warner. >> i'm learning, mr. chairman. i'm learning. but we pressed --@@@@@@@ ;@ @å2 institutions that received t.a.r.p. funds, we know they want to pay back these dollars. we know many of them want to pay them back as soon as possible. secretary geithner said as these banks start paying back, at least initially was his attempt to take back not only -- let them repay but also kind of wash out the warrants or buy back or

sell back the wants rran warran. that we think through an overall strategy and policy goal for our repayments, and what i'm particularly concerned about is the warrants, the american taxpayers we as shareholders and investors took an awful lot of upside -- or downside risk exposure. i'd like to see some of the upside here. none of us want to be long-term holders of investors in financial institutions, but my hope would be that, one, you'd have an overarching policy in terms of repayments. that, secondly, one thing you would consider, and we raised this with secretary geithner, while we, the federal government, may not want to hold those warrants too long because we don't want to have that potential even hint of political interference, i would hope we

would at least consider some other options rather than selling them before we got full value which might include setting up a trust or selling them to a third party so wean share some of the upside so that there is an independent financial entity that's making sure that we get some value on the warrants since we the taxpayers have taken the risk. so if you can comment a little bit on your thoughts about a repayment policy and particularly as it applies to the warrants. >> senator, first of all, i appreciate your concern about the taxpayers and the importance that the taxpayers receive an appropriate return on the investment that they've been making in these institutions. given the recent enactment of the reid amendment, which gives the treasury more flexibility as to timing of disposition of the warrants, the treasury is now looking at that issue actively. and i'm sure it will be announcing before too long what its policy will be on warrants given this change in the -- in the rules governing the management of the warrants.

>> so in other words, that doesn't give me any hint of what your thoughts are. >> this is actively being discussed right now. and i'm sure that there will be policy that's made public before long. >> thank you, mr. chairman. >> yeah. and, of course, under the reid amendment, you can -- there's a lot of flexibility. >> yes, sir, there is. >> that was the idea. and i think what senator warner was suggesting, now that we have the flexibility, looking at a range of ideas that would give uses additional options within that range of flexibility other than making the choice of either -- of either selling those warrants or holding those warrants, it seems to me between those two book ends there's some opportunities here that we ought to examine. senator corker? >> thank you, mr. chairman. >> my apologies again. >> no, no, i under, there's a lot going on. mr. allison, first of all, thank you for being here and being willing to do this. i think we're fortunate in the public arena to have people like

you with the background you have that are willing to offer yourself, and i want to thank you for that. >> thank you, sir. >> i have a lot of similar kinds of concerns. when we began this program with t.a.r.p., it was sold and we all focused on it in this way, i think as something where we were going to buy assets of value. and we all talked about the fact -- i know we were highly involved in meetings about the fact that the $700 billion in all likelihood would yield a return that would get back more than $700 billion. and by the way, i think that very well could have been the case. it's evident with some of the things like aig and i don't want to create a debate here on the panel, but starting to use money for things like mortgage modifications and all that, that

that's likely not going to be the case today. but as we look at the various -- as we look at t.a.r.p. or as you look at it, i would like to get an understanding -- i know that these things evolve. and there's fine print in bills and people are able to be very entrepreneurial by taking advantage of a few words in a bill and starting to do a lot of other things with it. which i think we've all learned a lesson from in many, many ways. but is it your perfective that with these t.a.r.p. funds your primary goal is -- is in stabilizing the financial system, investing in things that will have value and that will return taxpayer -- taxpayers their money? >> sir, as the law states, the financial stability program is intended to improve the stability of the financial system while protecting the interest of taxpayers. i think it's very important that

i, if i'm confirmed for this responsibility, are mindful of both of those conditions. and i think it's early to say what the eventual returns will be to the american public. i can assure you that if i'm confirmed, i'm going to work very hard to make sure that these moneys are well invested and well managed and tightly controlled going forward. keeping the interest of the taxpayer and the american people very much in mind. >> you know, as we look at where we are in the t.a.r.p. program today, sebody like you, i don't think, would take on a position like this unless you had responsibilities and you felt like you were making a difference. i mean, you have stature and you have substance, and yet as i look at the program and where we are, it seems to me that those decisions that are going to be left as it relates to t.a.r.p., other than making decisions about timing and when we -- when we take advantage of our warrants and those kinds of

things, much of the heavy lifting may have already been done. and it seems like decisions about who we're going to invest in majorly will be made by the treasury secretary and that the t.a.r.p. leader may be more of an implementer. and i'm just wondering what kind of conversations you-all have had in that regard, because, again, looking at your resume and background, i'm just wondering what it is that is luring you to this position. >> well, i'm -- i'm lured to the position taking on this responsibility, if you confirm me, because i believe that this is still a very serious economic time for this country, that much still has to be done to restore stability. there are many positive signs, thanks to the initiatives by the administration and these programs. we're seeing spreads coming down, credit spreads, in the banking area. we've seen home sales more steady the past few months.

