which has been awfully put together over a series of many months, to hearings and this committee. and in the game change a little bit in the last week. and so i supported the champa subsidy which ably represented the bipartisan agreement that had been reached. i intend to vote against this bill. the amendment version of it we received 7 a.m. this morning. and i know that it's been out there for about a week and you've been in the process of trying to refine it. but it still, in my view very short notice in which to

consider something this competent. and i am interested in getting clarification because my understanding from what the senator from georgia said was that his substitute did in fact, this red section were talking about on the pie chart which was unveiled to us here late and again, to get some clarification of some of these issues, because i think it's important that we note we are dealing with. i know we will have an opportunity to do that before we get to the floor. but i hope that these differences that have come up between the original agreement and was achieved between senator from georgia and the chair, that we can return to not only the spirit in which that was reached but hopefully an agreement upon the substance is as we proceed to the four. i will vote against the legislation today, but hope that we can work together to try to get something that we can all support when he gets to the floor. >> i think senator thune for

that, and appreciate it. we do look forward to working, moving forward working with all the members of the committee. i would just take the pie charts were not what we worked from in our mark, in the committee. and the staff has worked diligently. i know that the mark we had out last week, some of the changes that we made were presented last night and were, the staff was here all night long to work through members staff questions and other things. and i apologize for that coming in late. we do want to make sure that we, as i said, don't miss the opportunity to be a part of what happens on the floor. and my instructions were that was going to move quickly. i don't know how, but i don't want to miss that opportunity. so i apologize. but the staff was your last night and i think many of the stats were able to ask a question and we appreciate it. we certainly make the commitment than moving forward we will be working with all members of the

committee to again try to come up and come to a place of common ground. where we all are accustomed to being in the agriculture committee. so, if there's no further amendment, i would now like to report the legislation. first i'd like to ask unanimous consent to allow staff to make technical and conforming amendments, including what senator grassley brought up, specifically. i'd like to include that in terms of working with him on those conforming amendments as necessary. any objection? hearing none, so ordered. i will now move favorably towards the report in recording the legislation to the full senate. is there a second? >> second. >> the clerk will call the roll. [roll call]

[roll call] [roll call] [roll call] [roll call] [roll call] [rolll]

>> the bill is what ported -- reported. it was 13-8. the writ bill is reported out of the committee and the committee is adjourned. [inaudible] >> i will surely make an announcement that without objection, all member school be able to submit their comments for the record. and with that, the committee is adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> in a few moments and oversight hearing into t.a.r.p., the troubled asset relief program which is helping financial institutions.

>> now hearing what the treasury department special inspector general for the t.a.r.p. program. neil barofsky testified about president obama's plan to levy a fee on the largest banks to pay for the rest of the troubled asset relief program. $90 billion, over 10 years. this is an hour and a half. >> committee will come to order. the a pistol of james says quote see how great a forest a little fire candles. end quote. i the financial crisis of 2008 kindled a fire that spread throughout our entire economy. that fire destroyed more than 8 million jobs. that fire lead to more than six foreclosures. and that fire led to 3 million

bankruptcies. the spark for the fire was lit in the financial industry. to generate huge profits and big bonuses, the financial sector made a fire. make banks writing bad mortgages they should know folks would not be able to pay. and they would have noted if they had done their homework on the loan applications. next, big banks bottled big bad mortgages together and sold them to investors. they call these bundled collateralized debt obligations, or ceos. they called securitization. other big banks ensure that collateralized debt obligation against their yours. they call their insurance policies credit default swaps. credit default swaps allow the banks to protect their risk and make big profits, even if the mortgages that the writing was bad. basically they hedge their bets and made a lot of money on the transactions. unfortunate the transaction

system don't have enough money. and now there are charges that big banks may have been both assembly packages of mortgages on one side and betting against them at the same time. then the spark kindled a flame and suddenly our nation's economy was gold in the five. the dow plunged dropping to just above 6500 in march of 2009. unemployment rose above 10%. then treasury secretary paulson knew he had to act. he came to congress with a proposal to save the economy, the proposal turned into the emergency law that authorized a treasure trove of almost $700 billion in the troubled asset rich coverage program, also known as target i knew when we were working on this legislation we need to hold the treasury and t.a.r.p. recipients accountable. accountable for how the money was spent. t.a.r.p. was spending hard earned taxpayer dollars to save

the big banks. and those big banks have been paying out bonuses worth billions of dollars. those big banks sometimes have been rewarding excessive risk taking that so i propose we built right into the lot and unbiased investigator does investigate would ensure the transparency and accountability of t.a.r.p. funds. that proposal resulted in the special inspector general for the troubled asset relief program. that person is an before us today, mr. neil barofsky. welcome, mr. barofsky. mr. barofsky is a spago for overseeing the t.a.r.p. program. he keeps track of where the money goes, how it is spent and whether it is payback. that leads us to the purpose of today's hearing. the t.a.r.p. legislation anticipate there might be losses. congress anticipate the banks might pay back something less than all the t.a.r.p. money. the most recent estimate anticipates the treasure will end up losing about $89 billion.

we need to think about how we're going to get that money back on half of american taxpayers. in january, president obama proposed a bank fee to recover t.a.r.p. funds. this the assessment to raise many billion dollars over 10 years. we apply it to the 15 largest financial institutions in the country. this committee is going to take some time over the course of several hearings to consider the president's proposal and other options to recover t.a.r.p. losses. we want to understand the best approach designed a fee to whom it is applied and how it might affect the economy and the markets. we need to learn whether banks will pass on to consumers. we need to take into account what european countries might do as they consider some of the levees. we begin today with mr. barofsky, who has benefited from the t.a.r.p. program, how much have been paid and why some t.a.r.p. beneficiaries might never be able to pay back the

american taxpayers. the financial crisis of 2008 kindled a great fire that spread throughout our entire economy. so let's examine how wildly that fire has spread, let us see who benefited from our efforts to put out the fire, let us try to learn what we can to prevent such for the economic fires in times to come. senator grassley? >> i welcome you here, mr. barofsky. you and i are both big believers in transparency and oversight, and accountability. and thank you for leading that effort, even though it's on a very narrow area of government. it sure is an important one, when $700 billion was put out by congress. today, we are discussing what the president calls financial crisis responsibility fee. however, the assistant secretary for tax policy told the dozens of people in attendance and a briefing for senate staff on the present fiscal year 2011 budget

earlier this year that the president proposed fee is actually an excise tax. this is similar to the name game that the administration played with excise taxes and their health care bill, although they're referred to the excise taxes as fees, the legislative text clearly states that they are actually excise taxes. i will refer to it as the t.a.r.p. tax, not the bank tax as some call it because the proposal applies not only to banks, but also to insurance companies, security brokers, thrifts among others that the statute that created t.a.r.p. required the president to submit a plan by 2013 to recover any losses under t.a.r.p. so that the taxpayers are actually we paid for any t.a.r.p. losses. however, three years before it was required, the president proposed an excise tax, the top tax. one problem that surfaced

recently is congressional democrats are already reportedly planning ways to spend the money, raised by the proposed t.a.r.p. attacks. one proposal gaining steam among many on the other side, like me is to add the t.a.r.p. tax to the financial radio tour reform bill. the congressional majority is so strapped for money to pay for out of control spending that they're looking to the banks and other financial institutions or money. this reminds me of a story about a reporter asking willie sutton, a notorious bank robber, why he robbed banks. and son allegedly said because that's where the money is big i cannot emphasize that this next point in outcome if congress decides to pass a t.a.r.p. tax, that money should go only toward paying down the deficit. otherwise the t.a.r.p. tax wouldn't even pay for the losses from a jar. it would just enable more taxing

