barack obama at their stations. when asked if that were a political statement, the teller told me, no, we are giving them away to people who open new accounts. well that certainly is a political statement or at least an amazing example of @@@@@@@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @r

consider whether t.a.r.p. strategies are working and determine if we are taking the right steps going forward. i will be especially interested to hear whether our witnesses believe larger banks like citi turned the corner. after the public confidence inspired by the stress test and subsequent earnings reports, our larger institutions still in need of t.a.r.p. support? does the return of many larger institutions to profitability signal a return to sustainability in their business model or are temporary trading gains masking continuing weaknesses and losses in loan portfolios. citigroup has engaged in serious realignment and reorganization efforts, both through the creation of citi holdings and in

divestiture of business lines. has the taxpayer stake in citi been well served by these actions? are there lessons learned that could apply to other intuitions? finally, we must take advantage of mr. pandit's presence here today to question him, not just from the perspective of our ownership interest in citi, but as home owners and consumers. citi has a large number of mortgages at risk of foreclosure, so i intend to fully explore citi's modification efforts under alternative programs. citi is also a large and important consumer lender, so the public will gain a great deal by exploring their lending practices and their view on how regulatory reform should protect consumers. if we have learned anything from this crisis though, it is that risk can materialize where it is least expected.

therefore, a strategic vision for institutions, for t.a.r.p. and for broader regulatory reforms, must creatively think about the range of developing risks and how best to protect consumers and taxpayers. i look forward to your contribution to this process through your testimony today and the answers to our questions, and i personally want to thank you again for your attendance. >> thank you, superintendent neiman. mr. allison, if you would hold yourself to five minutes, we will take any written remarks and include them in the record. thank you. >> thank you very much, chair warren and members silvers, neiman, atkins and mcwaters for the opportunity to testify today. i will discuss treasury's investments in citigroup, our reasons for making these investments and progress toward exiting them. in september 2008, the nation was in the midst of one of the worst financial crisis in our history. the economy was contracting

sharply, and fear of a possibility depression froze financial markets. the u.s. government took unprecedented steps to prevent the complete collapse of the financial system that threatened the economy. in one of the most important responses to the crisis, congress enacted the emergency economic stabilization act or eesa which granted treasury authority to restore liquidity and stability through the financial system through the troubled asset relief program. since t.a.r.p.'s creation, treasury made cash investments of $245 billion in 707 banks. there is broad agreement today because of t.a.r.p. and other governmental actions, the united states averted a potentially catastrophic event. treasury invested a total of $45 billion in citigroup and agreed to share loss necessary a

portfolio of approximately $301 billion of citi's assets. in february 2009, treasury announced stress tests for the 19 largest u.s. bank holding companies to measure how much additional capital each institution would need in order to remain sufficiently capitalized if the economy were to weaken further. the stress test results announced in may indicated that nine institutions had adequate capital and that other ten would have capital needs totalling $75 billion. of this amount, citigroup's additional capital requirement was $5.5 billion. after the stress test was completed last may, citi conducted a series of exchange offerings from preferred shares to common, and significantly improved its tier one common equity. treasury converted $25 billion of its preferred to common at

$3.25 per share. large banks have subsequently raised $110 billion of new common equity and $43 billion of capital in other forms. the bank's renewed access to capital in the public markets enabled them to make repayments to treasury, totalling $169 billion to date representing 70% of all t.a.r.p. investments in banks. while the financial markets have not yet fully recovered, conditions have significantly improved. treasury has notified congress that it does not expect to use more than $550 billion of the $700 billion authorized for t.a.r.p., and is terminating the capital purchase asset guarantee and targeted investment programs. in december of 2009, the federal reserve agreed to allow citigroup to repay treasuries exceptional assistance and terminate the asset guarantee. to be permitted to take these

measures, citi was required to have a post repayment capital base at least consistent with the stress test standard, and to have further demonstrated its financial strength by issuing senior, unsecured debt for a term greater than five years, and without the backing of fdic guarantees. today citigroup has repaid the $20 billion and exceptional assistance and has paid $2.8 billion in dividends to treasury. taxpayers earned a profit on these investments. the government's contingent liability for the asset guarantee has been terminated at no loss to the government. in fact, taxpayers have made a profit from this guarantee. additionally, treasury has announced plans to divest the the government's holdings of citigroup common shares in an ordinarily manner over the next 12 months. decisive actions taken by the u.s. government have created a financial system far stronger

than a year ago. however, the financial system is operating under the same rules that led to its near collapse. these rules must be changed to address the moral hazard posed by large, interconnected financial institutions that present risk to the financial system. the administration has proposed comprehensive financial reforms that seek to force these institutions to internalize risks, remove expectations of government support, and protect taxpayers from having to finance future interventions. thank you very much. >> thank you. we appreciate your being here, mr. allison. i would like to start this morning with treasury's role in overseeing the t.a.r.p. generally and overseeing citi in particular. on october 14, 2008, secretary paulson announced the creation of the capital purchase program. and the infusion of cash into

nine financial institutions including citi. under the program he announced, these are the words he used, "these are healthy institutions, and they have taken this step of accepting taxpayer money for the good of the u.s. economy." as these healthy institutions increase their capital base, they will be able to increase their funding to u.s. consumers and businesses. on october 28th under that statement, citi got $25 billion, was pronounced a healthy institution, and yet on november 23rd, which i think is three weeks and four days later, the secretary of the treasury announced that citi was, citi and citi alone was in such dire straits it would need additional $20 billion and that was then followed by another $102 billion in guarantees.

what i want to understand is no you we describe citi as a healthy institution. what does healthy mean now that it didn't mean on october 14th, 2008? >> thank you, chair warren, for your question. as you know, the treasury does not make comments about the financial health of any particular institutions. in having the funds repaid -- >> i'm sorry. i was quoting the secretary of the treasury on the health of citi and other financial institutions. >> i think at the time that was an extreme situation. i'm not going to comment or second guess what the secretary of the treasury at that time had to say. >> so your position is that we declared it a healthy institution and now we take no position on the financial health of citi? >> it's not our policy to comment on whether any institution presents a systemic

risk or on its particular health. i want also to say because we are a large shareholder we can't make comments on the prospects of citigroup. >> but you were making the decisions at treasury of citi's backing out of the t.a.r.p. program. >> i think it's very important to point out that is not the case. in fact, under the law passed by congress, we have no decision making with regard to citi's repayment to treasury. that authority is given to the regulators of these banks. they make that determination after, as i mentioned in my testimony, they conduct additional tests of the capital add quas adequacy of the institution it is proposing to repay, we have no choice but to receive the funds and repayment. >> so you see the role of treasury here as passive on the question of citi's financial

structure, passive on the question of citi's overall economic health? treasury is not at fault in this? >> chair warren, we are strongly advocating financial performs to prevent this situation from happening again by assuring that no single institution can threaten a financial system. >> i appreciate that. are you telling me you are exercising no supervision over citi in its financial operations today? no oversight of the financial health of this institution? >> as you know, madam chair, we are a very reluctant shareholder as mr. atkins pointed out. we wish to dispose of those shares in the public market as soon as circumstances permit, in an ordinarily manner. we have agreed with citigroup in a contract that we stated publically, this is a general policy of the u.s. treasury.

we are not going to be an active shareholder. we are not going to interfere in the day-to-day management of these companies. we will only vote in a proxy on certain well-defined and limited circumstances. >> so the health of citi is not your department. that belongs somewhere else in government? >> again, we are concerned about the financial system. we are concerned that no institution should be able to present significant risk to the financial system, and that's why we are strongly advocating financial reforms that we hope will be enacted by congress shortly. >> i understand that about going forward. let me ask one more quick question. under the stress test citi was required to raise $58 billion in an exchange offer another $5.5 billion in fresh capital. if citi had not been able to raise that money, what would treasury have done? >> i think that is a hypothetical question. >> yes, it is.

>> citi did make these exchanges. we participated in that exchange. >> what would citi have done if it had not raised the money. >> i can't speculate on that. >> you can't speculate. thank you. my time is up. >> thank you, madam chair. i wanted to explore a little about the offering that citi group did last fall, last december, i guess it was. i just wanted to get your explanation. there was obviously it looked like not as smooth as probably either you all or citibank wanted it to go. i wanted to ask your explanation for how that hiccup happened in the offering process? >> well, again, citi managed the offering. that was their decision. we did announce at the time that

we intended to sell not our entire offering, but $5 billion perhaps alongside citi's offering. we decided that because of the behavior of the stock at that time it was not in the taxpayers' interest to make that sale on our part. sale on our part. t @ @ @ @ @ h@ @ @ @ @ @ @ @ü when we look at the situation, with respect to the stock there are 27 million shares outstanding.

most shares of any that i know, the government owns about 27% of that. have you all considered, once it is over, how you will tackle such a large type of a disposition of shares? will tackle such a large type of disposition of shares, especially with a share price being below $5? >> yes. mr. atkins, we've begin this very careful thought, as you can imagine. i'm not in a position to make a public statement about how we will dispose of our shares. that is not in the taxpayers' interests. we have looked at many different alternatives and consulted widely, and we will be making our decision apparent over time. >> so you intend to hold perhaps a number of offerings rather than one? >> as much as i would like to be responsive to your question, i don't think it's in the the

taxpayers' interest to do so, sir. >> i agree. as far as your involvement with respect to management and the board of citigroup, could you sort of explain to me how often you have contacts and what sort of contacts those are? >> we have contacts with citi as we do with many other banks. we are taking a very limited role as an investor. we are not getting involved in the day to day management of citigroup. instead, we will only be active as a shareholder in voting for directors and voting on major corporate events, in voting on issuance of significant new share holdings in major asset sales. in changes and bylaws or charter. other than that, we intend to act as any public shareholder. >> when we had a hearing last

week with respect to gmac, and the government took the position of gmac, clearly a bank holding company, they took seats on the board and are increasing the number of seats because of the number of the amount of holding has increased in gmac. citibank, of course, is a different position. two board members are now, they recently announced are leaving the board. is there any plan for the government to have members of the board? >> we have the right and the ability to vote on directors. that's the position that we'll take at the appropriate time. >> so you have no plans to put a government representative on the board? >> i would note citigroup's board has changed significantly in recent times. in response, i presume, to this

crisis. >> but that was not due to government prompting or -- >> i cannot comment on that. i don't have that information. >> okay. my time is up. thank you. >> mr. silvers? >> thank you. assistant secretary allison, i'm somewhat disappointed by the way you appear to be narrowing your testimony in response to questions from the chair. i'm looking at your written testimony now. i want to make sure that i -- it appears to me that the statement on page three of your written testimony in response to in relation to the treasury's investment in citigroup, treasury believed its actions were warranted and necessary, represents a taking of a position on several questions related to citigroup. i'm going to try to unpack what i believe the position you are

taking is. for starters, would you concur with the statement in november 2008 citigroup was a systemically significant financial institution? >> i would. >> at least we established something here. would you con k cure with the statement november 212008, citigroup was a failing institution? >> i think that the entire banking system was at risk. virtually all major banks were having difficulty or would have difficulty funding themselves. i think that was probably the most significant financial crisis. >> did any other financial institutions contact the treasury department november 21, 2008, and express the view they were going to fail within a week? >> mr. silvers, i was not there at the time. i cannot comment on that. >> can you check the phone records and see if anyone else happened to made such a call? >> we'll be happy to respond to your question, yes, sir.

>> there are voluminous press and i think now book accounts and for all i know songs and tv shows in which this, what i just stated to you has been asserted. do you have any reason to believe citigroup did not do that? >> i have no reason to believe either way. i have no knowledge of it and therefore i cannot comment, but we will respond to your question. >> you said the entire financial system was failing. do i interpret that to mean you agree citigroup was failing on that date? >> i believe incredibly strong action was necessary at that time to prevent a catastrophic failure. >> that is not my question. my question is -- i don't disagree with you, by the way. strong action was needed at that time and during that period. i'm asking you, was citigroup a failing institution?

this clearly can't be that complicated a question to answer. >> i'm trying to comment on a broader issue. i'm asking you about a specific firm, the subject of this hearing. >> i would like to respond to your question, if i may. >> sure. >> i think citi and a number of other banks, many banks, were on the brink of failure had the system not been underpinned by actions of the government, including the federal reserve as well as the u.s. treasury. >> but no other -- >> the treasury department took the type of action you are talking about a month earlier. the fed took certain other actions. a unique step was taken that week with respect to citi. >> in the case of citi that week where action was taken, citi was in a position where it was and it did communicate this to treasury. i know this. that they were having, they could have difficulty funding

themselves at that time. their debt spreads widened considerably. so in the opinion of their management, they were facing a very serious situation. >> these sounds like euphemisms for failing. i have the great respect for the work you've done and t.a.r.p. but i do not understand why it is the united states government cannot admit what everyone in the world knows which is in that week citigroup was a failing institution. i don't understand why, since no one denies they called the treasury department and asked for extraordinary aid and said effectively they would run out of cash, why it is that we can't all agree they were failing. can you explain to me why that is? >> i'm not trying to take issue with your characterization. >> then let's move on. >> i am trying to describe what the actual situation was. >> we agree they were failing.