and there are other signs, for instance, the banks being able to issue equity on their own, to issue unsecured debt. these are all very positive signs. but we also see housing prices are still falling. the commercial real estate market is still under pressure. small businesses are still having some difficulty. we have still credit spreads, this measure of risk in the system, still higher than they historically have been and should be. there's still a great amount of work to be done here. i don't think at this point we ought to become complacent and because the banks are starting to repay some of this money, the crisis is over, we can just go ahead. there still could be -- as the president and as the secretary have said -- some bumps along the road here. i think we have to see this program through and make sure that it's well administered all along the way. as the chairman said, this is going to require close

management and experienced management skills, and i think that's what i can help to bring to this and also provide assistance to the secretary of the treasury, who has the overall responsibility for these programs. >> very good answer. and one last -- this is my last question, mr. chairman. secretary paulson, last summer when he was given the authority, if you will, to -- to act as a conservator for fannie and freddie, mentioned that before he left he was going to give a statement about what the ultimate outcome of those two organizations ought to be, the events of the day and the crises that continued sort of prevented that from happening, or if it happened, it was overwhelmed by other news that were happening at the time. you've been at fannie and you're a smart guy. and i'm wondering if while we're all here, since it's a major responsibility of all of us on this committee, if you could just tell us what you think, as

we moved through this crisis, what the ultimate outcome should be with fannie and freddie. a lot of people have talked about privatization. a lot of people have talked about, you know, we ought to only use them as insurers. there's all kinds of things that have been stated. you've lived it and breathed it, and i wonder if you might share with us what you think the ultimate outcome of those organizations ought to be. >> senator, thank you for the question. and let me just tell you what i used to tell the people at fannie mae, who were asking this question themselves. you could see they were quite concerned about the future of an institution where they had worked for many years. and, by the way, they're outstanding employees and they're working extremely hard today on behalf of the american public. what i told them was, let's not tr to anticipate what form this company may take or whether it may even exist in the years ahead. let's look at what's in the best interests of the american public. let's do our jobs on behalf of the people right now who are desperate to stay in their

homes. and that's the line of business of fannie mae, to keep people in their homes. i think that this will be an issue debated within congress, the administration will take its viewpoint on this down the road. i think what's most important is that we have a vibrant housing system in the united states, with liquid markets, so that people can access credit in responsible eights to own their home. after all, that's part of the american dream. so at this point, i wouldn't offer any specific prescription. i think this depends on major government policy going forward. this is a pivotal moment, and i think that it causes -- it calls for a debate, a reasoned debate, about the future of the housing market and of housing policy in the united states. >> thank you very much. that was pretty much a

nonanswer, and i guess -- i guess during a confirmation hearing when you don't know if you're going to be confirmed or not, it's maybe unfair to ask that. i sure hope as time moves on and you are confirmed, that you will be more clairvoyant and helpful to us as to what you think ought to occur. but i certainly, like senator tester, will give you a pass and say you are well qualified to run for public office based on that answer. thank you. >> thank you, sir. let me just say i was going to suggest, by the way -- let me just mention my colleague before senator corker leaves. just so my colleague's aware, your reputation at fannie among the employees was just remarkable. at a time when they were being absolutely deluged and overwhelmed, you restored a sense of confidence to a workforce that was feeling rather battered in many ways. and i want my colleagues to know

about that. that's strong leadership at a time like that. and obviously we like your ideas. i want to pick up on senator corker's point. this is a very important issue as to where we go with this policy, and the fact that you were there and understand that institution as well as you do and enjoyed the reputation with the workforce as strongly as you do, this is not the moment for it, but there will be a moment we'd like to invite your thoughts and ideas about how that construct will occur. so, i second that -- >> thank you. thank you, mr. chairman. >> and i appreciate that. back to senator warner. do you want to finish up? >> yeah. i just have one more, one more point. thank you, mr. chairman. mr. allison, one of the comments you made in terms of your priorities was transparency, and i just want to get a little further confirmation on that as well. one of my frustrations actually led me to put forward legislation with senator martinez and senator brown, senator tester said he wants to

join me in this to try to mandate -- since we've not seen it so far from the administration -- on a publicly accessible, single website basis the status of all of the investments we've made with the t.a.r.p. program. i mean, the chairman made clear there are 12-odd separate programs and initiatives, and the administration has gotten better on this. you still need not only a technology degree but also a finance degree to try to find all this information on various websites around, and the fact that it can -- could and should be consolidated into a user-friendly, single site where the american people can check what we've done with this $700 billion and what the status of these loans or investments are is terribly important. because i can tell you, at least, again, in my state, an awful lot of folks thinks we've

taken these funds and basically either thrown them into the winds or flushed them down theå single website to highlight and real time indicate the status of all these t.a.r.p. programs and let the american public know where these funds have gone and what the status for either repayment or potential repayment would be. >> senator, thank you very much for your suggestion. i fully share your thoughts about that, as well as the secretary does i know.