and spending by those who want to spend more. all economists state that corporate entities don't actually bear the burden of taxes. people do. i want to know which people would bear the burden of the proposed t.a.r.p. tax. so i wrote a letter asking the nonpartisan experts at the congressional budget office and joint committee a series of questions along that line. the cbo responded to my letter by saying that customers would probably pay higher borrowing rates and other charges, employees might bear some of the cost, and investors could bear some of the costs. the cbo also said that the t.a.r.p. tax quote would also probably slightly decrease the availability of credit for small business, unquote. in addition the cbo said that, and here's another go, for the most part firms paying the fees

would not be those that are directly responsible for the loss realize by the t.a.r.p., end of quote. on one other item from the cbo letter worth noting is the t.a.r.p. tax would not apply to firms in the automotive industry. that is really odd since cbo's march 2010 report states that the automotive industry accounts for 34% -- know, 34 billion of the programs estimated total cost of 109 billion. chairman baucus and i invited gm to testify before argument at one of the later hearings. but gm representatives said that they didn't want to testify. and i think it's pretty obvious that the gm silence is deafening. on another t.a.r.p. matter, i want to thank you, mr. barofsky, for investigating the multimillion dollar severance

payment that treasury is allowing t.a.r.p. recipients, like aig, to pay their departing executives that as you know, i have communicated on several occasions with treasury and the t.a.r.p. special master for compensation about this troubling issue. and i basically have run into a stone wall. i am also pleased that you, mr. barofsky, are going to investigate the possible conflicts of interest on the part of key people at treasury who worked on the t.a.r.p. compensation regulations. since those regulations help executives walk away with huge severance payments, we need to find out if they were drafted by people who used to represent the very executives affected by the regulations. treasury claims that all of the proper refusals were made to but it has provided none of the

documentation necessary to verify their claims. so i trust that you will be able to get to the bottom of these important questions and report back to this committee in the near future. thank you, mr. chairman. >> thank you, senator. still honor to introduce you, mr. barofsky. thank you very much for your service to the country. i am very gratified frankly that we have named this position, set up his position in legislation that i can taking a portable is to find somebody, the kind of an auditor to have the authority and power to see how money is being spent. we also designed in a way to give you the power she needed, not just in some back room, robbing the treasury. the second, and very happy your performance, we selected every good person to do the job. thank you very much for your service to this country.

some confidence, very few people and program, is conducted probably. as much confidence as he went of course the good, but thank you very much for your service to this country. >> mr. chairman, i want to thank you for saying what you just said. because i think it's so important in the checks and balances of government, and particularly any oversight, that committees have to do and this committee does a good job of oversight, that they know that you are behind what's being done here and what he is doing. i think it's so important and i thank you so much for saying that. >> mr. barofsky? >> chairman baucus, ranking member grassley, members of the committee, first of all would like to thank the chairman and the ranking member for your kind remarks today. we've been conducting oversight for now it a year and at that is a privilege and not for me to be here today and to at least to

this committee our most recent quarter report to congress. we do have some good news to report. aspects of the financial system, there are clear signs are on the way to recovery. and many of the larger t.a.r.p. banks have been able to repay their t.a.r.p. funds far in advance of what anyone anticipated. and as a result the expectations were losses to the t.a.r.p., while certainly still substantial, have been trending downward. with omb recent estimates back in february of the approximate $127 billion, cbo estimate $109 billion. both of them estimate that the concentration of losses in the three areas of the t.a.r.p. support the aig, support the ottoman industry, and support to struggling homeowners but on the other hand while t.a.r.p. does appear to be succeeding in its statutory goal of getting wall street back on its feet, it is not meeting its goal of getting mainstream back on its feet. long-term unemployment remains at the highest in recent memory.

smaller community banks are failing at an alarming rate, 50 already this year. and the statutory goal of preserving homeowner -- homeownership. with estimates this year will even eclipse that. hap treasuries t.a.r.p. fund mortgage modification program was originally intended to help three to 4 million homeowners stay in the host by modifying their mortgages to sustainable levels. but it appears it may never come close to meeting that goal. with fewer than 230,000 permanent modifications, more than a year into the program. last month we issued an our report on the h.a.m.p. program where we detail some of the fence of the program and made recommendations to address areas such as transparency, problems with treasury's execution of the program, and problems and concerns about the programs very designed which leaves it vulnerable to ultimate failure because of high levels of redefault that a circumstances

where borrowers after they receive modifications are unable or unwilling to continue to making their payments because of the high rate of the payment or because of a hopelessly underwater. in an apparent response within days of the release of that report, treasure and as major modifications to h.a.m.p. program. addressing for the first time the issue of negative equity were underwater mortgages, one of the significant indicators of redefault. while treasuries actions have addressed some of the recommendations and issues raised by sigtarp, a to present their own set of concerns. and in our quarterly report would identify several of those issues and make further recommendations are in areas of the continued problems with transparency, problems with the central vulnerability to fraud, and problems with the design of some of these revisions. and lead to them being ineffective or arbitrary results for certain borrowers. it's important for treasury to

address these issues that we have raced here in this quarterly report, and are on an similar concerns by the congressional oversight panel and gao. otherwise it risk the h.a.m.p. program will be remembered not for being the catalyst for recovery and the housing market, but for its bold announcements, modest goals and make the results. and our core report we also do what we been doing in our investigative division. when the chairman and ranking member insisted upon the creation of sigtarp, over the objections of many, including those in treasure and others, it did so in recognition that in part with a program of this size would draw those he would seek profit, off of the national crisis. and in sigtarp we been build a sophisticated white-collar investigative law enforcement agency to meet that threat. in this task order is detailed in our quarterly report we've had some success. charles was indicted for family charged up in the southern district of new york for his

fraud as ceo and president of park avenue bank for trying to steal $11 million from t.a.r.p. on the civil side we work with the newark state attorney general to secure social security fraud charges against bank of america and his former ceo and cfo for their role in a fraud that affected the tar. we support the sec in its case that resulted in $150 million summit with bank of america that result in important government changes in the bank that out in california we assisted the nazis at turning office in the southern district of californcalifornia in obtaining criminal charges against glynn and michael the role and a fraud upon a more than a million dollars in his game that was designed to take and will advantage of struggling homeowners by falsely promising the mortgage modification that never materialized. mr. chairman, at the ranking member, it is a privilege to be here another four to answer any questions that you may have.

>> thank you, mr. barofsky. i would like to start off by asking you, at this point what do you think the losses are? and how long will it take to realize those what those losses might be. one that relies over the next few years the losses may be less. it would be helpful to the committee if it is a what the losses are today and say what you think of how much they would reduce over the next several years. >> it's hard to determine. our role is basically to report what others have done as far as announces, what omb and cbo have been. they see there is really concentrate as i said before, and three edited aig which the estimate of being between 36 to $50 billion in lost. in the automotive industry between 31 to $34 billion of lost it in a housing program which will ultimately be an entire lost because the way the program is designed it is a subsidy but it is not intended or any mechanism for recovery.