>> they were a failing systemically institution. now, can you explain why they were not placed in the program that treasury had at the time -- again, i know you weren't there, but you devoted a substantial part of your testimony defending these actions. can you explain why a systemically failing institution was not placed in a failing systemically institution program? >> there was a program, the targeted investment program, which -- >> mr. secretary, that program did not exist on that date. >> i don't have the details on the particular circumstances around that investment. it's my understanding that investment, if you're talking about the additional $20 billion, was characterized as

part of the target investment program. i would be happy to look at that. >> six weeks after it was made, mr. secretary. i know my time has expired if you can indulge me five more seconds or ten more seconds. i just find it extraordinary that it's not possible to simply have a straight forward conversation about this. >> i'm trying, but mr. silvers, what is not there. >> i know you were not there. i am trying to find out why you are so protective of decisions that don't make any sense. >> i'm not trying to be protective. >> mr. mcwatters? >> thank you. mr. allison, do you have any reason to anticipate citigroup will require additional t.a.r.p. funds? >> none. >> i'm sorry, i don't understand your response. >> i have no reason to expect and we have no plans whatsoever to make further investments in citigroup. >> fair enough.

on a fair market value basis after considering contingent liabilities, do you believe citigroup today is solvent? >> again, we rely on the determinations by the regulator, which i know carefully reviewed their financial situation before they agreed to permit repayment to the treasury department by citigroup. >> that sounds like yes. >> i make no comment, as i mentioned before, about the state of citigroup. we as a shareholder cannot comment on their condition or their prospects. >> let me ask this. if the stress test were conducted again today using current economic conditions and the expectation of future economic conditions, would citigroup be required, most likely be required, to raise additional capital? >> that would be a determination by their regulators, not by the treasury department. >> so, what do you think?

have you thought about this? >> i would like to be as forth coming with you as i possibly can. i'm here to provide you with information. we cannot make a comment on the citigroup's prospects or their financial condition as a shareholder in citigroup at this time, and as an institution that is not their regulator. >> but after the taxpayers invested $45 billion, $300  billion guarantee, your answer is the financial equivalent of the fifth amendment? >> no, sir. i would point out citigroup paid the u.s. treasury $20 million and we today are a shareholder of citigroup. >> which is the reason i ask if they're solvent and whether you anticipated additional money will be required from t.a.r.p.? >> i said we don't anticipate

any additional money will be required from t.a.r.p. we have no plans in that regard. we are intending to dispose of our investments in citigroup as rapidly as we responsibly can. >> what do you anticipate the exit strategy will be? >> again, as we said, we intend to dispose of our hold holdings in a responsible, careful manner within the next year. >> okay. >> have you thought about completing another round of stress tests under current economic conditions? >> we, again, understand and know that the regulators are carefully monitoring these banks. it is not our role to perform stress tests for the banks. that's done by the regulators in close consultation with those banks. >> but i mean have you thought about the issue? have you made a recommendation? do you think stress tests should be run again, or is everything okay? >> we believe that the -- that

the financial system is in far better shape than it was before, evidence that have is the fact that banks have been able to raise substantial amounts of equity and also have been raising debt funds without government guarantees. and therefore, as we look forward while we, as a testified, still see some problems in the financial system, it's far stronger than it was a year ago. >> are the -- have the current stress tests been audited by gao? are they in the process of being audited? colm when do you anticipate it will say? in terms of required capital? >> i cannot speak for all u.s. government. >> i understand. >i only have a short time left,

why you think that citigroup needed to be bailed out? what happened? what was the problem? it was not credit cards, it was something else. what was that? has it been fixed? >> what we saw was a great deal of risk in the financial system at that time. it became quite evident as the markets began to seize up that these institutions were facing large exposures in a variety of ways in that their capital was rapidly depleted, which led to the program were congress said that this was an unprecedented crisis in the u.s. government would have to step in to provide support. >> my time is up. >> as you know, in our next

panel we will be hearing from one of the largest banks in the country. i would like to explore what you're doing, the dynamics around large banks in terms of current market and the future direction of the tarp. how you view the trend of repayments from city and the larger institutions that happen to be receiving part funds? how much of it reflects a return to health and how much of it or ects the reaction against as s a reaction to against program standards or the stigma of participating in snarp. >> well, first of all, we are pleased to see that large banks have succeeded in raising substantial amounts of equity capital in the public markets and that they are replacing government capital with public capital. to the point that we've now

received back 70% of the government's investment in banks at a significant profit to the u.s. taxpayers. and as they replace government capital with public capital, the quality of that capital is certainly far better and it provides a base for them to do additional capital raises going forward. so we are highly encouraged and pleased by the progress that has been made in these banks recapitalizing themselves in the public markets. >> so does that return of capital and in many cases to profitability, does it reflect a return to sustainable profits in their business model, or do you see it as a reflection of temporary trading gains that may possibly be masking continuing weaknesses and losses in loan portfolios? >> well, if we look at their capital ratios, the large banks have shown material improvement

in their tier one common equity ratios which is the most important type of capital, they're able to raise funding in the markets. the markets are also observing the health of these banks and what we've seen is evidence through these capital raises of greater public market confidence in the health of these banks. >> and what does it say about the quality of the earnings? is that sustainable as to where it's coming from? and i think to the extent it's coming from lending versus trading i think is an important factor. >> again, if i start commenting on earning streams, i can -- some may interpret i'm commenting on citigroup. >> let's talk more broadly because we do have metrics and i think some of the more important once are those that have come out of the federal reserve from the fdic on lending sticks. their last quartly banking report issued last week shows historic drops in lending levels. in fact, it's the largest yearly

decline since the fdic was createded. how would you analyze and interpret this data regarding decreased lending at lending levels? is it -- does it show a significant degree of lack of progress in financial stability or other factors in your interpretation? >> well, there are many possible reasons for the decline in lending, and this has been widely discussed. is it can be due to a natural caution during a recession on the part both of borrowers and lenders. and we will, as i'm sure you know, have announced a program to provide to make available additional capital to mid-sized and small banks who do outsized amounts of lending to small businesses across the country. we've announces a $30 billion program. we're hoping to get congressional approval for aspects that have program and to move it forward as rapidly as

possible. and that program is geared to lending because it will -- it provides for a sharp reduction in dividend payments to treasury on the part of banks that lend materially more than they are today. >> one important question on metrics. one of the important metrics that we have suessed is the treasury's monthly snapshot of the banks who have been reporting. as i look at the data of february 16th, the snapshot now only reflects 11 institutions because it is no longer contains institutions that have repaid t.a.r.p. funds and i think in this report it was repaid in june of '09. >> yes. >> i think that will have limited continued limited usefulness, this data as we go forth to the extent that institutions are examplituded from the report. is there any consideration to expanding? and i can see continuing asking institutions to continue to report despite the fact that

t.a.r.p. funds may have been repaid. >> yes, in fact, when the banks began to repay last summer, we called the banks that were repay ang requested that they continue to report through the end of this year. and they all agreed to do that. we'll be happy to take your quell into consideration. >> yeah, i think earlier we've even encouraged expanding it more broadly and would be very concerned to the extent that is limited. >> thank you. >> thank you, superintendent nieman. so i was struck by your comment, an siftent secretary allison, that the taxpayers made a profit on their deal with city bank. that will citi has a too big to fail guarantee that is very valuable right now. it shows up in their credit rating that the american taxpayer will not let them fail. what is citi paying the taxpayers? >> first of all, there is no too big to fail quarantine on the part of the u.s. government. and i can't account for any

statement that some outside agency may make. we intend as i've mentioned, to dispose of our shares in citigroup as soon as possible. >> mr. allison, i understand that. but the question i'm asking is the market clearly perceives that there is a too big to fail guarantee and the market is rating citi higher because of that. that gives citi an advantage in raising capital. that is very valuable to citi, and it is potentially very costly to the american taxpayer and i want to know if the american taxpayer gets paid for that. >> really what you're pointing out is the need for reregulation of the financial system. >> i understand that. >> it's essential that no institution is viewed as. >> i will take that as a no, that we are not being paid for the guarantee that we are providing citigroup. >> there is no guarantee of that institution or any other institution. >> ial take that as a no. so let me ask about, you said we have no more plans to put t.a.r.p. funds into citigroup.

part of the reason citigroup had to be bailed out stemmed from the difficulty of entangingal counter party risks around the world. i'd like to know how has treasury managed systemic risk questions posed not just by citigroup bibi all of the large companies but particularly by citigroup and consult tagsz with your regulatory counterparts around the globe. what are you doinging abouting thatting? are we any safer than we were a year ago? >> there are continuous conversations with financial leaders around the world. and i think you've seen them say that there's closer coordination today and much better communication. >> well, i'm glad that there may be more coordination. let me ask it in the more specific perhaps with citi. are you making any effort to separate citi's activities, its counter party risks and operations around the world that we say caused systemic failure

or systemic failure would be caused if they failed? are we making any effort to segregate that say from their trading activity taelts a fairly high risk undertaking. >> again as you know, we've made many statements and taken the initiative to request major changes in financial regulation in this country, which could address a number of those issues. for example, assisting on capital adequacy, comprehensive oversight of these institutions and very important, a resolution authority so that no institution with the government would not be put in a position of having to take over an institution or to somehow support it. >> almost assistant secretary. >> yes. >> i appreciate the need for reform of the financial system. and looking forward, i think that's exactly what we have to

do. the question, however, is that we have a system in place right now. treasury came to the united states congress and said, in october of 2008, we have to h$2 have $700 billion or the economy will fail. one of the specific problems was that citi had this deeply intertwined overseas operation that we were told as a people would, if we tried to unravel it, cause a systemic shutdown in economic markets, that the results would be catastrophic. and that was one of the principal reasons that the american congress went along with the t.a.r.p. bailout. so my question is, what are you doing about that now? what are you doing to isolate the part of citi and citi's operations that could cause systemic failure if they go down from citi's other high-risk

undertakings? for example, their trading activities? >> yes, well, as you know, there is the volcker rule that's being discussed today. >> you're talking to me about the future and the future you're talking about is one that puts it back on congress to change the laws. i'm in favor of that, mr. assistant secretary. but we have to survive day to day, and it is treasury who is responsible. we don't want you back here asking for money. >> chair warren, we totally share your concerns. and that is why we are advocating that reform be initiated and passed as rapidly as possible. >> i'm going to do this one more time. >> please do. >> please don't tell me about advocating change for the future. what i'd like to know is what are you doing to manage the risks that are in front of citi and that face the american people right now. >> well, citi, again, is under regulatory oversight

comprehensive regulatory oversight, and the regulators are responsible for assuring that citi is being properly controlled. and that it has adequate capital. >> are you telling me there are no efforts to segregate the risky activities from the systemically critical activities? >> we are not involved in managing citi on a day to day basis. and the regulators oversee citigroup. i think that's a question you might ask mr. pan dit when he comes here shortly when i finish. >> good idea. thank you. i apologize to panelists for going over. >> thank you very much. >> mr. atkins. >> i just have a couple more questions here. one with troept, there was an interesting article by reuters yesterday about a small midwestern bank called midwest bank holdings. this is a little bit off topic but it will get back to topic in a second. i want to read it. a small midwestern bank has

negotiate with the treasury tore taxpayers to essentially buy the shares at an above market value price in an unusual transaction reflecting how the government's bank investments are entering a new phase. midwest bank holdings agreed to swap 84.4 million of preferred shares for securities that will convert to about only $15.5 million of common shares roughly an 80% loss to taxpayers. it quotes hedge fund managers. there's a lot of funny stuff going on here. in section 101 of esa, it basically says the secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program including by preventing the sale of a troubled asset to the secretary at a higher price than what the seller paid to purchase the asset. so i was wondering if you have -- if you can elucidate us with respect to this particular

transaction and does this portend a change with respect to treasury's view of the assets that it holds under t.a.r.p. and the remaining banks? >> as we looked at the situation of midwest bank, we determined that the best way to protect the taxpayers' investment would be to convert our position into mandatory convertible preferred on the condition that that bank raise additional capital, a substantial amount of additional capital from public sources. so this is all about protecting the taxpayers' interests. and preventing, we hope, further erosion in our position. with that bank. >> okay. so again, i mean, i know you've said that you can't really speculate with respect to city bank and again we have huge interest in that particular company. and a huge number of shares are outstanding. so you might consider other sorts of situations liking this

that might convert what we currently hold into other sorts of security interests in the company. >> well, our interests are protecting taxpayers and their investments. and there may be situations where we will look at what we might do in the way of protecting ourselves through a structured recapitalization is in the interest of the taxpayers. >> that brings me back to some of the other things that the administration is doing and whether or not that is in the best interest of banks and shareholders, in this case. i saw in a report, formal language sent to the hill today, what effect will that have on the taxpayer in a reluctant shareholder? to the possibility?