we are in the process of further enhancing the information on the websites about these programs. i have met with the people in the home ownership initiative area about that very subject. so, i'm confident that we'll be able to prepare more information. and we'd like to have a two-way dialogue about this and making sure we're satisfying your needs for information and those whom you represent. >> mr. allison, i hope that would be the case. my only -- my only hesitancy, and it's one of the reasons we actually put forward legislation which i, again, would love to not have the need for, we have heard that response from every individual who's testified, from the secretary on down, that, yeah, that's a good idea, we want to get this information out, yet it's still pretty hard to find in a single source, in a user-friendly way. so, we look forward to that kind of conversation and that kind of result. >> thank you. >> thank you, mr. chairman. >> thank you. senator merkley? >> thank you. thank you, mr. chair.

and i thank you for your testimony, mr. allison. i wanted to -- you know, you have both the wall street experience and the experience in the housing world. i wonder if you can give us some insights on the role that repayment penl alties and how w ought to address those in the future? >> well, i think there's a need to re-examine the financing of home ownership in the country. it's obvious that some of these loan structures were totally inappropriate for the people to whom they were sold. and i think that needs to be looked at very carefully. i think it should be a simpler process for borrowing, the terms of the borrowing should be highly transparent. and i think that attention is going to be given to that as

well as the government looks at re-regulation of the financial industry. you know, a home loan -- a home is the biggest investment most people ever make. and that should be taken into account. if we want to promote home ownership and promote wealth creation in the united states among the public, i think there have to be much more attention given to the structures of those loans. >> how did those practices contribute to systemic risk? >> i think we've seen inappr inappropriate lending practices, not full transparency in some cases. i think there's plenty of evidence that many homeowners were convinced to take risks that they shouldn't have been taking. and that happened on a pretty large scale. and i think that led to a significant part of the housing crisis. >> thank you.

i would just suggest that one has to track how the securitization and the subsequent splitting of the tranches and the creation of cdos and cdos squared really contributed to creating the toxic assets that contaminated the international banking world and one needs to make those in order to get your hands around the systemic risk part of this. am i way off track here, or do you share that? >> i think we're seeing that secretary geithner is concerned about making sure that there is adequate disclosure, that there are mechanisms in the marketplace that will lead to better risk management. and this is a complex issue. there are many elements to having an appropriate risk management approach within the financial industry. i'm sure that's getting a lot of attention among those who are working on these proposals for re-regulation. >> to change topics here.

my support for this second half of the t.a.r.p. was contingent upon a big chunk of it going to mortgage modification, assisting homeowners or perhaps in refinancing. the reports we got from the field in oregon remain very minimal, that is, people are as frustrated today in trying to reach someone they can talk to. those who service the loans are as un -- as unknowledgeable, if you will, as unhelpful as they were months ago. we have one particular institution that folks repeatedly get told, well, our institution is not participating when their institution is participating. this institution was featured in an article yesterday in a different state with experiences that very much reflect what's happening in oregon and which a person who had lost their job and was doing everything they could to make their payments but clearly was going under, was simply told they would have to wait until they were behind three months, and then the effort was made to sell them a

new loan at a higher interest rate with high servicing charges that would have put them further in the hole. kind of a repeat of the types of flipping practices that have been destructive. somehow we have to get over the hill here. we have to get into -- into the world where our institutions are really taking seriously the modification programs. institutions that have received enormous tax support from citizens who are earning 30,000 bucks a year and seeing their tax money going to help the institutions but in return are being stonewalled on the mortgage front. what can we do to accelerate this effort to assist our citizens? >> senator, i share your concerns, that we be as effective as possible in rolling these programs out to every community in america. where people are feeling under great pressure right now. and this is a mammoth program. and it has taken some time to get rolling. i think all of us are impatient.

we want this to be working as quickly as possible, because people are suffering every day. so, i know that people are working day and night. i'm encouraged, as i mentioned before, that more banks are becoming involved. the banks who account for -- other financial institutions, at least 75% of mortgage loans are involved in this program right now. it's taken them time to build their staffing, to change some of their systems, to be able to implement this program as it's designed, and it's frustrating when we all want to see this operating overnight. because we know people out there need this immediately. so, i can assure you that if i'm confirmed, i'll be working with others within the government. i know that secretary donovan's very concerned about this, secretary geithner, not to mention president obama. there's a great deal of pressure on everyone to get this program out as fast as possible, working closely th the banks. and they're making, i think, great efforts, too. now, we have to do more.