whether those losses will be realized in the longer-term really will depend on large but on what happens with the economy. particularly with the automotive industry. that's going to be dependent a certain amount of the economy recover, are people going to buy more cars, our gm and chrysler and gm is he going to be able to return to profitability? because of our interest in those companies, and aig and the automotive industry is an equity investment in our fortunes and good for them to repay will hinge anti-than on how successful they are in rebuilding those companies that it's difficult to determine i think it will take some, several years once again to get a real sense of what those losses may be. but if the economy and grizzlies are help to see these losses will continue to decrease. >> what's your sense of this proposed a bank, the bank tax and who is levied on, what -- to

what degree will not allow the t.a.r.p. expenditures to be recouped, be repaid? as you look at who the taxes levied on as proposed by the president, anyway. to what degree was that, dollars back to taxpayers? >> i think section 134 of course statutory mechanism that fisa recruitment come and there's certainly a lot of flexibility and are and how the recruitment is directed at but if there's some flex and have it is also designed and who it is targeted for in a very broad in its language to the financial industry. and i think it's born in a certain way because of the way talk was always intended which was of course to the direct purchases of trouble assets, mortgage-backed security. and i think it's originally envisioned the government was going to buy up to $700 billion worth of the securities and then in five years make a determination about those investments are doing.

if they are sure it would make sense to make the financial industry, those who treasure when i purchased these assets, to come back and levy a fee or a tax in order to recoup those investments. it becomes more difficult because of the way t.a.r.p. has morphed not into 13 different programs that allow department in capital investments. so those that are most able to repay will have repaid and there would be a loss associated those who are doing poorly, and, therefore, would not be able necessarily to repay a tax, like if aig, automotive industry is sure, it would be more difficult to put a tax on them. i think that creativity and flexibly will be important fasching the appropriate result. >> some people suggest even though, first of all, t.a.r.p. money went to banks, and that that help the banks but also help the economy, generally. and i guess the argument is that

he is essentially on banks and some other institutions as well, that why, that's appropriate because the benefits of t.a.r.p. in the first place were only specifically directed, but also widespread. and don't quite understand the argument. why should this fee only be on certain institutions and not more widely spread, even those other institutions got the benefit from t.a.r.p. and? >> i think there's certainly, there are multiple sides to this argument and this discussion. and really it boils down to a policy determination from congress and the administration to decide who it is appropriate to fulfill section 134 requirements for recoupment. but their certain and it argument from both sides to the financial industry and the larger banks certainly benefited beyond just the dollars that was invested in them, and not just from the t.a.r.p. but from out the whole of the response of the

government, the financial crisis. the implicit guarantee that they have of government support. it's been widely reported that they're able to marty logan more cheaply raise money than their smaller counterparts, giving them a competitive advantage, giving them opportunity for high profit. so it's a very complicated question, mr. chairman, for sure. >> do you have any thoughts on how to the fee is structured? as i understand, is primarily significantly structured to discourage overleveraging. your thoughts on the structure as opposed to, say, a profit tax. >> to be honest with you, mr. chairman, until we seek something hard and in writing as far as the legislation or pozo, we don't really get involved from an oversight perspective. once it's more formally under fully formed and we're going to be the response for overseeing it is sort of when we roll up our sleeves and dig into the.

but we haven't had the opportunity to fully analyze the proposal as efforts been described in the press. >> my time has expired. senator grassley. >> thank you, mr. chairman. a year ago cbo and omb projected a loss from t.a.r.p. to be 250 billion. always been a estimates topless 127 billion. cbo estimated at 109 billion. it's been reported recently in the "new york times" article that i have your that some treasury officials, i think i named as i recall, expect a bailout program to quote eventually turn from red to black, end of quote that is treasury says that eventually they may not be as losses, does this excise tax make sense? before you answer that, with the

amount of losses if any be more certain the year 2013 the year the t.a.r.p. losses the previous to propose a law to recoup. specs are to with more time to we more certain as to the extent of the losses. >> omb says the auto industry is responsible for 31 billion of all the t.a.r.p. losses. cbo says that they are responsible for 34 billion. doesn't make any sense to levy a tax to recover t.a.r.p. losses and then carve at gm and chrysler, the companies responsible for 30% of the losses? >> it is a difficult question, senator. and i know it is based on a structured of the way section 134 was intended originally. is it is a difficult policy question. >> in march of 2009, and that's a look, i'll be safe just 13

months ago, the president announced an initiative to use $15 billion in t.a.r.p. funds to fund what's called small or sba loans. however, small business didn't actually receive that money and lending to them has not increased because the initiative was reduced to $21 million pilot program. so that's a difference between 15,000,000,021,000,000,000 -- 21 million that is a pilot program. in january, the administration proposed taking $30 billion out of the t.a.r.p. program and setting up a separate non-t.a.r.p. program to support small business lending. we don't have actual legislative language yet, but i'm concerned about what that would mean for the ability of your office to conduct oversight. could you explain why the

previous small business lending program never materialized? and why you think you should retain jurisdiction to oversee the newly proposed 30 billion-dollar program. and also what are the risk to a accountability and transparency if you're oversight -- if oversight from your office would be blocked i change of legislative language. >> said, if i may answer your second question first that we think that this would be tremendously dangerous and wasteful to the taxpayer if this 30 billion-dollar program is taken out of the t.a.r.p. without our oversight continuing. there's virtually no difference between the newly proposed program and existing capital purchase program. it involve the same five regulators making decisions on who gets money and who does not. it's the same capital structure but it's the same eligibility criteria that is the same type of investment it is the same money, t.a.r.p. money. we estimate approximate 95% of existing t.a.r.p. recipients because the way the program is going to be set up can just

transfer their t.a.r.p. investment into sbl and doesn't. to 95% of the recipients won't change anything other than moving out of the t.a.r.p. and into this new program. meanwhile, sigtarp we have grown organically with the capital program that he was there when we were created that a large part of our oversight both on the outside and reporting site and on the investigation site has been built around growing and learning the cbd program, which this is the mirror image of that. from an outside we have done on its into the decision-making process, how it works, the impact of outside influences that we have made a series of recommendations about. >> translator: program designed, and perhaps most important item on the investigation site. we have literally dozens of criminal investigation into those who have tried to criminally profit off of the capital purchase program. . .

>> and would essentially leave a program, which in many ways, has a greater vulnerability to bogus take ep advantage of because of the incentive programs, essentially without effective oversight. i think it would be a tremendous waste of taxpayer dollars and i would strongly encourage, the

congress to include t.a.r.p. oversight and is not an expansion of our jurisdiction but the continuation of our jurisdiction over the same exact parties with the same exact money and i was disappointed when the administration changed course on us after saying we were going to be included in the proposed legislation and later telling us we would not. >> wouldn't it be more accurate to say that if we don't do anything you will be included or do you -- is it your view as a lawyer, if they set this up, we have got to transfer what you do now over to that and i thought you would automatically have jurisdiction unless the law was changed to take it away from you. >> if they rip it out of the t.a.r.p. and, as they are suggesting to do so, we may have jurisdiction, to a certain extent on some of the money but wouldn't necessarily have complete jurisdiction -- >> you have answered my question, then, if you will -- you will have jurisdiction unless congress changes the existing law. >> yes, that's correct. >> i hope the members of this

committee will be aware of that, so we don't let something like that slip through, i'll wait for a second round for other questions. >> senator nelson. >> thank you, more your service. a big part of the ultimate losses of t.a.r.p. is coming from aig. and, a big part of the losses in aig, that won't be paid back, is as a result of the credit default swaps being paid off, these insurance policies, at 100 cents on the dollar. now, do you think that these derivative counter parties, such as goldman sachs, that receive the preferred treatment puts them at the front of the line

when the circumstances occurred as they did, with aig? do you think that they should be put at the front of the line? >> i think that when making these policy considerations, everything should be on the table. and the fact is, that goldman sachs and 7 of the 8 of the largest counter parties, refuse to negotiate with the federal reserve bank of new york, to negotiate concessions, and, which ultimately led them to receiving 100 cents on the dollar and we issued an audit report on this and explored the reasons and the justifications for this, and, i certainly think it is irrelevant policy consideration among the other policy considerations, in designing the section 134 recoupment contemplated by the statute. >> what in the world made the federal reserve sit there and take that by these counter parties, saying, oh, we are not going to negotiate with you on this. it seems like the federal reserve should have been in the driver's seat. >> well, senator, we agree, and