>> that is a question better asked to the ceo of citigroup. again, i cannot comment on potential impacts of the company. >> it seems that the government is giving with one hand and taking with another, including the resolution that you were talking about. you noted in your testimony that the administration's proposals provide resolution authority subject to strict control procedures with losses absorbed not by taxpayers but by equity holders and secured creditors and, if necessary, through a fee on other major financial institutions similar to the financial crisis responsibility fee. ar to the ll, are financial crisis responsibility fee." so first of all, aren't proposals like these actually putting additional costs and burdens on banks at a time when insuring that banks are

sufficiently capitalized should be priority one? >> well, we think that these measures are called forgiven the circumstances that the taxpayers have faced. we, by the way, we will intend as the treasury secretary has announced to give back every penny that we have invested through t.a.r.p. and the financial crisis recovery fee is one way of doing that. we would also point out that many institutions have paid very large bonuses. they can afford, we think, to reimburse the taxpayer. >> well, unfortunately, you know, they also have to run a business, as well. but anyway, my time is up. we'll get into that later. thank you. >> thank you, mr. atkins. mr. silvers? >> i think it might be helpful, mr. assistant secretary to try to clarify what the taxpayers' interest is here in light of my colleagues' questioning.

first, let me return to what may be a painful subject. do you agree that citigroup today is a systematically significant institution? >> again, mr. silvers with, all respect, we cannot comment on a judgment about whether they're systematically significant. >> you agree they were in the fall of 2008 though? >> the determination was made at that time that they were systematically significant. >> your written testimony appears, you're not going to answer that question frontally. i'm going to infer it from your written testimony that you believe that. if you wish to tell me that you don't, that's fine. let's start with that. it would appear to me that the united states as has been frequently noted is a 27% common stock holder in citigroup and that that's a significant financial interest of the public at this point. i assume you agree with that. >> i do. >> all right. it would also appear that there

is at least a significant probability based on historical events that we are some sort of guarantor of citigroup's obligations in light of i think what we agree that we did not allow citigroup to default on those obligations multiple times in the past and most rlsly a year or so ago. you're free to disagree with me. i don't expect to you confirm what i just said. >> well, we did guarantee part of their asset foz for a period of time and well compensated for doing that. >> i'm suggesting we have a broader somewhat ill defined guarantee. certainly the credit markets or at least credit market analysts believe that to be the case. so we're not in the position as my colleague would appear to suggest it seems to me of being simply a stock holder in citigroup and then finally, if we believe that there is at least the possibility that will citigroup will turn out to be systematically significant today as it was in 2008, there's an even larger interest at play

here. would you disagree that that's at least a possibility that there is a systemic interest here that the taxpayer has? >> well, first of all, let me say again that the purpose of the regulatory reform initiative is to assure that no institution could infer or the public can infer that there's some type of implicit guarantee of a financial institution by the u.s. government. we want to remove that possibility. >> but as our chair has commented on that unfortunately, i think you and i agree, unfortunately this reform has not passed and today we live in a reformless world. >> yes. >> and i gather at least one of my colleagues would prefer to keep it that way that we live in a reformless world. but that's how, you know, the treasury has to function in that arena. seems like the public has three interests in play at citi. my question to you is, what is the -- how does treasury balance or manage, what strategy does

treasury pursuing in light of these three somewhat conflicting interests? >> well, again, our strategy as a shareholder in citigroup is first of all, to dispose of our investment as rapidly as we can in a responsible way. secondly, not to get involved in the management of the company. we don't believe that's in the shareholders' interests or in treasury's interests. we are casting our involvement very narrowly as a voting shareholder and voting only on certain items in a proxy statement. so we think that the best thing we can do, twofold, one exit that investment as rapidly as we responsibly can, and secondly, push hard for financial reform, let me say it again to, make sure that the u.s. taxpayer is never again put in a situation like we pais face today with citigroup owning 27% of that

company. >> can i turn to a different matter then as my time is about to run out? i alluded in my opening statement to the fact that common stockholders of citigroup have been over time diluted. >> yes. >> and largely as a result of actions taken by in administration over the last 12 months although not exclusively. there was a little bit of dilution involved in the initial suspect transaction. however, it appears to me that there is substantial differences nonetheless between aig, the other -- what i find to be the inevitable comparison in terms of a systematically failing institution. the dilution there and the dilutioning in citigroup and i would like to ask you to provide us with your analysis of the comparative of comparing the dilution in the two areas and in particular your analysis of the effect of the difference between what happened in aig where the treasury came in with debt, debt

financing entirely, senior to the common stockholders and took a large common position through warrants and the citi situation in which preferred stockholders were converted into common and thus, essentially, more cash was put in with the common. obviously, i'm not asking you to answer that question now, but i'd like an apples to apples comparison of the dilution in the two firms as of today. >> well, first of all, aig received assistance in the fall of 2008. the federal reserve actually made the bulk of that investment and the federal reserve owns preferred shares, voting shares that control about 80% of the voting rights is my understanding. and citi on the other hand we made these preferred investments in citi, as you well know and we had an exchange last summer as part of a number of exchanges of preferred for common that were

done at the time to bolster citi's tangible common equity ratio. >> i'm going to stop you there if you can, mr. allison. we'll come back to this and we'll permit -- we'll keep the record open so we can add more detail on this. i just want to be disciplined about time. mr. mcwaters. >> thank you. plrm assistant secretary, during calendar year 2009, did t.a.r.p. recipients sell any mortgage-backed securities to either the fed, treasury, orphanie or freddie? >> i don't have an exact answer for that, mr. mcwaters. i'll be happy to get it for you. >> if you would look into that and also look into the price that was paid. >> all right. >> the fair market value at the time or was it par, something in excess of fair market value is what i'm interested in knowing. >> okay. >> what actions has citi taken again specifically to negate too

big to fail problem so we're not having this discussion again in five years? >> may i respectfully ask that you pose that question to mr. pan dit who is the ceo? i think he's in a better position than i to describe the actions they've taken internally. >> i know but i suspect you talk with him on occasion. >> actually, i have not talked to mr. pan dit about this matter, no. >> okay. how did citi em employ the $45 billion of taxpayer funds? >> those funds were for general corporate purposes. they were part of the capital of citigroup. it was designed, that entire program was designed to provide additional capital to banks. >> okay. does citi use retail or commercial bank deposits to finance proprietary trading activity. >> again, i'd ask you to you ask that question of mr. pan dit. i don't have that information. >> but i mean this has been alleged as one of the causes of

the financial crisis. and so it's not a question you've asked? >> no, it's not. >> okay. >> okay. do you have a view as to how the activity of short sellers in the last quarter of 2008 affected the financial crisis and affected citigroup? >> i don't have that information, sir. >> okay. >> any views as to how the mark-to-market accounting rules particular little how they were reviseded in april of 2009 affected citigroup's financial reporting? >> again, i think you'd have to ask the ceo. >> so these are questions you've just not thought about or not -- even though that these are not obscure questions about short sellers and mark to market and the like? >> no, is the role of my area in treasury is to manage the taxpayers' investments and to retrieve those investments as rapidly as we responsibly can.

>> okay. i can anticipate the response to this question. it has been alleged that goldman sachs among others sold collateralrized debt obligations to investors while at the same time betting against or selling short those same securities. are you aware that citi is engaged in any of that activity? >> i'm not. >> okay. okay. what is your view about the effect the implicit guarantee from the taxpayers has had on the competitors of citigroup? >> well, let me say again, there is no guarantee today of citigroup or any part of citigroup on the part of the u.s. government. >> i said implicit guarantee, not expolice night well, i'm not sure i can comment on what implicit guarantee means. i'm trying to be as precise as i can. >> okay, fair enough.

but so as far as you know, it has had no effect on competitors that -- i mean, let me ask it this way. is citi today too big to fail? i mean if the answer is no, it can fail and be liquidated then i would say it would have no effect on competitors. but is citi too big to fail today. >> as i've said before, i can't comment on the condition of citigroup as a -- since the u.s. treasury is a major holder of their shares. >> okay. my time is nearing the end so i will stop there. >> thank you, mr. mcwaters. superintendent nieman. >> thank you. >> i intend to ask mr. pan dit about their progress in preventing foreclosures. i'm going to be particularly interested in their modification process and particularly around conversions from trial mods to conversions. and i think this is more than

just a process question. i think some people tend to forget that the reason we are in this financial crisis is because of the foreclosure drives and until we soft housing and foreclosure crisis, we will never be assured of financial stability. so i think it is an important part of this hearing and an important part of the t.a.r.p. program. can you share with me your assessment of citi's performance under the program? >> yes, sir. like other banks, we think they got off to a pretty slow start. they've picked up speed, to about 50% of the eligible mortgages in its portfolio, ranking no. 1 in terms of progress. nonetheless, they have a long ways to go. we are actively involved in citigroup and the other major banks to make sure that they are reviewing those portfolios and

identifying eligible homeowners and offering modifications as soon as possible. i should also point out that there are 1.7 million people eligible for modifications under the program. these services have extended offers to 1.3 million. there are 1 million trial modifications in place saving homeowners $500. >> thank you for raising that. due to the treasury's extension of that three month period by which far worse have to make payments before they are created from trial to permanent, that extension expired at the end of january. we are anxiously all awaiting the numbers that could even approach half of a million individuals who we are awaiting the denial whether they were offered a mod, if they were

denied what the appeals process was -- do you have any expectations of what we might hear from citigroup? . . you can give us some idea of what our expectations may be with respect to that data. >> well, again, we're looking forward to the release of the monthly data for january. i'm sorry, february. and there is progress being made in decisioning the trial modifications, considerable progress and this will be taking place in the weeks to come, as well. and also, there are rights for homeowners who are denied to appeal their denials, as well. so we've tried to make this program as simple today as transparent as possible.

we have been working very closely with the leading servicers especially to assure that they are moving as expeditiously as they can and they have the resources also to make decisions as rapidly as possible. we will know these homeowners are waiting. in the meantime though, they're still save agaverage of over $500 a month and we are. >> to the extent that they are denied a permanent mortgage denied a permanent mortgage conversion, there's a question of whether they would have been better off pursuing another alternative, whether short sale and look to rent as opposed to staying in a trial modification for fee, four, five, six months. i do want to, becauses in recognition of the challenges in conversion and those low conversion rates, have you announced a new system going in june 1 that will now require documentation up front. and i think there are certain benefits to that. but do we run a risk of shifting the problem? yes, we will have higher conversions but will we have

fewer people entering the process unless we really modify those documentations? >> i think that's a good question. it's one we've been concerned about, as well. that's why we've tried to simplify the documentation requirements and also, we provide the documents that a homeowner may need on our website as well as voluminous information about how to apply, how to go through the process, how to make appeals. >> march 1 was the date i think we were previously given about having that web portal up and running so borrowers can identify. can you give me an update on the status of expanding that? i think we were told earlier there were going to be over 100 servicers participating by march 1. >> i don't have the exact number of servicers participating. but that program has been moving ahead very rapidly and will continue to make enhancements to that website going forward. i would also point out we've had millions of people access the website and also let me mention, we're working croesly with counselors around the country

and holding events throughout the country to bring people in who may be eligible for this program. and help them have their mortgages modified as rapidly as possible. >> we look forward to the reports and your efforts of transparency understanding clear little how those individuals were treated. thank you. >> thank you. >> thank you, mr., assistant secretary. have i one last question on behalf of the entire panel. and that is, are you saying today that no one in treasury monitors the financial condition of citi and that no one in treasury is trying to manage the systemic risk that citi poses, or are you saying that that's just not your job? >> we do look at obviously public information about citigroup. >> you don't have any private conversations with citi? >> i personally have not had.

>> or request additional information from them? >> i think that there have been conversations with citigroup over time. i myself have not had conversations with citigroup management about the condition of the company and with the ceo about that subject. >> so are you telling me, that was my question. >> yeah, yeah. >> that no one in treasury is systematically obserng and monitoring the financial conditn. not.o,'m >> city. >> citi doe visitith us from t t esheel fyed? ts review citi's pr mr. pandit. again, we appree you being heretoday. i'd like to start with a little quote from the emergency all come to ilization act or know it. >> right. >> where treasury is to assure that its authority is "used in a

manner that protects home values, college funds, retirement accounts and life savings. and president bushes home ownership and promotes jobs and economic growth." that was congress's statement about why t.a.r.p. was done and what treasury is authorized to use money to advance those specific goals. in a june 22nd, 2009 reuters article, you are quoted as saying we will be playing the two growth themes very clearly. one is globalization, and the other is growth in emerging markets. wilbur ross this morning referred to citi as essentially a foreign bank. so the question is, why should the u.s. taxpayer alone carry citi? >> madame chair, we're not a foreign bank. we're a global bank. we're actually america's global bank. we started in business years ago

helping it america's businesses export their products. and that's what we've been doing. in this particular time as we need growth, as we feed jobs, it's even more important that we help small businesses, medium businesses and large businesses make those exports. as we do that, we need operations on the ground and in many of these operations we raise deposits to help large companies in the u.s. get loans on the ground they need and as well, some of those deposits help us facilitate loans in the u.s. market. >> but you describe your growth as globalization and growth in emerging markets. that sounds like these are your words about where you plan to expand your activities. >> we are completely focused on making sure that we continue our lending to u.s. customers, make sure we're helping our clients, our customers through the issues they're facing. now, it's also very

our what clients want to tap foreign consumer bases. they believe that is how they will grow. that is what i meant. we want to make sure we support the businesses in america and get to the other side. >> let me get some data on what is happening. how much do you lent to u.s. enterprises for u.s. operations? >> arkansas title -- total loans outstanding is about $450 billion -- our total loans outstanding is about $450 billion. >> i want to ask about jobs in america. >> i think that number is $450 billion lent in the u.s. >> can you divide that up to companies that do not have foreign operations? >> madam chair, i cannot do that, but i can get back to you. >> that is fair. can i ask another question about

the lending you do. what other transactions have you participate in involving the government of greece? >> we do business with a lot of sovereign countries who need our global expertise, and i know we have been doing business with the country of greece, but i do not have the details. >> do you know how much debt the government of greece you hold? >> i do not know the exact figure, but i know it is not a large or meaningful effect amount in relation to our entire operation. >> thank you for being here today. it is good to have you take time out from your busy schedule to be here. i asked this of the assistant secretary before you and i want to explore it with you.

last time. but so i want to explore it with you and this has to do with the offering back in december. it seems that the timing and experience that particular offering is something we'd like not to repeat and obviously the taxpayer now is the largest single shareholder of city bank. so as an executive with a background in equity markets and experience with the capital markets i was wondering if you could share with us your reflections on how the treasury department should think about monetizing its position in city bank common stock. going forward here. >> mr. atkins, of course, that's the treasury's decision in terms of how they want to do it. we do know that they'll be able to sell stock after march 16th, and they've announced publicly they do want to sell stock over the next 12 months or so. and there are lots of different methodologists of doing it right from selling it in the market

everyday but also we believe there's substantial demand for this stock. it is not a secret that the government wants to sell. it's not a secret that the stock price in the markets today are reflecting the fact that they're a seller in a large amount, and that we believe there are investors here in the u.s. who are getting ready for that offering as to how they do it, when they do it, with whom they do it, those are all the treasury's decisions. >> when you look back at the offering in december then, clearly it was a primary offer ang then trying to be coordinated with a potential large secondary offering there by the government. so as far as the interests goes in the marketplace, was there a large cover ratio for that offering at the time, or what exactly was the problem that we saw in december? >> mr. atkins thanks the largest common stock offering ever done in the u.s. >> right. >> and particularly when you consider that as the percentage of citi's common stock

outstanding, it was extremely large. don't forget, that was done in the face of the market knowing the government was going to sell its 27% in the not too distant future. so they had a choice, do i buy now, later. those are all the backgrounds. it was late in the year in doing that offering and by the way, when we did that offering, unfortunately, another bank decided they wanted to do a large offering right in the middle what have we were doing. but we got it done as the largest offer ang we were able to pay back the taxpayers and we were able to exit the guarantee program. i consider that to be a success. >> okay. well then now looking forward to you have a stock price of about $3 a share or so, which of course, puts it in a special zone as far as some institutions and the way the market views it. what do you all have as far as plans to address that price of the stock in relation to the huge amount, i mean, are you now

the, i guess have the largest number of shares outstanding of any new york stock exchange listed company. >> and therefore, we're also the most traded stock. on many days in the new york stock exchange. by the way, the stock last i came in was $3.44. >> sorry. >> and so, i think at the end of the day, stock prices are important. but what's really important is performance. what do you earn? sustained profitability, which is really what i'm focused on. my biggest job is to make sure we make money on a sustained basis and therefore, help the government make money. >> well, in your testimony, you mention that had you've sold out of citi holdings after having restructured your firm viewing those as the noncore businesses, about 30-some odd businesses. i think it will said more than 20 in your 10 k. so i was wondering, how did you all decide as far as you know, what is core versus what's not core?