we have to reach more institutions. we have to reach more people. it's important that they know these programs are available. and in the case you mentioned, i think, you know, it's important that we try to get as many banks as possible involved in this program. and i'd be happy if i'm confirmed to talk with you or your staff about this. and learn more about those situations. i think we have to be -- everybody's got to be working maximum effort to try to make this program effective. >> i appreciate your statement. and what i think i can characterize a commitment. it's a high priority for you. >> yes. >> maximum commitment. >> yes, sir. >> or effort to make this program succeed. thank you. >> thank you. >> thank you very much, >> senator reid has joined us. i'm going to have to slip out in a minute. will take the gavel to finish the hearing, i've been told you are anyway. the issue was raised by senator shelby about aig.

and on may 20th the issue came up dealing with creditors and counterparties. and obviously a lot of the attention was focused on bonuses and so forth. and at the same time there were announcements about the creditors and counterparties that didn't get anywhere near the same attention. while the value of aig stock has declined, obviously, creditors and counterparty were getting paid 100% of value. the issue that many of us raised here is who is doing the negotiating? we're an 80% owner and here counterparties are getting 100 cents on the dollar. doesn't sound like a great negotiating position it seems to me, given the exposure of the dollar amounts. what i'd like to know -- i realize you're not in that job yet, but what tools do you feel the government needs to negotiate the best terms for taxpayers? do we need to give you any additional tools?

if there's something we should be doing, i need to know about it. if there's something you need to negotiate better, then we like to know what they are and how they intend to be used. i don't want you to tell me necessarily what the answer ought to be, but the answer that we can't do anything, that we just have to accept this is unacceptable. i think to most of us anyway, just unacceptable. given the exposure we're talking about. >> mr. chairman, i think everybody's frustrated about the aig situation. i think that's a major reason why the secretary and others are working hard on financially reregulation. there was no mechanism for the orderly resolution of the aig problem. and there needs to be if, god forbid, there ever is another situation like that. i think one of the practical implications -- and i'm not involved in the aig matter directly -- but there were cross the fault clauses between -- that would trigger defaults

across aig's exposures to counterparties and debt holders that would have caused a massive problem within the financial system given the size of that entity. and that could have had ripple effects throughout the banking system. so i think that the government has been doing what it can in that very difficult, very complex situation to protect the interests of taxpayers. that's frustrating. and i think that's a very strong reason why there's a need to put new measures in place that can deal with this situation like that if it ever does happen again. >> well, the resolution mechanism is clearly something we've got to deal with. but again, the negotiating process that goes on, i believe the tools are there. the question of whether or not you buy into the notion that any negotiation that could in any way diminish something less than 100 cents on the dollar value would somehow create the kind of economic problem that you just mentioned or not, i know there's a pretty significant debate, i'm

not satisfied that's the case. but i'm going to continue raising this issue as i'm sure others will because again the others will because again the exposure dwarfs a lot of headlines about the bonuses. the bonuses by comparison to exposure here is no comparison. just a vast difference we're talking about. let me turn to senator reid. and thank you very much. we look forward to moving your nomination as soon as we possibly can. thank you again for your willingness -- >> thank you. >> welcome to your family as well. delighted to have them. >> thank you very much. >> thank you also, mr. allison. chairman dodd. senator warren raised the issue of warrants which is close to my concern, also. just once again to emphasize with the recent legislation, you have complete flexibility on the use of the warrants. and i urge you to use that flexibility wisely. there's an issue that, frankly,

a question that's just come to mind. the t.a.r.p. fund has received two forms of payment, the principal that was advanced and also interest on the preferred. does that interest refer back to the t.a.r.p. program and another question related was the value of the warrants, the profits from the warrants. does that go back into the top program? >> moneys that are received go into the general funds of the u.s. treasury. the amount advanced initially is then deducted from the amount outstanding under the $700 billion limit. i will double-check that for you, but that's my understanding. >> so essentially what the repayment would restore the ability to extend the principal amount that's repaid, but the addition additional, the profits and the value of the warrants, they go back to the general treasury.

>> that's my understanding. i will go back and doublecheck it for you. >> thank you very much, mr. allison. i will assume that you looked at the april 21st report of the special i.t. for t.a.r.p. >> yes, sir. >> i think you did a good job of laying out the problems of transparency oversight. do you have any thoughts about these recommendations and how to implement them? and if you covered them before, i apologize. >> i had begun in my first week in the treasury to meet with the inspector general. i meet with him every week, if not more often. our staff at the treasury meets with him also and his staff. we are, i think, all intent on making sure these programs are very well controlled. and that there's as much transparency as practical given the need for these program to be quite broad. i know the inspector general shares those