when we released our audit report, we went through the reasons that the federal reserve gave for what we described as a very ineffective negotiating strategy ultimately doomed to fail, as well as what we saw was a simple lack of effort. that they even within certain limitations they put on themselves, with the negotiation, things like, you know, requiring they wouldn't do a deal unless all the counter parties agreed. or, refusing to put a little pressure on them, because of their status as a regulator. to encourage the negotiations to move forward and instead, saying, basically, don't worry, it is just a voluntary negotiation. but, the fact they didn't do what they had done, just a couple of weeks earlier, with respect to the recipients of t.a.r.p. funds, to capital purchase program, in other words, with the then president of the federal reserve, now secretary geithner, didn't get on the phone and call the ceos, or the meeting of the ceos of the big banks, and the counter parties, and called them together and make a strong emphasis on the negotiation,

like with cpp, telling them this was important for the country, and pointing out, the incredible support the federal reserve and the taxpayer had given to aig, and they would all, have suffered most likely horrific losses without the support, and using that bully pulpit to voluntarily get negotiations -- fees, after one of the banks, ubs agreed and said in certain circumstances they'd agree to a concession and we have been critical of that, at the least they should have tried a little bit harder. >> of the $89 billion that you think we are not going to get back, the people, the taxpayers, are not going to get back from the bailout, is most of that attributable to aig? >> to be clear, all we're doing is we haven't done our own analysis and we are reporting what the cbo and omb reported. but it looks, based on their estimates, that anywhere from 36 to $50 billion of their

estimated losses will be attributable to aig. >> and, of course, all of those credit default swaps, that were paid off, with all of those firms like $13 billion just for goldman sachs, and, going done the line, that would total up to about $50 billion. wouldn't it? >> just on the facilities alone, the portion that were the federal reserve, you know, purchased from those counter parties that -- at face value, i'm sorry, at market value, the cdos, the other half of that, the collateral posted, most of the money came from the taxpayers, and the federal reserve and back paid, and that is certainly -- that alone was tense of billions of dollars. >> this is an outrage. let me ask you about hamp. would you talk more about your recommendations regarding hamp's

effectiveness and your recommendations on fraud, and the voluntary nature of hamp's principal reduction program. >> with respect to fraud, the new designs of the program, it increases incentives, in short sales, which are circumstances where treasury is going to be providing incentives to homeowners, as well as servicers to encourage them to basically turn in the keys to their house, and, have it being sold to someone, for less than what the mortgage is actually worth. so, if a house is worth $100,000 and the mortgage $150,000, to effect the sale and, $100,000, and, then for the servicer and the mortgage investor to release the borrower for the difference. basically, a short sale. and, certainly, encouraging those -- had no problem with that as a program design, and, it is regarded as being less expensive to investors and is not as painful as foreclosure, and not as expensive as foreclosure and the problem is,

these types of sales have been vulnerable to a special type of short sale fraud, called flopping. the opposite of flipping, based on an artificial deflation of the value of the home. say the home is really worth $125,000, in my example, but, there is a benefit where the fraudsters, if they get the investors, people who own the mortgage, to believe it is only worth 100,000 and provide false information. and if they do that they get the home below market value and could flip the home all motion instantly and make a nice profit and the problem is the valuation standards that treasury is anticipating, using on this, is basically not very robust, it is broker opinions, or even that is not standardized and is based on the review of the servicer. i'm sorry. running out of time and our recommendation, simply, with the program and other programs, involving principal reduction they do what the fha does,

require a certified appraiser to make sure there is a good third party look to prevent those types of fraud. >> you a ought to look in florida. some of this flopping is going on, right now. >> absolutely, it is a hotbed of activity. in the state of florida. >> thank you. senator carper. >> thank you, and welcome, and thank you for your stewardship and good work being done on this front. i want to go back in time and you said -- i want to be sure it is clear. when the last administration came to the congress and asked for us to fund the t.a.r.p. program, my recollection was they asked about $700 billion, or so, is that right. >> that's correct. >> and, the proposed use for the money at that time was to allow the purchase of illiquid assets held by a variety of entities, is that correct. >> that's correct. >> and for the most part we can use the money for that, and we took a different approach, and we injected a fair amount of the

money into large financial institutions, and, we bought their preferred stock. as i recall, is that correct? >> that is absolutely correct. >> and what was the size of those institution, was it 50 billion and above? help me with that. >> it is a huge, the official roll out, the first $125 billion went to the largest of the financial institutions, and over time, and as the capital purchase program expanded, ultimately, it funded more than 700 instructions and we have breakdowns of the quarterly report of the various sizes but range from investments, even today, with repayment as low as $300,000, up to citi holding on to $25 billion. >> thank you. the -- when we injected capital into the institutions, they had an obligation to us, to pay on our preferred stock, dividends, is that correct. >> that's correct. 5%. >> and, were there any opportunities for them to lower that 5% by lending money that was injected into the -- to

improve the balance sheets. >> to date that has not been part of the t.a.r.p. program, it is part of the announced proposal for fplf. >> how are we doing in terms of collecting the dividend income owed to the treasury. >> generally on a gross level, it is going pretty well and there has been 104 t.a.r.p. recipients, who have missed dividend payments, and, some have caught up, i think, perhaps a couple dozen have caught up with those payment, and, so that leaves a balance, that is still not made payments, and, also includes a few t.a.r.p. recipients that have failed, and, obviously will never make future dividend payments. >> can you quantify the dividend obligations that are sort of not fulfilled, to the treasury, roughly? >> we do have it in our quarterly report. it is -- i believe 100-something million dollars but i can get you the -- >> 100-something million. >> i believe so but as i said -- >> that is close enough. >> okay. >> close enough.

so, we have infused... all of the capital money. brought the preferred stock, for the most part received the dividend payments that were supposed to be a good deal of the capital infused into the balance sheets of these institution. a lot of it is being repaid, repaid essentially with interest? with the exceptions you have mentioned. explain to us, how we are doing on the warrant side. we see we have been able to exercise to sell -- to realize profits in the billions of dollars. can you give us a brief update on that. >> one, sales have been successful, have been brought back and for the warrant sales, it is pure profit, for the american taxpayer. when congress designed issa they put in the requirement for warrants so taxpayers can share on the upside and it has been successful. billions of dollars have been returned from the sale of these

warrants, and we actually have an audit report that will come out, on may 11th. which will detail our analysis of how treasury has been doing, in administering the warrant process. but, it started off, by certain outside estimates, and it has been rocky in terms of the percentage of the return but since the report came out, they appear to have been doing better in getting market price for these and recently we have had auction, which again, have -- has appeared to bump the prices up, and, it seems to be, seems to be a successful program, i'll be able to provide more detail on may 11th, once we issue the warrant. the audit report. >> as you said, earlier, there are other institutions that have not been able to repay their moneys, through the obligation to the t.a.r.p. but the none is decreasing over time. aig still owes a fair amount of money and roughly what is that, now. >> it is about 40 -- 46, $47

billion. out standing. >> i have been following in the press, that they have released -- reached agreements to sell certain assets and i think one is headquartered in delaware, alco, maybe $15 billion, and i saw another for $35 billion, is that money that has been credited to their obligations, in the treasury or not. >> that money won't go to treasury. the way the aig investment is structured, the federal reserve gets paid back every penny before treasury gets paid back. and if those transactions go off, as planned, that will help very much, in reducing aig's obligations to the federal reserve. but, it's not anticipated that there will be nearly enough to create any credit for the debt to the taxpayers, through treasury. >> on the other hand, the monies are owed by gm and by chrysler, come back to the treasury, is that correct? >> that is correct. >> and, do i understand, gm recently paid a billion dollars, of the obligations to the treasury? >> gm has paid a billion dollars and, i think they have announced