>> and that was job number one for me coming into citi looking at the businesses trying to figure out what business are we in, what clients do we serve. what are we good at. you put all those things together, it turned out at the end of the day, we are a great bank that is basically in the business of helping people manage their accounts, providing them loans, providing them capital. providing them investment services and it became very clear that we were in a lot of businesses that were not directly related to being a bank. and so the fundamental decision that i made is that we're going to be a bank. we're going to be the global bank for america's companies. serving them here but also wherever they want to go. but not only for companies but the same capability should be available to individuals, as well. so that's the decision we made. and on the basis of that, it became very clear what was not

core. it was a large part of the company and that's what i've been selling very systematically over the last two years. >> my time's up. thank you. >> mr. silvers? >> yes, thank you, chair. again, mr. pandit, i want to commend you for being here and express my appreciation both for your presence and your testimony. you said a moment or so ago that in trying to focus on what citigroup is good at, that you viewed sort of a return to core banking as the primary direction you were headed. and you mentioned some numbers about loans. i have here the report i'm sure you're familiar with from standard & poors from last month that shows, and the numbers don't match so i wondered if you coax plain it to me, that shows that commercial and corporate loans by citigroup have fallen dramatically over the last two years. from a level of according to s&p

$206 billion at the year end 2007 t$2007 to $127 billion tod. or end of third quarter i believe, 2009. i don't think they had the fourth quarter numbers at that time. in view of the of my understanding that your divestitures have largely been unrelated to commercial loans, can you explain to me what's happening here? >> sure, mr. silvers. when we decide what was core, what's not, there were also assets that were part of what was not core to us, as well. there were either clients that we shouldn't be serving or they didn't need us or they were businesses that were not core to us. they were assets that were gathered through core businesses. and so those numbers reflect selling businesses that are not core to us. selling assets that were not core to us. taking any marks on assets that were not core to us. let me reassure you, as well.

>> mr. pandit, i don't understand how you can reconcile that will type -- the scale of that retreat from business lending which is after all in, my view, just absolutely central to whether or not t.a.r.p. is succeeding. the scale that have retreat from business lending with your characterization of a refocusing on core banking, because i look at other numbers, i don't see that type of retreat from other types of activity other than obviously things that you're totally divesting from. >> let me assure you, we will make any good loan that we see to a client. the regulators want us to make prudent loans. we are doing that. some of those were leveraged loans part of practices we shouldn't have been part of. they're not part of the banking mission. so it's very easy to look at those numbers and thing that they actually represent our lending appetite or our appetite to serve client but that isn't so. that many reflects the narrowing and focusing of our businesses

to what we should be as a bank. >> well, second question about this type of issue. in the area of commercial real estate, which has been a concern of this panel, again, my survey of the data suggests a kind of flat line in terms of the total assets in commercial real estate in the -- at the holding company level portfolio of around $75 billion, $80 billion. my question about that is that i wonder, have you taken any write-downs in commercial real estate and how do i understand this flat level in the -- and are we -- are write-downs coming? >> number of things. one, a lot of that portfolio is mark to market. we have taken write-downs. much of that portfolio is community lending, and that's money good, as well. there are some accrual loans that we've made, and those loans are well reviewed against. let me also say that most of our

loans are for office buildings against leases and some of the major metropolitan areas so that's a very well-scrubbed over portfolio. i'll make one more point on this, which is that that's less of an issue for citi. >> uh-huh. can i then turn to another question about your core strategy and i think my time will then expire. as i understand it, correct me if i'm wrong, you've been telling the world that are you going to be focused in addition to what might be described as really old fashioned banking in two other areas that you're going to continue to have a significant capital markets desk with a broad exposure to global markets, derivatives currentscies and the like and that you're going to be continuing to focus on your global transaction services business. which has been the sort of consistent profit driver over the last year. am i reading back to you correctly? >> that's correct, mr. silvers. >> okay. we've heard, i think, a fair

amount about the extent to which the gts business makes citi particularly systemically significant. it's@@ms)@ @ @ @ @ @ h )k@ @ @ and tying it to something relatively risky. >> i do not recall making that statement to anybody, nor do i recall anybody directly working for me making that statement. the statement that you said about the fact that this was the argument we made to the government about systemic state s. >> would you commit to not coming to the government in the future and making the argument that the gps -- gts business

requires being billed out, should your other business goes south? >> yes. >> i commend you for giving me a straight answer. it is are rare experience in my role. >> i think that is why we are here. we're here for straight answers. i wanted to hear from me what we are doing and why we are doing the right thing. >> if my colleagues will indulge me, please explain how those businesses are compatible. >> we do business for coca-cola and pepsi. coca-cola is an 250 areas around the world. we do everything from cash management into custody to clearing selling -- the need for an exchange management, liability management, interest- rate management. we have to have those operations to serve them in those ways. the fundamental shift that i made was to make sure that our trading operations and our cash

management operations and our banking operations are geared toward doing those things but our clients need. if you do that correctly, having been in the business for as long as i have, those are the businesses that generate good value for clients without creating the risk that has been greeted in the system before. -- created in the system before. time is way over. thank you. >> my goodness. i apologize. mr. mcwaters? >> thank you. and thank you mr. pandit for appearing today. do you have any reason to anticipate citi group will need additional t.a.r.p. funds? >> no. >> on a fair market basis is citi group solvent? >> yes. >> are any material divisions or subsidiaries of citi group

insolvent? >> no. let me be very clear. we look at the entire company, citi group. and what matters is that we're well cappalized, we have the liquidity and we stress ourselves very often to make sure that's always the case. >> speaking of st >> would you be required to raise additional capital and if so, how much? >> no. >> could you tell us why, specifically, city group needed at t.a.r.p. funded bailout. what went wrong? what happened? >> we came into the market with assets on which it we took substantial losses in 2008. we address that by raising $48 billion in the capital markets and early 2008 and selling

another said the businesses to raise capital. we got $25 billion from the government in the first t.a.r.p. round. the result of all of that was we had 10.7% tier one and have reduced our assets and the fundamentals. we were in the right place in any rational market. we were not in of rational market. post-a lehman brothers, what cobia -- wachovia, the markets rose. --- the markets rosfroze. and different stocks at different banks started reacting to that. our stocks started going down in late 2008. so on that friday in late

november, our stock was at $3.37. now, in a market of that sort, unfortunately sometimes stock prices can have an impact on confidence on all sorts of >> what actions have you taken to negate your status as too big to fail? what will do -- what will happen if this happens again? >> we have taken a number of steps to start with capital. we have a very strong capital base, very strong liquidity, very strong reserves. that is the starting point. the second part is to create earnings.

the third part of that is change your risk profile and we have done that. we have some legacy efforts -- legacy assets. we have changed that as well. we manage on the basis of cash on the ground, liquidity on the ground. we work with global regulators. we have made significant changes in the financial health and risk management of the company. we have also targeted the company towards those businesses that help clients, and do not create the risk that has been created in the past. let me also say that i think we need regulation. that is what i said in my opening statement -- we need is to never happen again. >> one more quick question. you are a veteran in the capital purchase program. what advice can you give for how that program can be improved? them that it is ongoing.

there is money out the door. -- >> that is ongoing. there is money out the door. not every institution has repaid their t.a.r.p. funds. the t.a.r.p. funds were put into place -- a lot of the reason was to inject capital into the banks, not only so they could lend and the right things for the american people, but to create a sense of confidence in the financial system, when we took it off the table. for those people who still have park -- t.a.r.p. funds, i have no other advice but to say to step in and make sure that you manage your business to take the cost out that you need to manage as efficiently as possible and start creating a story and business model that can translate into earnings. that is the best way in which the capital market can give you a pretty common -- did you

equity, which you can then use to repay the government. >> of thank you. >> if you were here, and i believe you were, when i was questioning mr. allison, i highlighted that the mortgage crisis gave rise to the financial crisis. for that reason, i was bit -- very pleased to see that you referenced in your effort toward foreclosure mitigation. in your written testimony, you highlighted the fact that you have the highest percentage of eligible loans in active modifications. you are at 50% in trial and permanent. though you can be applauded for that outreach effort, i think a more important metric is the actual conversion is that actual conversion of trial modifications to permanent, sustainable mortgages.

the last report from treasury has 110,000 mortgages that are in active trial modifications. with the extension of treasury through january 31, we are now awaiting results from more institutions. we are awaiting your results as well, as to how those individuals were treated. the important part is -- these are individuals who have been willing and able to make these reduce payments and are awaiting final determination. we know servicers have had problems and there are problems in the appeal process. can you give us any information about what we may expect to see in the decisions with respect to those trial monthds? >> i agree with you that attacking the issue of housing is important for the economy and for our customers and clients as well. we are number one in active

modifications right now. the ratio of completions is about 18%. we think the number will go up to 40%. not everybody who has gotten into that program is going to qualify. they may not have the documentation or information necessary to do that. that is why, what we have done is create a citi modification side on the other side. we still have modification programs and plans available for these people who are going through this particular change. >> do you c documentation -- this is an issue i have heard from other issuers. we have heard concerns on the resources and processes and servicers who are losing documentation, instances of borrowers reluctant or unable to produce documentation.

i am concerned that the treasury has not given enough discretion to servicers and lenders to make those decisions. have you found that? would you make changes to the process? >> the treasury has already made changes -- positive changes. these are the changes that will have a positive impact on modifications as well. let me also say that we have 4000 people doing this for us. i have hired 1400 people in the last year to make sure we can help people get through these documentation issues. these are case-by-case issues. >> are you utilizing principle reductions? could you share with us separate -- percentage of modifications that use those? >> the number one goal to us is to keep people and their homes -- we need to make those homes affordable. >> you can do that through a combination of interest, extensions, or principal reduction. >> it is all of those things. it is delaying amortization.

>> do you agree that reducing principal will increase the likelihood of three -- reducing the re-default rate? coming down to the same affordable payment, but principle reduction and not interest deduction is a long- term benefit? >> we have on the most important thing is the unemployment rate. agree with you. >> we have had an increasing unemployment over the last year. it is not necessarily a good indicator. >> one more question is the issue of seconds liens. this has been a real disincentive we're hearing from lenders. only one institution, not yours, has signed on for the program. can you share with us whether you intend to join the program? >> first, let me tell you we are modifying seconds liens in.

we've been part of the fdic program and part of our own program. we have said to the treasury that we are willing to work with them as to what the program is. we have just seen the details. it is prudent for us to go that before we sign on. >> it has been out for awhile and i would look forward to what i hope is a positive response. my time has expired. >> thank you. mr. pandit, you started your testimony by saying your company is a fundamentally different company from the company two years ago. nonetheless, citi continues to pose significant systemic risks. citi is often cited as the poster child for too big to fail. it is a combination of commercial bank, investment bank, etc. i understand your response was that we are dealing with the problem of systemic risk in too

big to fail by making citi a stronger company. some may agree and some may disagree. instead of that, why do you not concentrate on breaking citi two more pieces, so that no one piece is too big to fail? why not break it up? the markets are clm. -- calm. you'll not have as big a company to run. you're so -- your shareholders will get as much value. >> we have the same objective. shareholder value is really important. we are doing that. we are selling 40% of the company, breaking it up. we're not an insurance bank anymore. we're primarily in the commercial, corporate, individual banking businesses, and the business of providing account management services that our clients need. we're only as big as what as

required to serve our clients in a competitive market. i completely agree with you that no institution should be in a place where we get to a too big to fail situation. there are two ways to go at it. make sure the banks are strong. sometimes size is important, sometimes what they do is important. you need a strong, risk regulator that describes capital requirements, stress test, liquidity requirements. let's make what sure we came out every scenario and put these institutions through the tests. it is really important. sometimes things do go wrong. let's have a resolution and urge the congress to act fast on the spirit >> thank you, mr. pandit. i want to make sure i understand. you are saying, you're breaking

it up? >> i have to go back and see what he said. i have been managing the company. i have done it with the same objective -- what is the company that best serves our clients? what business am i in? i have been selling pieces of the company and breaking it up to say -- this is my core business. that is the business i think will create the maximum value for our shareholders and therefore the government. >> thank you very much. if i could ask another question. taking you back to september, 2008. you wrote a letter to your colleagues at citigroup would you said your capital and liquidity positions were strong and you have tremendous capacity to make commitments to your clients. we all know that within a matter of weeks, citi and eight other

large financial institutions were taking tens of billions of dollars under t.a.r.p. i understand that markets reversed and there are those who believe that this crisis was not obvious in advance. the part i am still trying to understand is the second part from citi. the secretary of the treasury announced on october 15, in effect, that you were healthy, mr. allison says he does not know if you were healthy or not. by the time we had come out, it was clear that he needed another $20 billion and then shortly after that, more than $300 billion in guarantees. what happened between healthy and $20,000,000,000.-648473660 dollars in such a short span of time? >> -- what happened between healthy and $20 billion and $300

billion in guarantees? >> you're absolutely right. it was not a rational issue. we were a very dysfunctional -- we were in very dysfunctional market. it was post-lehman market. >> it was only citi needed the additional money after having been pronounced healthy. >> madam chair, the capital markets look at every financial institution. that happened to us, too. our stock price down, the issue was not the fundamentals, as much as would that create an issue of confidence in all of the financial markets? >> but why citi? >> we were not the last one either. with respect, we were not the

first and we were not the last. different banks, different institutions bought their own things. some brokerage-dealers became holding companies. >> none of the original nine needed additional money in the weeks after the additional -- initial infusion. you said you're financially healthy, and within weeks, you need another $20 billion. why is citi special? >> what i would say to you is that you are right. this was not a fundamental situation. it was not about capital, funding, but with the stock price where it was -- by the way, a lot of that was driven by the short sellers. when it gets to that point, perceptions become reality. that is the reason why it was important for all of us to take that issue off the table.

the package we got was the package that the federal reserve and treasury decided was the right package to ensure that competent. >> this was not that you were special, but that you had bad luck? >> i do not mind being special and i think we were, in the sense that we came into the market with assets on which we took a lot of losses in this particular case. market dynamics were really important. >> mr. pandit, i apologize to my panelists for running over. >> thank you. i want to explore your relationship with the government and its major -- as its major shareholder. to what extent is treasury in contact with either your office or other parts of citigroup on a

daily, weekly, monthly, a periodic basis? >> treasury is a very critical shareholder for us. we do what we can to reach out to them, like we reach out to a number of our shareholders as well. we have those conversations with them at a variety of different levels on the company. they have a right to call us and ask for the same public in permission every other shareholder gets. we do that all the time. >> do they get any special information? >> as you know, under security laws, given the fact that they have to sell stock -- there are limitations on what we can tell them. >> you knew where i was going. [laughter] as far as a levels within treasury, you are seeing various levels within that. >> we are completely open on whatever information they want, whenever they want -- the same information that would be available to other shareholders.

>> thank you. it has been reported that citigroup has the largest lobbying budget of any financial services firm in washington. i was wondering, as far as your activities on the hill and with the white house, and your obvious support for a number of the administration proposals -- how are you spending your lobbying dollars? >> i cannot comment on where that budget is or not nurses anybody else. let me tell you that -- is or not versus anybody else. let me tell you that we have proposed of view that we think are important to get across to lawmakers and congressmen and people who are interested in our perspective. we do that. this is a ever driven by what we

think is right for the financial system. it is the right thing for us to express our point of view. the mud you agree with the vocal -- >> do you agree with paul cvolcker? >> i cannot comment on the details. as the company, we have sold proprietary trading and hedge funds and private equity funds. we're completely focused on our clients. i think that banks should be banks and we're moving in that direction. >> i have made this pope felt a little bit earlier. when it comes to a systemic risk resolution -- i have made this point a little bit earlier. when it comes to systemic risk resolution, how do you protect against the appearance where we

have the government movers and allied bank and the government bank -- i mentioned when i was at a citibank branch that there was a barack obama book that every new account was receiving. how do you protect against that? >> i cannot speak for my branch manager who wanted to do that -- that is their decision, not mine. let me say that this is a tough position for me. if i say what i believe and it happens to be in line with what somebody else believes in the administration, it looks like i am doing this because the treasury is 27% shareholder. there is a knowno-win situation for me. who better to share with you estimate perspective other than a ceo who was gone through a very interesting to years? >> i agree.

going back to your appearance in the capital markets -- what is your strategy with respect to your brokerage operations? do you think that an ideal like the volcker rule is good? do you have compensation things that might harm your banking business? going for, how you perceive all this? >> what do we do? we commit capital on behalf of our clients. that is number one. number two, we make markets and provide liquidity to markets. number three, we use capital market interest -- capital market instruments to hedge our risk occasionally. no. or, we -- number four, we create other instruments. the maximum value to our clients come from performing those functions which translates

into maximum body for our shareholders. >> would you take a short position that is contrary to any of your clients' positions? >> this is hypothetical? >> yes, just in general. >> you know what it means to make markets. you have to be a principal agent to make markets. i would do what the right thing is to manage the books on that basis. but the question is, am i going to review -- the answer is no. >> i was just trying to get to whether proprietary trading is still part of how you think your business should get run on the institutional side. >> let me be very clear. we have to commit capital on behalf of clients, that is what banks do. we have to make markets -- again, that is what banks do. proprietary trading is when you have people who actually do not interact with clients and they

are covered as a client by other people on the street. they treat them as a client was accused the company's -- while you use the company's capital. >> that is the rub, i think. thank you very much. >> mr. silver's. >> mr. pandit, this may seem repetitive, but i cannot resist. in october, 2008, was citigroup healthy? >> yes. >> was it healthy the next month? >> yes. >> why do you think that mr. allison was so unable to answer those questions?

>> you have to ask mr. allison. >> clarity is one thing mr. pat -- clarity is one thing, mr. pandit. credibility is an entirely different thing. i think you have given clear answers, but not credible. i think it is easy to give the answers when you have weathered the storm with the public's money. let me ask you this -- yodid you speak to anyone from the treasury department in that week between october and november 2008? >> i am appreciate -- >> did you speak to anyone in the treasury department during that week? >> i do not recall if i did. >> did anyone in your company, to your knowledge, speak to anyone in the treasury department during that week? i will remind you that at some -- some "we" said so.

>> the federal reserve and the regulators talk to us and we had conversations with the treasury and other regulators about that. >> what human beings but to what human being? >> at that time, there were numerous conversations between the people at the new york fed, washington fed -- >> did you open a conversation by saying, we are a healthy bank and we just need more money? >> hothe conversation was very simple. the stock price was exceptionally level -- at an exceptionally low level. it was at that time where the stock itself could have caused an issue of systemic confidence and the conversations were

around that. >> what would have occurred had they declined to act? did you represent that anything in particular might happen? >> no. i did not -- i do not recall any conversations were i regret -- where i represented anything. these were about issues that could happen. >> did anyone who was representing your company speak to anyone, to your knowledge, in the treasury or the fed about what would happen if it was not -- if the additional aid was not forthcoming? >> not to my recollection. >> what is your knowledge as to who spoke to either the treasury or the fed during that time? >> let me get back to you. >> mr. pandit, do i recall correctly that you're the ceo during that week? >> yes, i was. >> i find it difficult to believe that someone in your position cannot recall who you spoke to or who spoke on your

behalf to the government of the united states about the extraordinary aid that the government provided to citico group. your memory seems very good otherwise. >> i want to give you a complete answer. >> i do not mind an incomplete answer. share with me your fragmented memories. >> a number of people talk to the regulators and the treasury and the fed. it could be a large list. let me come back to you with specifics. >> let me turn to a different matter before my time expired. mr. pandit, you were hired in early 2007. i did not recall the exact date. what are your performance goals? >> i was not hired in early 2007. i became ceo in december, 2007. the board decided they needed to make a change. when we enter this market with the assets --

>> what were your balls at the time you were hired? >> there were relatively simple -- >> what were your goals at the time you were hired? >> there were relatively simple. translate everything into the right colter for the organization. -- culture for the organization on a long-term basis. >> i would ask you -- my time is up. i would ask you to explain the answer to the following question in writing. i would give you the opportunity to further expand on what the goals port assigned to you at the time, and ask you to assess whether you met them or not, and to disclose the amount of money you were paid for meeting those goals between that date and the end of 2008, during the time

citigroup necessitated a bailout, absent which it would have had to file for bankruptcy. >> thank you. mr. mcwatters. >> in your written testimony, you say that citigroup no longer has the goal of being a financial supermarket. i remember a merger with citicorp a few years ago where it was said it was the future and the only way to complete on a global -- to compete on a global stage. why are your goals different? why has that business model failed? it has not failed, why are you no longer interested? >> the market and environment are different. the way competition is happening is different. if we look at what has happened over the last couple of years, a lot of the places where the

funding was received and or other areas are largely not there. when you look at the changes that have occurred, that has had an influence on that strategy. more fundamentally, as i looked at the company and, by the way, it was a complete dispassionate review of what we needed to be and do with complete integrity as a company -- we concluded that was an interesting model, but did not add sufficient value to our clients and did not necessarily create sufficient value for our shareholders. the biggest part of the body came from our core business -- the bank -- which is why we made the change. .

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>> could you comment on the activity of show -- of a short sellers in the last quarter of 2008? >> again, as i was talking about this, there were a number of instances post-lehman brothers

crash and the post wachovia crash as well, the markets were not functioning in a rational way. in those markets, we're always battling fear and confidence. there are ways in which fear overtakes, and that is the tool short-sellers need to make money. there were no circuit breakers to stop short selling and that was one of the things that the stock them. >> thank you. >> i would like to come back to your comments looking forward at financial institution reform. he said the banks should completely focus on serving clients. i could not agree more. if there is not one lesson learned from the american public, is what to do want our

banks to be? it's a new term very few americans have understood previously but are very focused on now. it goes well beyond fdic insurance to other insurance provided to institutions and that can subsidize bank and non- bank activities. can i read your statement to imply support for the volcker role? >> i have not read the rule, -- >> separating private equity and hedge fund trading -- >> proprietary trading is not a big part of our business at all. i do not think -- i cannot think banks should be speculating using bank capital. >> this is important because citigroup was the poster child and the impetus for this

legislation and dramatically changing the class/steagall act. so when we hear ceos saying this would have disastrous results for bank's business models, could he said it is unfounded and what is your perspective? >> my perspective is proprietary trading is not a meaningful part of what i do. it's not a big part of the business and i don't think banks should be using capital to speculate. banks should be using capital on behalf of clients and make liquidity in the markets and doing what it takes to manage that risk. occasionally, if you want to use small amounts of capital to create new amounts of capital, you can do that, but we don't see the rest of the activities as supporting that. >> did you think it's reasonable

that rules drafted by congress or regulators to destroy -- to distinguish proprietary trading, using capital to support proprietary as opposed to market-making more hedging to support client-oriented businesses as a practical solution? >> i think the regulators are best positioned to look at what everyone is doing. we're in constant consultation and this is not necessarily related to core banking. >> i think this is extremely important and, not in the sense that proprietary trading contributed to the crisis, but it goes to the issue of the federal safety net and how you prevent the next crisis? i would like to shift to consumer protection because the scope of the four cullet -- the scope of the foreclosure crisis painfully highlights we must do a better job at consumer protection. you make specific comments about the need, seemingly in support

of the consumer protection agency that would adopt standardized rules across the country and to provide a level playing field. national banks, including yourself, has often said that complying with consumer protection laws is uniquely burdensome. another lesson we learned from this crisis is that states or the first to sound the alarm on predatory lending and come had many of those laws been applied to national banks, we would not have been in the crisis we have today. >> i think we should have a race to the top. >> we will return to this hearing in a moment after remarks from president obama about the iraqi collections. >> bite -- iraqi elections. >> this was an important milestone in iraqi history. dozens of collisions field

thousands of candidates, men and women. ballots were cast at some 50,000 voting booths. in a strong turnout, millions of iraqis exercised their right to go with enthusiasm and optimism. today's voting makes it clear that the future of iraq belongs to the people of iraq. the election was organized and administered by iraq's hi electrochemistry -- the commission with support from the united nations. thousands of iraqis served as pull station workers and -- pull station workers. there were some incidents of violence as al qaeda in iraq tried to disrupt progress by murdering innocent iraqis who were exercising their democratic rights. but overall, the level of security and the prevention of the stabilizing attacks speaks to the professional ability of

the iraqi security forces with -- which took the lead at providing protection at the polls. i want to express my admiration for the thousands of americans on the ground in iraq. whether civilians or men and women in uniform, they will continue to support our iraqi partners. this election is a tribute to all have served and sacrificed in iraq over the last seven years, including many who have given their lives. we are mindful that today's boating is the beginning and not the end of a long electoral and constitutional process. the ballots must be counted, complaints must be heard, and iraq, with the support of the united nations, has a process in place to investigate and adjudicate any allegations of fraud. but parliament must be seated, leaders must be chosen, and a new government must be formed. all of these steps will take time. not weeks, but months. in this process, the united states does not support particular candidates or

coalitions. we support the right of the iraqi people to choose their own leaders and i commend the iraqi government for putting plans into place to ensure security and basic services for the iraqi people during this time of transition. we know there will be difficult days ahead in iraq. there will probably be more violence. but like any sovereign independent nation, iraq must be free to chart its own course. no one should speak to influence, exploit or disrupt this time of transition. now is the time for every neighbor and nation to respect iraq pops sovereignty and territorial integrity. a new iraqi government will face important decision about iraq's features. but as the voting demonstrates, people on disagreements to be debated and discussed a political process that has security for all iraqis. as they go forward, the iraqi

people must know the united states will fulfil its obligations. we will continue with the responsible removal of united states forces from iraq. for the first time in years, there are fewer than 100,000 american troops serving in iraq. by the end of august, are combat mission will and. as i said last year when i announced our new strategy in iraq, we will continue to advise and assist iraqi security forces, carry out targeted counter-terrorism operations with our partners and protect our forces and civilians. by the end of next year, all u.s. troops will be out of iraq. the weeks and months ahead, the united states will continue to work closely with the iraqi people as we expand our broad- based partnerships based on mutual interests and respect. in that effort, i am pleased that the vice president will continue to play a leading role. on behalf of the american people, i congratulate the iraqi people on their courage

throughout this historic election. today, in the face of violence who would only destroy it, iraqis took a step forward in the hard work of building up their country. the united states will continue to help them in that effort as we responsibly and this war and support the iraqi people as they take control of their future. thank you very much. >> president obama on the iraqi elections. if you missed those remarks, we will air them again tonight just before 8:00 eastern on c-span. the president will head to philadelphia to are to talk about insurance reform. live coverage at 11:00 a.m. eastern on c-span. we return now to the hearing on the oversight of government aid to the financial aid -- financial industry on c-span. borrowers -- lenders when they buy our paper. it's one factor. they have to take the whole picture into account including, by the way, the fact that we are proposing, let's have a resolution -- >> i understand it's one factor.