they are going to be paying back the debt portion which is i think $6 billion, less, in its entirety, and very shortly. but, should be -- we need to be cautious, the way the payment will be made is drawing down an equity facility of other t.a.r.p. money. so, it is good news in that they are reducing their debt and they are ukz it by taking other available t.a.r.p. money, to repay the t.a.r.p. it is good news, because it men's the money which would be available for future problems with gm, the determination they don't need it. but we should caution it is not necessarily generated out of earnings. but out of other t.a.r.p. funds. >> when do you think we'll have really good news from gm? >> i don't have that crystal ball, senator. >> and chrysler, what is the story with chrysler's obligations? >> chrysler's obligation is again we have an equity interest in chrysler and our future ability to recoup taxpayer investment will be whole dependent on how successful chrysler is and how successful the american automotive industry

is. >> i have for questions and maybe i'll ask them in a second round, thank you. >> thank you, senator, senator schumer. >> thank you, mr. chairman. being in this room i immediately get overcome with health care... since we spent so much time here doing that. >> we're not talking about financial -- now we're talking about financial health. >> right. and i want to thank you and mrmr. mrmr. mr. barofsky, most of people who would look at t.a.r.p. would say it was necessary to save the economy from complete collapse and i was in the room, when chairman ben bernanke and hank paulson, president bush's treasury secretary told members of congress, some of you, how serious the situation was. they told us if we failed to enact the t.a.r.p., we risked another great depression. we were staring into the abyss, when we heard it i think there was a collective gulp in the room.

ben bernanke talked about it. in his very professorial, nonexaggerated, nonhyper bollic tones and you now how serious it was, and republicans and democrats did the right thing and the bush administration which proposed it signed it into law. so, it is important to emphasize the current financial reform proposal also contains multiple safeguards. to make sure that taxpayers are never again on the hook for rescuing the financial system. i think that is very important. any costs incurred in winding down financial institution, would be covered by the industry, sort of the way it is in the banking industry with the fdic. we certainly can and should work to prevent any more taxpayer bailouts. but we also need to close the book on the last one, and make sure that taxpayers get back every dime they paid to rescue the economy. a key piece of that legislation, was a provision requiring the president to assess the cost of

the program, and, quote, submit a legislative proposal that recoupes from the financial industry an amount equal to the short fall in order to ensure the program does not answer the deficit or national debt, unquote. that got a lot of people to vote for it. it was a tough vote, even then. and, i think we have to live up to those words. they should not be ignored. in keeping with the requirement under t.a.r.p., to make sure taxpayers are whole the administration lived up to its responsibility, it professed a financial crisis responsibility fee, to be assessed on financial institutions, with over 50 billion in assets. as proposed by the administration, the fee would amount to .15% of the liabilities of these companies, other than deposits. and, tier one capital. there are to be sure legitimate questions about details of the plan, and i salute chairman baucus for holding hearings to try an answer them but, overall the administration's proposal, i think is a common-sense way to

make sure the taxpayer money is repaid, and i believe it should be included in the financial reform legislation soon to be debated on the senate floor. i agree with the administration in the regard. as the president said when introducing it, it is our responsibility to ensure that the taxpayer dollars that supported these actions are reimbursed by the financial sector so the deficit is not increased. that's the end of his quote. so, mr. chairman, i want to work with you, and all of our colleagues on this committee, to get recovery legislation ready in time to be included in financial reform legislation, that will soon be kiddconsidere the floor. my question to you, mr. barofsky is this and you talked about minimizing the losses, the government holding billions and billions and billions of dollars of these kind of assets and things. and what do you think the administration can do, congress can do, to minimize the

potential losses? you indicated earlier, it will take years to know exactly what our losses will be and now we are moving on here and i think we ought to look at how to minimize our losses, could you comment on that, please. >> one of the areas that is near and dear to our role is looking at inefficiencies in the program as they are run and to fraud vulnerabilities and those will be areas that are preventable and avoidable losses and some of the loss with respect to aig and the automotive industry will depend on macroeconomic conditions, whether the economy improves and people buy more cars and, there is little within the t.a.r.p. program, to address those and within the t.a.r.p. program, we try to make recommendations, so that the program runs efficiently, and it maximizes each dollar that is spent, and above all, we make sure the right protections are there against fraud so money is not lost, for example providing it to institutions and the small business program that are

defrauding the t.a.r.p. and getting money that will ultimately result in failure for the system or don't carry out its goals and we have been working hard to make sure when t.a.r.p. money goes out the door it goes out efficiently and is not the result of fraud. >> my time is expired. thank you, mr. chairperson. >> thank you, senator, very much. a lot of questions here. one, small business. generally small business has been unable to take advantage of the funds that have gone into the big banks. whether t.a.r.p. funds or federal reserve assistance or whatnot. and, some who suggested that banks make money by borrowing at low interest rates, for the fed and -- to lend out, i guess to other banks, but, rather, lending to small business. your thoughts, on how -- what

could be done to -- with the t.a.r.p. program, to help small business and how -- maybe, just your thoughts. it has been a real problem. how do we get more money into small business. >> there is merit in the administration is a proposal about the small business lending fund and the idea to incident advise small business lending, that is, unlike the original out lay of t.a.r.p. funds, in the capital purchase program, where money was sent out without any conditions or incentives or carrots or sticks about what to do with that money, they really had free rein to do whatever they pleased. and, back then, and really up until now, without relating accountability, because, the administration's refusal to require t.a.r.p. recipients, report on their use of if you had, i think that by incident viegsz tadvising -- incentivizig the banks, to lower their interest rates, and the

administration is finally adopting the long term recommendation of requiring t.a.r.p. recipients to report on their use of fund, so there is some accountability for the use of t.a.r.p. funds, will also insist -- assist in helping meet the goal to further incentivize small business lending. >> are they reporting how they are using the funds. >> treasury sent out a survey and responses were due, this past friday and will publish the results and it will be quantitative and qualitative data and for the first time, treasury is going to sponsor that. we did it ourselves, in an audit report, back last summer. but for the first time it was a voluntary audit report and for the first time treasury will require and report on how t.a.r.p. recipients say -- >> proposed regs, have you seen the proposed regulations. >> it is actually a survey sent out and we saw the survey and had input on the design. >> are you satisfied with the design? >> or did you make suggestions. >> we made suggestions, most of which were adopted and some of which western and -- weren't and

overall we were okay with the design and treasury's plans and the question is execution and we think that getting the -- these sort of -- quantitative data and matching it with qualitative data, the information received from the regulators, as well as from the banks, putting that together, and putting together a comprehensive report will be helpful and one of recommendation we made is they adopted, was to make sure that those returning surveys had a high level official, certified under penalty of criminal penalty. and will assure those people signing that will have the incentive to be accurate and truthful. and we will monitor how treasury performs under this. >> i appreciate that. any other thoughts on small business? a lot of us hear so much from community banks, and also, small businesses, and, a lot of small businesses say they cannot borrow because banks aren't lending. >> it is a very difficult

problem and i think a lot of it has to do with outside of the controversy -- concept of the t.a.r.p. and we've heard anecdotal information about push and pull between regulators, who may be tightening certain lending restrictions, and, the possibility, that has been discussed, of -- as you said, the bangs are getting the money very, very cheaply but a lot are turning around an lending it back to the federal government by buying treasury bills instead of lending it out and taking riskier, lending it out to small businesses. what we try to do in this report is an overview of small business lending and a five or six paint tutorial on the issues and fda's role and we come down on -- there is no way we can have lasting economic recovery without a return from small businesseses, they are too important as far as net jobs, net job growth and... >> i agree with that very much, and i hope to find a better way. all of this discussion of