can we both stipulate it is a very helpful factor. >> sn. >> again, how can ratings not be helpful factor. it is a factor. i keep coming back to say we raised money of very long maturity. >> i understand, and if we had longer term we could talk about paying for that. >> i just had quick questions about, just looking forward and the business generating. we all want obviously citi bank to be happy, healthy and ppaying back the tarp funds. when you look at the growth of the target base, it looks like some of your greatest opportunities may be abroad rather than the u.s. do you see any potential problem there, vis-a-vis the treasury's interest, u.s. taxpayers' interest in growing your business overseas? >> again, a big part of what we

do is connect businesses in the u.s. through the world. and we conduct those operations on the ground that are necessary for us to be able to do that effectively. that, by the way, isn@@@@ @ f @r >> on a risk management basis, is a good to have a broad-based , deposit-base in the u.s. and other countries? >> i think sources of funding are important and having diversified sources is an advantage. >> there is a proposal for a live -- liability attached that would treat foreign deposits as a tax liability and thus be taxed.

how do you view this proposal? >> i think have to be looked at on the basis of what is the economic impact. what does it mean for jobs and gdp? impact. economic impact on our ability to serve their clients. what does that mean for jobs? what does that mean for gdp? those are the things that have to be looked at. >> it's a bigger view than just looking at individual small questions, you to look at the totality of it. >> absolutely. there was an organizational study done for you all that i guess you didn't necessarily implement all of the recommendations. did that have an effect in helping you decide what sorts of things went into city holdings or might yet to go into citi hold dijs and what are part of your core business? >> yes, we went through a lot -- again, a very deep, very thoughtful process. markets had changed. funding markets had changed.

where u.s. growth is going to come from changed, including, by the warks foreign consumers are going to consume more. we took all that into account, and that's how we came up with citicorp as our future. >> the rest of these recommendations, are they still potentially on the table or are you still reviewing those sorts of things or do you view it as a closed book is? >> as you can imagine, i constantly look at what's right for citi, what's right for shareholders, what's right for clients. but i believe a large part of our thinking is reflected in what we already talked about. >> okay, super. thank you very much for being here today. >> thank you mr. atkins. >> mr. silvers? >> mr. pandit, you were talking about what's in the interest of shareholders. obviously the united states government is a large shareholder. but i think -- i am concerned about what i read in analyst reports and the like about a reversion to the kinds of dynamics that led your predecessor, mr. prince, to come

to treasury and beg them to tell him to not lever up so much. that effectively there are ways of generating shareholder value that are not sustainable. if those ways are pursued once again, it's the united states government that i believe will end upholding the bag again. in that regard, can you tell me what you're doing to ensure that those types of short-term, unsustainable strategies, particularly releavering are existing? >> we have a completely clear new strategy. it's about serving clients. why am i doing something? is it in the interest of clients? that's number one. number two, i have a completely redone management team, lots of new people who understand what it means to run business. a great team we've puting to. we have a new board with a lot of financial services expertise, regulate erps ton board, people who are asset managers, people who have run banks, run businesses. they're on the board. in addition to that we changed our risk management completely.

the risk management structure looks at products, regions, businesses, triplicate to understand exactly what our exposures are and our risk profile, risk appetite has changed. so this is a different company. that's been the goal i've been moving towards. i still have those assets that citi came into this market with but it's a different company. >> i'm not so much talking about the assets on your balance sheet as the liability side and the pressures that i'm sure you're reading about and hearing as i am opposite ti to relever, to reduce -- talk of city being over capitalized and the like. >> i'm glad to hear that we're over capitalized, mr. silvers. >> depends on who is saying it. if people are saying it who have a clear interest, short-term equity traders, if you listen to them, we could easily endanger the -- we could easily essentially put the fisk of the

united states in play once again. >> you can skount on me. you can count on my management. >> that's what i'm looking for. >> you can count on the board to run this institution prudently in the interest not only of our shareholders, but starting with our clients and being systemically responsible. the biggest change that i'm making at citi is to develop a culture of responsible finance. that's the legacy i want to leave behind. >> mr. pandit, i appreciate the answer. can i ask one more brief question. in your written statement you alluded to citi group's support for a consumer financial protection authority. that's a different word -- i'm trying protect you against my colleague paul atkins' accusation that you're parroting the administration. that's a different word than the administration uses in its white paper. they talk about a white agency. is there a meaning to that difference? >> i do believe we need a folk cal point of consumers. i do believe this area has to set national standards, has to

promote clearful disclosure, look at consumer markets, all of that. there are lots of different architectures that can actually create that. >> so i'm wrong, you do agree with the administration's position on this? i just want to understand what position -- >> my position is that there are a set of functions this consumer authority must serve. my position is that this authority must have the ability and the authority to execute on its functions, but that the architecture of this can be looked at in a lot of different ways. >> thank you. >> mr. mcwatters? >> i have no additional questions. thank you for appearing today. >> i appreciate it, mr. mcwaters. >> superintendent niemann. >> i'd like to come back to our question on consumer protection. i very much liked your characterization of a race to the top. in fact, with your protection, i'd like to use that in future

speeches, because i think that's really where we should be going and how it should be characterized. i would believe that the best way of getting there is that rules at the federal level be a floor and not a ceiling if you really want to have a race to the top. so my question is, is on this issue of preemption in that context, is it a necessity or is it just a preference? >> mr. niemann, i can clearly see the different points of view on this. different people can be there. i can see -- rationally i can see both points. i can just tell you what i believe. i believe it's better for the country, better for the consumer that you take the best standards and make them national. >> and we hear -- and i agree with you, and to the extent that they are made national standards and they are the best, states, in fact, have been very reluctant to go further. one good example, we always hear that states, the fear from national banks is that there's going to be a patchwork.

graham leach blyly in its adoption of the privacy protection rules said we're going to have a national standard, houfr states can go further to protect consumers. only a handful of states have done that. i think that is the right model. so i would be interested in your perspective on that. >> again, my perspective is still the same. i believe in the highest standards for consumers, absolutely. we think what's good for the consumers is good for the u.s., good tore the banking system, et cetera. i also believe we're a national market. real really are a national market and shouldn't we all just get together and figure out the best standards. >> we should. but we also have to recognize that events change very quickly. and one lesson that we've learned is that states had identified so early on issues around subprime lending and predator practices. one issue that we haven't -- is often lost in this debate is

around duty of care owed by financial institutions. there have been a lot of focus on cfpa as to where it's located in terms, product terms. but what i think is at the core that sauchb overlooked is what is the duty of care owed by financial institutions to -- in offering products. interest-only products may be certainly suitable for one level of customers and not another. how have you addressed the duty of care and issues around appropriateness of products in your retail business in particular? >> absolutely. that's one of the first things that i made sure of that we changed when i came in. we've changed the underwriting standards. we made sure that our products are those that we believe are suitable for the customers we're selling these products to. i think suitability is an important issue. >> i'm glad you raised that term because that is at the heart of it. >> but i also believe, by the

way, that you can't be the lone ranger on some of these things and that you do need collective action occasionally, and it's not going to happen by having just one bank stand up and say that's where i am. it needs a focal point. that's why we think we need -- >> that's why i think we need a new federalism, a new level of cooperation between the states and the federal government with respect to bank supervision and consumer protection. >> thank you. i wish that assistant secretary allison had stayed to hear your

>> we are in the business of trying to help our students, predominantly -- predominantly young women, and help them understand you should focus on achievement in your own life and not look to grab headlines. >> tonight, meet the woman credited with turning around trinity washington university, the president for over 20 years. >> at this week on "prime minister's questions" -- the deputy labour leader steps in for a prime minister, answering questions on the economy, government debt, and the sovereignty of the falkland islands. that's tonight at 9:00 eastern on c-span. >> on tuesday, the senate commerce committee heard from the transportation secretary on

toyota car and truck recalls. several toyota executives appeared before -- appeared before the committee. we begin with the opening statement. this lasts about one hour 15 minutes. sir, and you are accompanied byç david stricklad to is the administrator of nhtsa. please proceed. >> mr.ç chairman, thank you for your leadership on safety and your courtesy in arranging this meeting that is convenient for both your committee and those of us at the department of transportation. ever since i was warned in 13 months ago, i have said that safety is the department's #1 priority. i believe we have demonstrated that commitment time and time again. when the terrible crash of washington's metro system claimed nine lives, we quickly

introduce legislation to give federal oversight of the nation puts the transit system. the flight crashed in buffalo, we learned right away with many of the problems were. we began working with the aviation industry immediately to enhance airline safety and pilot trick -- pilot training. this spring, the faa will contest -- will issue a new rule to combat pilot fatigue. one of the hallmarks of my time has been our work on destructive driving for all of you with self phones and blackberries, and other electronic devices, i am on a rampage. it is a menace to society. we have exercised our authority

to ban truckdrivers from texting while driving. now, toyota. the issue is serious, and we are treating it seriously. the three recalls are among the largest in automobile history, affecting more than 6 million people in this country. i would like to speak to consumers. if you notice your gas pedal or break is not responding as it normally would, contact your toyota dealer right away. the recent recall involves entrapment by floor mats. it is important to take your formats out of your vehicle until the problem has been taken care of. secondly, accelerator pedals sticking@@@@r contact your toyota dealer immediately if your gas pedal

becomes stuck for any reason trade steadily apply the brake, but the car in neutral and bring it to a stop and call your dealer. finally, at the toyota prius for model year 2010 and at the lexus 250, if you experience a difference in debate -- in braking performance, contact your dealer immediately. everyone in the national transportation highway safety agency has the most advanced program in the world. its job is to investigate complaints and look for defects. it receives more than 30,000 complaints from consumers every year and reviews every one of those complaints quickly. we do not ignore any of them. we examine them all, we look at all of them very carefully. over the last three years, our defect and compliance investigations have resulted in

524 recalls involving 23.5 million vehicles. 20 percent of those and -- 20% involve foreign vehicles and 80% were domestic. those involve foreign we vehicles were up 80% were domestic. there are currently 44 opened defect investigations, five of which involve toyota. every step oft( the way, nhtsa officials have pushed toyota to take corrective action so that consumers would be safe. unhappy, with the response, our returns, they flew to japan in december of 2009 to clarify to toyota management that legal obligations have them identifying defects.

our deputy administrator told the president of toyota north america, in no uncertain terms, we expect prompt action. toyota publicly announced the recall two days later. çi personally talked to akio toyoda and emphasize that this is very serious. nhtsa has pressed hard to expedite these fixes. if nhtsa had resisted a recall, this would have consumed an enormous amount of time and in effect, extended the. in which owners were directly effected. the agency avoided a lengthy investigation that would have delayed fix's for one year or more. last year, i announced it we were investigating whether a

political of the protections. we have best toyota to turn over a wide range of documents. this will be one of the most comprehensive reviews of documents that will show us when and how they learned of the safety problems. nhtsa will continue to make sure toyota is doing all that it has promised. we'll continue to investigate all possible causes of unintended acceleration. the recalls are important steps, but they did not answer a bre-- they did not answer every question. although we're not aware of issues proven to be cut by such incidences, nhtsa is doing a thorough review. we have heard from enough members of congress that they think it is a problem. we will look into and review the electronics. if nhtsa finds a problem, we will make sure it is resolved.

recently, i met with the president of toyota and told them that safety is the top issue for us and that it must be for toyota as well. he assured me that they take concern say -- seriously and that they're working hard. there is a reason why we investigate safety. i listened to the 911 tape of that family's heroin last moments. i met with the family last week when they were in washington. i offered sympathy and our commitment to them that this would not happen to another family. it was a terrible tragedy, and i hope that no other family has to end with this. again, mr. chairman, i thank you for the opportunity to -- for the opportunity to appear. >> thank you. when the american consumers and

regulators for not a serious issue like the sudden acceleration issue, toyota executives in america did not seem to have any authority to take action on their own. it all has to go back to japan. that might be a matter of corporate or japanese culture, but it is the fact. it was pretty obvious what the president of toyota north america, mr. jim lentz, said he did not have the power to order recalls in the united states, only japan did. he told the committee that inside toyota, "information only goes one way." this seems to have been a problem in nhtsa's investigations, too. toyota has not been responsive to their inquiries and does not seemç to take consumer protectn

as a mission for nhtsa seriously. that is our impression been talking to your people. secretary lahood, last week, you yourself testified that toyota cannot respond to concerns until you personally called akio toyoda. i assume that is correct >> that is correct. >> it is also true that we had to fly to japan to try to get toyota to take these issues seriously. to get them to take it seriously. in my opinion, stan needs to be i]çsomeone in the united states that can be held responsible when american consumers are injured or killed due to safety problems in toyota pickles. -- toyota vehicles.

. . i think this type of decision making structure would help foreign companies be more responsive to safety issues in the united states. what do you think? >> i agree with you. mr. secretary, more than 2000 consumers have told nhtsa they

are experiencing a sudden, unintended acceleration in their toyota and lexus vehicles. they have reported at least 34 deaths caused by sudden acceleration. that is correct, isn't it? >> yes, sir. >> if we areñi being honest, we still do not totally understand why this is happening. over the last few years, toyota has offered several explanations. first they said it was the floor vents, and more recently they have blamed it on sticky accelerator pedals. until recently, nhtsa accepted these explanations. but here is a problem. there are still many cases were toyota -- where toyota discovered drivers had accelerated rapidly and the recalled mats are not involved.

so there is still a problem, and we do not know what is causing the problem, but there does seem to be an easy way to get drivers to regain control of the vehicles, and that is called a break override system. it means that the brake always beats the accelerator. it could be going forward, but the brake stops a cold. this override feature would help toyota owners control their vehicles during a sudden acceleration episode, would it not? >> yes, it would. >> and if toyota decides to add this feature to its new vehicles, it is true that other manufacturers adopted it years ago, correct? >> yes. >> it is also my understanding but there are a lot of older toyota -- that there are a lot

of older models that are not given this brake override system, correct? >> the testimony said they were going to try to install the system in as many cars as they can. i do not know if it reflects the cars your mentioning, mr. chairman. >> it would have to reflect the early ones. >> it sounded like it would be in as many cars as it possibly could do. >> the question is, does it need to be all of them, and i think that it does. and my understanding is that the brake override feature is not a costly mechanical fix. it is instructions that program into a car parts computer, correct? >> yes. >> so why doesn't the government make toyota install this feature into vehicles? why didn't they do it years ago? couldn't it have prevented some of the injuries reported over

the past few years? why don't we require every manufacturers selling cars in the united states to install this feature? in that it does not only affect toyota vehicles. >> we are looking at the possibility of recommending the system in all manufactured automobiles. >> mr. secretary, my time has run out, and i call now on drinking member of the committee -- ranking member of the committee. oh, he is gone. ok, then order of questions will be in order of arrival. senator udall. >> thank you, chairman rockefeller. i am wondering about the chart published in the "new york

times." in 2004, you had this huge spike in what are being reported as crashes and complaints. 126 toyota drivers experienced a crash and later filed eight complaints -- a complaint. all other manufacturers were on the chart, either flat or going down in terms of complaints. it took us five years to actually do something significant in this case. and you had another spike in 2007, and here you can see this very, very dramatic spike in 2009. so my question to both secretary lahood and administrator strickland is when you look at this problem, and secretary lahood, you have some

independence from this because you are new to it, when you looked in your testimony and mention all of these complaints that come in, it seems to me you should have something in your database that when you get a spike like this, i mean, this just stands out, it alerts people that there is something wrong here, something going on, and immediately and activity started that would have gotten to the bottom of this a lot longer. mr. strickland, let me ask you, you know, there is one big watchdog out there, and that is nhtsa, and you are administrator. the other watchdog is this committee, the commerce committee, and you have served many years in the commerce committee. so all of your experience going back, what do you see? what is the thing that happened

here that we need to get to the bottom of to make sure that this does not ever happen again? please. >> senator, first of all, let me just say, we have contacted the "new york times." that article is inaccurate. it did not mention that nhtsa found no safety defect in early camry models. they claim now that they will post on their website the accurate information, which they accurate information, which they left all we did take seriously canada did extensive briefs on the complaints. we interviewed owners -- >> do you dispute in the "new york times" article that they do the analysis complaints -- they say toyota had more complaints

involving crashes than any other car maker? >> i will let our administrator comment. but i want you to know the story was not accurate when it reflected we did not have we opened it to investigations and reporter claims he will post it on of the web site. what good that does, i'm not sure. >> i look forward to seeing it because this chart is pretty doggone revealing in terms of the spikes and how long it took to get actual action. please go ahead. >> i think that article actually reflects the experience investigators had during that time. there have been 10 open investigations dealing with real issues of sudden acceleration. -- tan open investigations dealing with sudden acceleration -- 10 open investigations dealing with sudden acceleration.

if you look at the entire market size of toyota, they were the largest fleet during that period, as well. while they had more sudden acceleration incidents, the comparison to the rest of the fleet was on a remarkable -- unremarkable. they just had more issues because they have more cars. in terms of nhtsa's reaction, that was absolutely appropriate. we opened investigations. >> my time is almost up. chairman rockefeller, i just want to say to you, you have taken this committee in at the -- in the consumer protection agency a number of times as chairman. i applaud you doing this, and i

hope you continue, because i think the american public knows when they see these articles that there are big consumer protection issues out there, and i look forward to staying in fault with you in the oversight of those issues. -- involve with you in the oversight of those issues. thank you very much. >> thank you very much. this afternoon, we are sorry to hear from toyota, but this is about the agency. -- we are going to hear from toyota, but this is about the agency. others will take the seats at some point in the future. i want to ask about the agency. not who is sitting in the seat at the moment, the agency and the credibility of the agency. because my understanding is that nhtsa has a budget of about $145 million compared to

$875 million for security for the embassy in iraq. the security for one embassy in one country exceeds by multiples the amount of money we spend in nhtsa evaluating safety and related issues. now i have a seat here, and i want to refer to something that senator boxer said, because i want to ask whether you have investigated this. you just responded to senator udall by saying that investigations had been made and no evidence was found, and i made that list in july of 2003, an investigation in 2004, with no did in 2005, 2006 -- no data to support in 2004, 2005, 2006. senator boxer said that it's something that made me wonder.

mr. santucci, whose job was to conduct investigations, he went to work with toyota. that was immediately thereafter. the two have negotiated with former nhtsa colleagues to limit probes in toyota surging out of control. internal documents obtained by cbs used the term negotiated. here's the question. if somebody left nhtsa to go to work for the company, that limited the investigations that results in no data to support further investigations, had you gone back and investigated inside the agency what has happened here? is this a case where for several

years, the investigation happened, knowing that fatalities were occurring, and they did investigate, and there was no data to support? have you done an internal investigation to find out what this agency has done, what it should have done on behalf of the american people? >> yes, we looked at that employee -- those employees, and they can work for a company, but they cannot report to the department about issues they were responsible for. and everything we can tell at this point is they did work for toyota, but not in an area where they are responsible did they report to dot. we looked at that, and some people believe that is not accurate. >> to you are saying it is just

the appearance? >> i am saying that our review of it does not appear to show that they were engaged in activities that were prohibited by law from their engaging in. i said to another committee that i think this lot needs to be tightened up. i do. i work for an administration that sets the highest ethical standards for its people. they need to be tightened up, but we found no violations for these employees. >> if you take a look at the question of when information was given to nhtsa, and then investigations begun, no data, no data, and then recalling 50,000 vehicles because the floor mats. then you come down further again and again and again, people are dying. it seems to just -- i am not sure anybody understands yet

what is the problem. >> yes, sir. we know from our investigations that the format is a problem, and that is why these cars are up to ♪ -- for a recall. we know from what people have told us that perhaps electronics could be the problem, also, and we are going to do a review of that. if we thought the problem was in the trunk because the manufacturers said you have to put the floor mats in the trunk, then we will look. but they are a problem. the sticky pedal is a problem. could there be another problem? some people believe there is, and it is our obligation to check it out. >> if the brakes override the a solider -- the accelerator, why

is he recalled that requiring to have that fixed in -- why is the recall not requiring that be fixed? >> we believe that the electronics are involved, and we will have a complete review of that. >> this did not happen on your watch. but i think there are a real credibility problems. i think they have raised questions of credibility with nhtsa going back, and i know that what you want to do is fix all of that and run an agency people can be proud of, in which people can have some trust. >> on my watch, when people think there is a problem, we are going to address it. we are not to take a back seat to anybody involving safety.

everything has to do with safety. it is what we have to do. it is what people expect of us. when people say that there is an electronics problem, i am going to pay attention to that, and we are paying attention to that now. >> thank you. >> thank you, mr. chairman. mr. secretary, i know you are looking at it now. but the point is, we set in place legislation that became law years ago as a result of the firestone tire recall issue. putting in place the investigative methods that are so essential in order for nhtsa to do its job. i do not know on what basis you can rule out electronics. we are urging it, but it is not about us urging it. you cannot rule it out, because you do not know. even toyota does not know, based

on their public statements last week that were, as i said earlier, conflicting. one said he could not rule it out, and the other said they are confident. how do we know? i would be interested to know. you have to look at those investigations to find out exactly what went wrong, based on that there was a trend in acceleration. six people died that year, in 2004. so did nhtsa look at it as a trend? what did they do? did they based it on information they got from toyota? do we subscribe to toyota's explanation of what went wrong in 2004 and 2007? >> and mr., our domestic dissent a letter asking for all of the possible information -- senator,

we sent a letter asking for all of the possible information from toyota to make sure they gave us everything they were supposed to give us to begin with. that request has been made. i agree with you, we need to look back and make sure we had everything based on what we had at the time. we felt the remedies were the right remedies. but when we look back and find that there was an additional informational component, we would have found a different conclusion. >> did they get the proprietary data to make a difference? the point is, we do not know. you cannot conclude one way or the other. >> i cannot conclude we received everything until we receive the request we just sent to toyota. >> these previous investigations in 2004 and 2007, were they relying on toyota's

investigations? >> what we have to rely on, senator, our complaints we get from people, what information we get from the industry, what information we get from the manufacturers. >> the independent investigation did not occur, is that correct? >> our people do these investigations. we have people on our staff. >> we have been told you do not have a software expert. looking at it in totality, what is independently verified? that is the issue, if you're -- hear -- that is the issue here. this is on the heels of firestone. we have to figure out what went wrong. we have got to know. >> we agree with you. >> we have to get resources, then come forward with contract and out. isn't there a way of solving this? we have to get independent

reputation. i am not clear we got all of the information from toyota. >> i am not sure, either. that is why we made a huge, voluminous request for information. >> back in 2004, -- they concluded after four months. who is information did they use to make that decision? -- whose information did they use to make that decision? >> we look at all of the information, we make a judgment call is to recall needs to be made, and if the manufacturer decides needs to do it, if they do not, we required them to do it. >> what if the information comes >> what if the information comes from

>> we work closely with all insurance companies and regard their information is very valuable. >> is amazing to me there is no continuity. it's a matter of life and death. this came on the heels of that and obviously, that memory was not ensconced at the time. the tire recall issue. then you have these deaths. if you look at the years in which these deaths occurred, they occurred in 2004, six deaths. in 2007, seven deaths. attributed to unintended acceleration. i don't see that any of the work was done to have satisfied and independent analysis doing everything, moving heaven and earth. that is what is disconcerting. we are looking at now, but where were they then? we better learn what happened and to understand how it doesn't repeat itself.

if you did not come to court and ask for the resources to do a very invest -- a very aggressive investigation. >> on my watch, i guarantee it will be done thoroughly and independently as possible with every piece of information we can get. we will not rest until it can be saved. >> is it unusual for officials to go to japan? >> yes. absolutely. i have said to the two other committees, i believe the toyota business model is broken. i told mr. toyoda that. when they have good expert, professional people in north america making recommendations and they do not listen to them, their business model is broken. i think mr. toyota got that message, not only for me, but from others. i think you'll see some changes in the way they do business. >> thank you. >> i also told mr. bedford and

his team that went there were treated dismissively. they were actually using stronger language than that. . senator wicker, i call on you. >> thank you very much. senator boxer is under a time schedule, so i promise to be brief. let me ask you, mr. secretary, about these two studies, the exponent study commission in 2009 by toyota, and the study 2009 by toyota, and the study done by professor gilbert of southern illinois university. as i understand it, exponent is an organization is that is

widely known in this field, concerning analyses of defects. nhtsa has used them in the past. they conducted an analysis of the electronic throttle system. toyota received a report confirming their contention that the defense cannot be caused by the etc system because there are fail-safes that prevent it. i want to ask your opinion about that study as compared to the gilbert study. this study was commissioned by persons who are interested in bringing a lawsuit with regard to these incidents.

and professor gilbert determined that toyota -- that the system did not properly detect electronic malfunctions. he was able to induce unintended accelerations vehicles that did not trigger the failsafe mode. toyota, on the other hand, contended that in his tests, he manipulated the system that cannot ever occur under driving conditions. so i would just like to ask, at this time, realizing that their analyses are ongoing, if you have some advice to the committee or can't comment on these contrasting studies. >> we are going to look at the studies that were done by the professor at southern illinois university in carbondale, but

the organization hired by toyota -- by the organization hired by toyota. there is a committee member whose toyota experienced unexplained acceleration. we have purchased that vehicle, and we are going to examine it. what we are going to do is a thorough review of studies that have been done by the professor at siu and other groups. we are going to do our own study. we are going to do a review, we are going to look at the automobiles with unexplained acceleration and figure out if electronics were a part of this. >> so at this time, you do not feel comfortable doing a preliminary criticism or opinion as to either one of these. >> no, sir, not at all. >> and a study done by your department would be a completely separate and exhaustive -- >> absolutely. looking at the cars that have

acceleration which is not explained, trying to figure out if the electronics are the problem. >> can you tell us at this point what you know about this firm, exponent? >> all i know is what i heard at the hearing. we are going to get a copy of their reports and look at them. >> i would appreciate it if you could get back to the committee on the record and tell us whether in fact the department and nhtsa have used exponent. >> yes, on different occasions throughout the years, exponent had a different name, but nhtsa had used them before. in terms of this report, we are reviewing that report, and it will be involved in our work. but there also will be a significant piece of the work that is independent, where we are going to pull experts from around the country, which various -- from academic and

engineering, a science panel. but dr. gilbert's work, we are examining it now. >> if you could stay on the record the number of times your agency has actually used and relied on exponent. and just to be brief, you stated last week that it would be beneficial in terms of foreign country's information -- foreign countries' information, it would be useful to receive information from there. what types of information do you not currently received that would be beneficial? >> we certainly receive information on complaints, but why don't i tell you specifically what we received and the areas where i think we are deficient? >> ok, i appreciate that.

i know that in past instances, previous leadership in nhtsa have said, do not intimidate us with data. it has to be distilled, or else it will be counterproductive and bog down the system. thank you, mr. chairman. >> thank you. senator boxer. >> i am trying to connect the dots as to who knew what, what happened, why did it happen. i do not hold you responsible for what happened in 2004 or 2007. i am talking about going forward. when we look at an ethics rule or any law, there is the letter of the law, and the spirit. you might be totally right that this fellow, santucci, who left

nhtsa and went to toyota, and according to the cbs news story, he convinced nhtsa -- he was part of a team that convince them to focus only on the burst of acceleration, ruling out the long-duration events that lead to accidents and deaths. he himself admitted, he used the word negotiate. so he was involved. now maybe if you look at the letter of the law, maybe he never worked on sudden burst acceleration. maybe he worked on something else, safety belts, or airbags. the spirit was broken. i agree with the comments to cbs where it was pointed out that it is cozy, cozy.