t.a.r.p., assumes everything is on the up-and-up. is there any fraud, waste, abuse? by certain actors, and t.a.r.p. program generally? so far as you can tell? >> the t.a.r.p. is sort of a giant several hundred billion multi-hundred billion dollar pot of money. and is going to draw bees and flies and, our job is to... is being vigilant over this. and, we have absolutely -- we are seeing those who are trying to take criminal advantage and as i said in my opening statement we have secured several criminal charges, we have had no just the past quarter, we have had -- really are getting -- seeing traction in the investigative division and have 84 ongoing criminal investigations and they really apply across the t.a.r.p. not just into the bank program. though a lot of our resources are structured on those who have tried to steal from the t.a.r.p. through fraudulent applications and that program. and we're also looking at the housing program, within the

public/private investment program, really, across the board. so, yes, mr. chairman, unfortunately there are those who have sought to take criminal advantage and i think what we have tried to do, on two fronts, one is, through the -- detecting and referring to department of justice for prosecution and we have also committed a significant amount of resources, in deterring. both through being public about our being out there and i think we have had a significant impact with that. but, also, in helping design these programs, and, if i may, my time is up, a great example is the talf program, to lend again asset backed securities. when that program was first described to us, early january, last year, it had virtually no protections whatsoever. it was going to rely solely on rating agencies and investor due diligence. and be basically the two things that got us into the entire mess of the financial crisis in the first place. and i can't give the federal reserve more credit for willing to work with us, after he initialed our first report last february, a whole team came down

from new york and i believe that this program was it became designed, is a very safe program, they've followed our recommendation and didn't put residential mortgage backed securities into it, after it was publicly announced they were going to do so so i think that -- one of the areas we have had a degree of success. >> my time expired. >> senator grassley. >> thank you, mr. chairman. one of the t.a.r.p. programs ramping up at treasury now is the public/private investment program. this is a $40 billion program and is the only t.a.r.p. program designed to buy toxic assets. i understand your office is invest -- has investigated a potential conflict of interest involving the program and what the in -- and the investigation might include a wall street investment firm named blackrock? as i understand it, blackrock has a deal to work on maiden lane for the federal reserve bank of new york as a toxic

asset analyst? while a separate blackrock company has a deal with treasury, to participate in the public/private investment program to buy toxic assets. is there a conflict and what can you tell the committee out the results of your investigation? i don't expect you to tell us anything that would violate any investigation, you -- anything you could tell us i would appreciate it: .

>> the bailout of bear or sterns and the list goes on, and we are considering doing a more overarching audit report on the role, on their role throughout the financial crisis. on our investigation side, we do have a pending investigation into one of the fund managers. we've not identified who that is pause it's a pending investigation, but it is looking very specifically into a conflict of interest issue, specifically some of the data that was provided to us by treasury that helped alert us to this showed that a fund manager who's managing two funds, one

being a private fund, sold an asset out of the private fund and then bought it back into the p pip fund at a higher price, and we're investigating that as a potential conflict of interest. i have to note that that behavior was made possible because treasury refused to adopt one of our most important recommendations about strict ethical walls applying to p pip fund managers. but that is a separate investigation, we've not identified who the fund manager is. >> okay. now, a little bit on the point you just made. why doesn't treasury just exclude wall street investment firms that already work for the fed? aren't there enough wall street investment firms available that don't already work for the fed that could be doing this work? >> it would appear to be so, but based on the repeat performance of certain players in different aspects of the financial recovery, it does appear that from treasury and from the federal reserve's perspective that may not be the case. >> would you, please, conduct a

review of any and all conflicts of interest related to blackrock? i mean, i'm making that request of you. >> and i will certainly sit down with our team, and we'll get back to your staff on how to, how to properly scope out that type of job, but i hi it's certainly something that we've considered before and, you know, it's something that needs to be looked at. >> okay. on friday security and exchange commission announced that it would, was charging goldman sachs with civil fraud in connection with selling mortgage-backed securities that were essentially designed to fail. the sec alleges that goldman misled investors by telling them that the pools of mortgages were put together by quote-unquote an independent adviser when, in fact, both the hedge fund manager who created the security and goldman itself were secretly

betting that the investment would go bad. if the facts as alleged are true, then it confirms our worst suspicion about how the mega investment banks could use their position to rig the game in their favor. as i understand it, the sec is only looking at one of a series of investments known as the bachus security. and some of the bachus securities were insured by aig. since aig is a t.a.r.p. recipient and losses on these securities may have contributed to the need for taxpayers to bailout aig, i hope that your office will be examining the entire series of transactions in detail. has your office been involved in this investigation into goldman, and if not, will you, please, investigate these other transactions and provide an independent assessment to us about whether any of aig's taxpayer subsidized payments to

goldman can be recovered if they were based on this kind of fraud? >> absolutely. we were not involved in the case that was announced friday. ultimately, the insurance that was written off of that wasn't by aig, it was ultimately a committee that got picked up by rbs, but there are, i believe, seven of these same types of deals that were insurance written by aig. i've been in contact with the sec, we're going to coordinate with them, but we are going to lead the charge. we're going to review these transactions working with them as well as the department of justice if necessary to give a close review of these transactions and to see if there are allegations, basises of fraud and if aig and, as a result, the american taxpayer were victims of any similar types of fraud, but we're absolutely going to do that. >> i'll ask my last question in writing, if you'd respond, please. >> absolutely. >> thank you, senator. senator snowe. >> thank you, mr. chairman, and thank you, mr. barofsky, for

your outstanding work in safeguarding the interests of the taxpayer and providing transparency and accountability to this program that, regrettably, congress had to approve during the financial crisis. and so you're doing great work, i think, on behalf of this country, and i want to thank you. >> thank you. >> one of the issues that has arisen with respect to t.a.r.p. is eligibility for the net operating loss carryback provision that the chairman and i worked on during the stimulus program, for example, and extending it from two to five years. what emerged in a recent article that appeared in the wall "wall street journal" was that jpmorgan who was a former t.a.r.p. recipient had repaid their funding to the government but, nevertheless, will benefit from a $1.4 billion net operating carryback due to their purchase price of washington mutual. it was clearly and explicitly stated in statute that, you

know, no t.a.r.p. recipient either current or prior would be eligible to use this net operating carryback loss. now, who is responsible for making this determination, and what should we do to correct this? because, clearly, this was not the intent of congress. and so i think we need to go back to the drawing board on this to make sure that this does not repeat itself. >> right. we've been closely monitoring this situation. right now it's in bankruptcy court. the fdic as receiver is in discussions, and there's been discussions about a settlement with jpmorgan that may allocate, as you say, a portion of this tax break, you know, to jpmorgan. we've been in contact with the fdic, we've been in contact with some of the creditors who have been objecting to this, and we're going to continue to monitor that situation. we haven't really taken any action because we're waiting to see how the settlements break down. but that's where it is right now, it's in bankruptcy court. ultimately, you know, whether it'll be a negotiated settlement

among the parties or whether the bankruptcy court judge will make a ruling, there are complicated legal arguments on all sides that we've been reviewing. right now we've sort of been taking a backseat and watching the process to see what actually happens before making an evaluation, but we have been on top of this from our legal division to follow it. but it is, it's certainly a very complex discussion with the intricacies of bankruptcy law. at first our reaction was the same as yours, this doesn't seem to be able to make sense, but as you sort of get through the weeds of bankruptcy law, it's a very complicated and complex issue that, frankly, we're still getting our arms wrapped around. >> well, would you provide us with your thinking once a decision is made? i gather we can't preempt any decision at this point on this issue. but i will, i'll look at it from that standpoint, so will my staff. we'll certainly evaluate it, but it clearly was not the intent, and it was very expressly

stated. so somehow it's gotten wrapped up in, you know, allowing this to happen and providing that to a former top recipient, and i think, you know, that should certainly not be the case. so what we need to do to address it, ultimately, is something we should, you know, consider. >> yes, senator. i'll be happy to have my legal team sit down with your staff and discuss the issues. >> okay, i appreciate that. secondly, in the nonrepayment of dividends, and you've indicated that in your testimony that there are 188.9 million dollars worth of dividends that have gone unpaid by, what, 74 institutions. that's disconcerting. when 74 companies have already missed three or more payments. so, this obviously, could become a significant issue, and why is it, and what are you doing or what's treasury doing to recover, you know, those dividends that are not being paid in a timely fashion? >> well, unfortunately, those

institutions that are not paying it's, often cases it's because their regulator has directed them to stop making dividend payments basically because they're in trouble, and because the financial institutions are in trouble and their capital is bleeding, taking capital away through dividend payments it's feared that it could lead to the failure of a loss and then a complete loss of the t.a.r.p. capital investment. one of the things we're doing, you know, all these spanks represented themselves -- banks represented themselves to be healthy and viable before coming into this program, and for those that rapidly die guessed -- digressed from being viable, that raises some interesting concerns and some important issues. so from an investigative point of view, we're looking at some of these institutions and seeing whether there were misrepresentations. the other thing that treasury is doing for some of these struggling institutions is actually recapitalizing its investment. we detail some of those in the quarterly report where,

basically, they're taking an up-front loss in certain circumstances by turning their preferred investment into common or mandatory convertible preferred shares at a discount to par. and they're recognizing this loss because, basically, they've come to the view if they don't do these things, the taxpayer investment will be completely wiped out, and better to take a haircut now in hopes the institution can recover. >> how many institutions in the that category? >> i think so far five institutions have announced -- citi was the first. it looks like at current stock prices we may actually make a profit as a result. banco popular, and we detail three more smaller banks in the current quarterly report. >> thank you. thank you, mr. chairman. >> thank you, senator. senator carper. >> i'd like to go back and just pick up where i left off, if i could. and we were drilling down, if you will, on figuring out who

still owes money to the t.a.r.p. and what is our likelihood of collecting what's still out there. i think you mentioned that rather than chrysler owing money back to the t.a.r.p., we have an equity position in chrysler. can you just take a minute and just describe it for us? there sure. right now it's about 10%. that number can go down iffy yacht meets certain performance metrics of introducing a smaller car, fuel-efficient car and shares technology. that number may come down to 8%. but essentially, our ability to recoup that money will depend on how chrysler does. the gull, ultimately -- goal, ultimately, for both chrysler and gm is to get to an ipo, and that way treasury will have a method of liquidating its interests through public sales of stock to the public. and so the goal is that these companies can get back on their feet, return to profitability so

that shares of their stock become attractive to the market, and then treasury will be in a position to sell off its shares and ultimately regain -- >> it reminds me a little bit of what happened in 1980 when the federal government provided loan guarantees for chrysler, and chrysler was able to find funding in the private sector, and we, the federal government simply guaranteed the loans. but we did have granted to us warrants which we exercised several years later when chrysler stock returned to higher levels. we took the warrants, i think we had warrants to sell stock at about $10 a share, or to buy it at about $10 a share several years after the company had begun to recover, and at that point in time we exercised our right to buy, i think, $10 a share. we turned around a week or two later and sold it for $30 a share. made about a third of a billion for the treasury. how does the situation with chrysler resemble that or differ in this instance?

>> i think it's dramatically different because we do have this direct equity investment. as you said before and i by no means am an expert on the original chrysler bailout, but my understanding is here we're not guaranteeing debt. we have actually given them money. and a lot of the money's been written off. the investments in chrysler preceded their bankruptcy and was during their bankruptcy, so it was money that was given, and a good chunk of it was recognized as being lost in bankruptcy. it went to the old institution. there's a bankruptcy plan that's right now pending and hasn't been improved with the money that we have that's been lent to old chrysler, and there's no real expectation that we're going to get that money back. >> how much money was that roughly? >> i don't have the precise numbers -- >> less than ten billion? >> i don't, i don't have those numbers at my hand, but i can certainly get them to you. >> thank you, please. >> but a good chunk of the amount was there. but because we have an equity investment, if chrysler outperforms and does really well, we'll have a chance of getting a disproportionate

amount of money carried over in equity back assuming the company does well, assuming they have an ipo and assuming that the treasury will be able to liquidate those interests. >> and the point we recover some of the money would come with the ipo? >> yes. >> and there's probably some stock level, some price level for the stock above which we would actually break even? >> i think that the estimates are that it would have to have very significant market capitalization for us to get to the break even point. i think that's why -- >> let me ask a question, if i could. two-part question. one, if we could find out the answer to the first question, and the second was how high would the value of a stock, how high would it have to go for us to break even? >> it's sort of hard to get an exact number because it's not publicly traded right now, so the valuation would have to be, you know, the equivalent to our investment. cbo and omb, you know, when they make their estimate of more than a $30 billion loss, it's based

on the assumption that that price will never get high enough to result in a recouping -- >> somebody's going to try to pass you some information here. >> okay. and just to -- in our quarterly report on page 116, we make reference to the assets and debts that are still in new chrysler, and it's about three and a half billion original loan that was made before the company went into interruption and a $1.9 billion debtor and possession loan that also stayed in bankruptcy, so those are two pieces that stayed in bankruptcy and will eventually be written off. >> what you said earlier, mr. chairman, where i'm going with this is to try to better understand how much of this roughly $100 billion is still owed and is likely to be recovered in the next year or two or maybe -- what is it, the date 2013 is out there. what is the significance of that date? >> first of all, this is the

estimates from cbo and omb that will never be recovered other than through recoupment. section 134 which has the recoupment standards requires that, basically, on the fifth year anniversary of t.a.r.p., october of 2013, that the directer of omb and cbo certify and report to congress at that moment what the estimate of the permanent loss would be, and that triggers the obligation for the administration to submit a legislative proposal to recoup p that from the financial industry. >> so for us to -- we'll hopefully know by that date if chrysler's going to make it, if the it's going to be a successful venture, and they'll be able to maybe schedule an ipo, is that not an unreasonable assumption? >> the goal for both chrysler and gm is to have a portion of the other thanship of the company well before then. >> mr. chairman, can i continue to ask a couple more questions? >> [inaudible] >> yeah, thanks. can we just sort of turn to gm, if you don't mind, and explain the situation. do we have an equity position in

gm that we need an ipo to be able to recover or to profit from? >> it's essentially the same. with the repayment of this debt which we discussed about earlier, there's some preferred share interest, but overwhelmingly the interest is an equity interest in gm. we have a controlling equity interest in gm. gm, you know, the new ceo, mr. whitaker, has announced the intention of having an ipo. it seems to be an intention that it'll occur, you know, hopefully this year that there's going to be return to profitability for gm, and at that point, again, i think the initial public offering won't be for 100% of the private interest in gm, but it'll start returning to becoming a public company, and we'll be able to better quantify what the government's ownership interest in gm is worth. and then we'll see, basically, if the company continues to profitability, the shares of stock increase, there'll be a continued demand in the marketplace for more shares of general motors that'll give the treasury an opportunity to have

subsequent public offerings and to sell off its interests into the market. hopefully, it will be an ever-increasing value into their equity interest. >> okay. thank you. it's very -- we don't have a lot of people here, mr. chairman, at least on our side, but this is interesting testimony. i think it's actually very encouraging testimony. >> it is. but it raises the question to what degree should the tax be? we don't yet know in a reasonable period of time how much will be paid back which i think is a legitimate question to ask. but you're right. let me ask one more question, if i might, mr. barofsky. what's the status of the corporate governance audit? i mean, if we own some of these entities virtually whether it's gm or fannie, freddie or what not, it raises very interesting

questions about corporate governance, that is the interaction between the treasury and the management of these companies. >> mr. chairman, in response to your question we, of course, initiated this awe did. we're at the stage right now where we split up the responsibilities with gao. it's a large task and we, frankly, didn't have jurisdiction over some of the entities like fannie and freddie because they're not t.a.r.p. recipients, but gao, of course, does. we split up the different tasks of this. i talked to my chief of audits the other day, and we're in the process of exchanging draft reports with gao. i don't think we have an estimated release date, but we're in the process of getting there hopefully within the next couple of months we'll be able to release that report. >> appreciate that. i thank you for doing that. how many fed dollars went to assist distressed companies? >> i don't -- we reported on this number back in this past july, and i anticipate we're going to be doing a catch-up on

that on how much money not just that came from treasury and the t.a.r.p., but overall in the financial system. what the level of support was. back in july it was about $3 trillion all in for the various programs that support the financial industry. i recently saw an estimate, but it, you know, in one of the media outlets, so i don't want to not suggest that they don't get everything right, but that estimated the numbers still at about $3 trillion. we're going to go and do, i think we're going to revisit that previous report in our quarterly report and give an update on where that number is today, and we'll include breakdowns from the federal reserve, from treasury, and from any other entities that have provided support in this financial crisis. >> and when will that report be available? >> i think we're going to be doing it as part of our july quarterly report. >> not until july. what's your best guess to the degree to which fed dollars have been recouped? >> to a certain extent the

number will go down in certain categories and up in others. the $1.25 trillion purchase of agency mortgage-backed securities was still in the ramp-up phase, so that's completed now. so that money is now outstanding. some of the other emergency programs have been shut down, so those numbers will decrease. i'm not sure from a net perspective what has, what has changed, but we can probably get you an answer to that just based off of their balance sheet, you know, in advance of the july hearing. >> appreciate that. >> july report. >> how many institutions were, are overlapped? that is, get both t.a.r.p. dollars and fed assistance? >> i would say a significant number of the large financial institutions would have been, would have gotten support. most certainly did get support from some of the guarantee programs as well as the t.a.r.p.. >> any way you can give us some reports of the amount on

average? i know averages are -- >> you know, we don't have access or -- i shouldn't say we don't have access to. it's not -- a lot of that fed information is not publicly available, for example, who benefits from the discount window. we haven't been able to match that up. we, frankly, we haven't asked for that information. so we haven't done that analysis. >> but some t.a.r.p. recipients have benefited from the discount window. >> one would presume. but not just the discount window, but the array of programs that the federal reserve and the fdic did to support them during the course of this financial crisis. there's no question that the largest financial institutions probably all benefited from those various programs, whether it was debt guarantee, money market guarantee, all the different programs, sort of the alphabet soup of recovery programs. there's no question that the big players all benefited from multiple programs, t.a.r.p. and non-t.a.r.p.. and look, you know, today their return to massive profitability in some case record profitability and the large payouts, executive compensation

payouts that have accompanied it is directly attributable to the support this government has given them through t.a.r.p. and these related programs. i don't think there's any question about that. >> that goes back to an earlier question of where's small business here? i mean, we helped, frankly, the large institutions get back on their feet, but i don't think especially helping the smaller institutions including small business. >> ultimately i think that the decision to provide this money to t.a.r.p. recipients without any conditions, without any incentives or penalty for not applying it to actually make them go out and lend the money has resulted in them using this money in ways to maximize their own profits and not necessarily to carry out the government's goal in this program which was to incentivize and increase lending. >> so it seems. senator carper? >> thanks. thank you, sir. so coming back to my line of

questioning earlier, gm has repaid a billion dollars i think earlier this month monies from the t.a.r.p., their to pay another six or seven billion sometime this summer, but it sounds like taking money out of one pocket and putting it in the other to do that, is that right? >> yes. in fact, they've repaid $2 billion, and the 4.7 billion that they're getting ready to repay all of that very, very quickly. but, yes, the source of that was an equity capital facility that it's basically escrow money. some of the money that was given to gm, it basically wasn't all given as a lump sum check saying, here, all this money's available to you. some of it was put into what's called an equity capital facility which they can draw down. they have to report to the government what they're going to do with the money, the purpose of it. if there's any money left in that account after a certain period of time, it has to be used to repay the debt. and basically what gm is doing is pulling that forward and taking the money out of this

t.a.r.p. capital facility and using it to pay off the debt. the $6.7 debt that was previously owed. so two has been paid already, and it's anticipated, i think, very shortly that the remaining 4.7 will be paid off. >> for the federal government to realize any additional funds from gm, does an ipo have to occur beyond the 4.7 billion or are there other additional monies they need to repay to t.a.r.p.? >> there would be -- i'm trying to think if there's some theoretical or hypothetical way, but i don't think so. i think there has to be a liquidation of ownership interest. theoretically, if they could find a private player outside of a public offering, that certainly would also accomplish that goal, but i think as a practical matter begin the vast size of -- given the vast size of the investment it's most likely going to occur, and it's been identified as the plan to do it through an initial public offering and then subsequent

capital offerings or selling that into the market. >> and the assumption is it hopefully the value of stock over time will appreciate as the market auto industry recovers in this country and, hopefully, gm holds its market share, we'll see how that all works. did i you said you to say -- changing course here a little bit, with respect to the monies that have gone into the hamp we're not going to get my debt back, that's money that's gone? >> that's exactly right. the design of that program was for a $50 billion subsidy. there's absolutely no mechanism for repayment. >> okay. again, i just want to come back to the administration's proposal. i think they propose taking another 30 billion from the t.a.r.p. and using that money for capital infusion into banks with less than $10 billion in assets. my recollection was that there would be a tiered approach with respect to the institute's obligation to pay dividends on

presumably preferred stock we would purchase. under the money that's gone into capital infusion already under the t.a.r.p., i think the dividend rate was 5%. has the administration -- is the administration proposing that a similar dividend be set for the smaller banks that would be covered in this tranche or this program, but they could lower that obligation to as low as 1%, is that part of their problem? if they lebd money to -- lend money to, i presume, small businesses? >> that's correct. basically, and you have to start with the existing tap resip -- t.a.r.p. recipients because the original participants are going to be approximately 95% of the existing cpp participants will be eligible to convert. so those that are currently paying 5% will have the option and not just new ap applicants in the program, but once they convert, if they can demonstrate

they've increased their lending above 2009 thresholds, they can lower their annual dividend payment incrementally based on how much they can demonstrate they've increased the lending from 5% all the way down to 1% for a period of up to eight years. >> does, does the administration have the authority to go ahead and launch this $30 billion program of capitol infusion? do they need our authorization to do that, do they need something from the congress? >> if they did it within the tamp, they wouldn't have to. their proposal is to take the money out of the t.a.r.p., and they do so -- their explanation for the reasons why is that emergency economic stabilization act that the congress passed requires treasury to put on certain restrictions to those institutions that receive t.a.r.p. money. for example, the executive compensation restrictions as well as restrictions, certain other things that, you know, repurchase of stock and related to warrants so the taxpayer can share in the upsid