i really applaud the senators. they have written a letter to the inspector general, and i want to put that in the record, and one of the issues raised this issue. going forward, without waiting -- because it just seems to me on its face, remember, the outcome of this was put by toyota in their own document, and i want to place it in the record, their own document talks about the fact they saved so much money on this. this is the car that killed my constituent. this is the car that spun out of control, and that highway patrolman died because, i

believe, there was pressure put on nhtsa from people had too cozy a relationship. i think it is part of the problem. could i prove it? maybe, if i had a lot of time, i could. but it does not look good. it smells bad, it is not right, and they applauded their victories. . is. look at this. this is their presentation. it says, a toyota safety group. fmvss110cir, labeling recall. no penalties, save money on buybacks. negotiate recall on camry es, saved $100 million with no defects found. this is an outrage. so would you work with us now on

tightening up this law? >> absolutely. >> i think that is key. as i understand it, toyota is now installing brake override technology. imagine. you are driving your car, you step on the break, and nothing happens. the car goes faster, faster, faster. so toyota is installing a brake overwrite technology as a fix. do you think we should use that in all new vehicles? should it be involved with more vehicles? >> we are looking at that, senator, and particularly given the fact that mr. lentz has said they will put that in all cars, we are looking at it. it is a good safety device, and

we are trying to figure out if we should be recommending that. >> the 2006 camry model is not on the current recall list. why are there models such as the 2006 camry, which have been involved in deadly accidents, not included in the current recall? >> i will get back to you on the record, if i can, senator. >> ok, because i do not think the recall was comprehensive enough, based on what i am reading. but i turn to you, because i trust your gut and on this. >> thank you, senator boxer. >> the way i look at it, investigations were opened six times, close without action, 34 people died. i think we can do better. in 1980, there were 119 people in enforcement. today, there are 57. in 30 years since 1980, we have

doubled the number of cars on the road, from 146 million vehicles in 1980 to 246 million vehicles today. has this diminished staffing level made a difference? >> more positions for nhtsa are recommended in the 2011 budget. we applaud the president for recognizing that we need more resources. >> do you think that would be helpful here? >> absolutely. >> secondly, regulatory or statutory reform, as i understand it, manufacturers can voluntarily initiate recalls without waiting for nhtsa to order a recall, were nhtsa can order a recall initiated, but to do that you have to go through public hearings and investigations, giving the manufacturer time, defending the recall in court. it goes on and on. what, if anything, can be done to speed up the process?

>> well, we do have to do investigations before we can require a recall. but the manufacturers have been cooperative. a recall was just announced today on some automobiles, and i guess what i would say, senator, is that we will look at that. for now, what i am saying is for the most part, manufacturers are cooperative on this. >> but we have an issue where they were showing off for saving $100 million, sayg)áså save the defect, even a recall, is that enough money should be there to be a liability to assess fines and be useful. >> that would be a useful tool

and i would say that because of our insistence i am going to japan, my talking to mr. toyoda, we cut short their ability to stall. they decided to recall. >> and i appreciate that you have got involved in this. but i do not want to ability to stall this out by them recognizing they have a safety problem. >> regulators complaint, and you do not get an answer. i liken it to a hockey puck going back and forth on the ice. i know you just pursued this with senator boxer. do you have statistics or information on the number of former nhtsa staff who now works for car manufacturers? >> we can get back on the record. >> and he suggested there might be ways to tighten the rules to bring back that public trust.

what are your ideas? >> i think we should have the highest standard possible, nhtsa which, nhtsa employees -- which would prohibit nhtsa employees from working with auto manufacturers for a limited amount of time. for this administration, it is two years for a cabinet secretary. i think it probably should be longer. >> so you are saying that they can work with the agency on a specific issue, it just not with the regulators. that sounds like a good idea. i know when you get these complaints, you scan your databases to figure out if there is a match or you have seen a number. we do not want to get in the fight about what the "new york times" said or not, but nhtsa

stands its own databases. who scans corp. databases? >> we work with that, and we try to go through all of the data we can. >> toyota has a statutory requirement to report to our early-warning system. so we receive their peaceful reports, technical service bulletins. all of that -- we receive their full reports and technical service bulletins. >> the guy i mentioned, i talked to him directly, and he felt like he was being told he was not telling the truth. he has never driven a car, she is afraid to drive it. and we have another woman, a nurse, the same thing happened. she barely survive. she was able to put it in neutral finally and stop it from

accelerating. the problem from a trust standpoint with government is that these people all came forward and went to the agency had filed complaints, and all of these other complaints were going on. these details were somehow in the computer system. i truly believe that employees are trying to do the right thing, to figure out what tools we can give you so there is no chance of this happening again. when my constituents file complaints, at least there is some feeling that they were not going crazy when this happens to them, and they did the right thing reporting it, and they are part of the solution. >> thank you for your leadership, senator. we appreciate it. >> thank you, senator. ñi>> i have a packet to hand ou, if that is ok.

administrator strickland, i hate to see the secretary have all the fun, so i'm going to ask a few questions, if you do not mind. first, i want to ask about the resource issue. we have had a few senators today suggest that you need more resources, and i know that is in the president's budget, but have you made decisions on how you were going to fill those spots? it sounds like you might need more expertise in the software electronics area. do you know whatçó you are going to do? >> we have six positions provided for in the budget, if it is approved. in terms of expertise, we have several pipelines. we have five electrical engineers, 125 in two years total. we also have a vehicle research center in ohio were we have an electronics engineer, a software engineer, in addition to other engineers. we are in the process of hiring

and other electrical engineer. but i am having my staff go through and have a full assessment of the department, and we will deploy resources to make sure we buttress a stronger nhtsa. >> the camera -- camry solara and es300, and uia stands for unintended acceleration, basically, what you see is that in model year 2002, they added electronic throttle control. you can see the numbers, what they do. there may be other factors in that, but i am glad you are looking at it, and as you look at it, i would hope that you focus on the electronics product control and other parts of the system that makes sense -- electronic throttle control and other parts of the system that make sense.

>> that is a priority. the secretary has also already laid out plans for nhtsa to do a comprehensive review in the automotive industry. we are not only going to look at toyota. we will be looking at every manufacturer, because this is a system that has gone through the entire united states fleet. >> on the second chart, these are state farm numbers. unintended acceleration claims. you can see thatñi the numbers e different. every time they add electronic çótroubleñr control, with two models,]iñ camry and corolla, yu see a spike. does nhtsa have comprehensive in other words, some of these numbers are from state farm,

some are from customer questionnaires. do you have the data that you need? >> about three weeks ago, nhtsa issued three query's -- queries to toyota. part of it is an overall query for all sudden acceleration incidents. we have an incredibly large and rich amount of data to go through to figure this out. but in addition to that, we took at the data when we saw -- we took a look at the data in 2004. we got early warning data coming in, and nhtsa opened investigations. the standard we have to follow to get our case in courtxd is we have to find a vehicle defect that creates an unreasonable risk in safety. if we can not find that defect,

we cannot go forward. we will lose the case in course. -- in court. those incidents are where a full investigation was done, top to bottom, and they were not able to find a defect. they took a look at the electronic throttle control system in 2004, did a larger inquiry in 2007, and were not able to find a defect. >> the last question i have for you is that some of the senators have alluded to press reports, whether it be abc, cbs, whoever. i do not remember who reported on this. there is an allegation, or at least an inference, that there is a relationship between nhtsa and manufacturers that is too cozy. i do not know if that is true or not. but you are the new

administrator there, and most of the stuff happened before you got there. do you have concerns that the relationship between nhtsa and the manufacturers is too cozy? i understand you need a close working relationship, that that is important to do your job and make the roads safer and keep vehicles safer. but do you have a concern that this relationship is too close? >> my responsibility is to run the department with the highest level of ethics possible. i do not want anybody running balls at -- running of the halls at -- running the halls at nhtsa other than my employees. i will respond in more detail on the record, but the claims that toyota made about negotiations or influenced is false. that is like me claiming that i was responsible for the sun rising today. absolutely false.

and nhtsa's people did independent work and investigations, and that document absolutely has no foundation. >> thank you, senator pryor. >> mr. administrator, let me ask you this. there are questions about the vehicles that you investigated, and again, i think you have said that full investigation top to bottom happened. ok. so where were these vehicles manufactured? with a manufactured here in the united states, or in some -- were they manufactured here in the united states, or in some other location? these specific vehicles. at these specific toyota vehicles. >> i do not know where specifically. a significant number of camrys

are manufactured in the united states, but i have to get back to you on the absolute country of assemblage. >> please do. is that important in your investigation? if you see all of the vehicles are coming from one location, would you go whoa, the lightbulb just went off? >> i think you are alluding to fort-firestone, where there was one plant in particular that produced the tires that have to tread where separation issue. we take everything into account, the place of manufacture. if there is a trend, we will find it. for example, the sticky pedal recall was linked to indiana. they used two manufacturers. the other was in japan. my understanding was that we did not see the same issues and that

japan pedal as the u.s. pedal. so we absolutely take into account all manufacturing inputs, whatever the problem is. >> ok. now tell me, this full investigation, top to bottom, tell me what that would entail. walk me through what you mean by that kind of investigation. do you look at the car itself? >> in some situations, there are several steps in the process. from a preliminary investigation all the way to an engineering analysis. but in the typical investor toward process, we send an investigator to the complaint tends -- complaintant to review their car. if it is electronic, we will take a look at those particular assemblages. we will take a look at the map, we will take a look at whether there is a surge, and they go

through to eliminate any and all possible causes. if we find a defect, that is where we take action at that point. if there is a risk, we go further with the recall request. >> ok. but when you send them to look at these things, do they fly out their computers and everything else? what are you seeing? >> it depends on but -- on the type of car. in 2004 and 2007 -- 2004 was a smaller look, 2007 was a larger look at electronic throttle control. in either case, if the investigator goes through the list and finds a defect that had been made aware from a prior recall, that is what they will fly. at the end of the day, in terms of how the investigator goes through this process, it is confined to the defect. if we do not find it does affect -- a defect, that is when

we go forward. >> there is an investigation, and then there is an investigation. when you say full investigation, top to bottom, there are computers hooked up to this car. they are testing this, that, and another thing. i could go to the shop floor and there are parts all over, that is not happening, is it? >> the consumer would not happen if we were taking apart the car -- would not be happy if we were taking apart the car. testing the on board diagnostics, our investigators take those tools with them and drive a car to see if they can replicate. if there is something that warrants something broader, we will do that, as we did in 2004 and 2007. we will be undertaking a full

review. >> let's just confine ourselves to the instances where something tragic happened. someone died. i would like to know what the investigation was. i am not asking you to tear open the files of your agency, but what i am trying to get to, we could add 50 more people or 500 more people. but if the investigation is not getting us there to what is going on, it will not make any difference. second, as i am already at a time, is this. i want to know where this comes from. i am as free trade is unclear, but i will tell you that the american consumer is getting tired of this kind of thing, if in fact the problem is that we are getting sub standard product from some other part of the

world. what i am also extremely tired of is the treatment that we get as opposed to how we handle .hese our borders get shot, their borders keep coming -- our bordersgé d shut, their borders stay open. i will tell you, i have worked with this country before, and i think they have some responsibility here. >> sir, let me just say, the comments from your opening statement struck me. i am going to japan. i talked to the japanese ambassador to the united states on a couple of occasions about this, and i wish i would have the insight -- i think it is something that we need to raise. i am going to raise it with the japanese ambassador to the united states, and i am going to raise it when i go to japan. i think it is a point well made,

and one that we should be making when it comes to automobiles. >> mr. chairman, we are out of time here, and i appreciate it, but i hope you do. what they have done to us in an area that i'm concerned about, in my personal opinion, is outrageous. andçóñi yet they want us to cone to buy their products. again, i am a free trade sort of guy. fair trade. i hope he will bring it up. >> i will. >> thank you. >> absolutely. >> thank you, senator. >> thank you. mr. administrator, i have two questions for you. one is that i have talked to some of the dealers in southern nevada about these particular issues, and one thing they did is they offered a particular service to toyota dealers there, just voluntarily, a free car wash to anybody who has a

toyota. as they were bringing them in, they were doing inspections. one thing they found, two, sometimes three cars had four formats stacked on top of each other. the one tragic accident we have heard a lot of today is that a card did not have its -- a car did not have its floormat, it had a different car's. it would seem to me that the dealer has some culpability there. i'm not a legal expert, but they did not have the proper mats. the reason i bring this up is that having a toyota product, i have a light-colored carpet, i got tired of it getting dirty within a couple weeks. so i went to a local

manufacturer and bought some rubber mats. the other day, the dealer said, you had better check that to make sure it is safe. does nhtsa look at things like that? when you go to buy something like that, it says on there, good for certain cars. well, if the issue is that it is too thick, if that is the problem, if somebody is buying something that is not based on the manufacturer, because the reason you buy extra market like that is because it is cheaper thançó going down and spending several hundred dollars from toyota. that is the reason i did. i am sure there are plenty of other people who do that. does your agency look at things like that? >> yes, we do. not only do we have responsibility for motor vehicles, but equipment, as well, including things like aftermarket products such as floor mats. >> so in this case, you have

aftermarket products without hooks on them. but it is still ok for toyota? >> the mat that was recalled was an aftermarket items. the issue we always have to look at at nhtsa is not only from a manufacturing standpoint, we also have to look at it from the force the ability of use and abuse. the thought was that if we replaced those mats, it was a particular issue of entrapment. the accident, tragic as it was, illustrated to nhtsa that it is clearly foreseeable that not only would a consumer make a mistake like that, but the car dealer itself could make a mistake. i think the car did not have the right back. it was a map that belong to a lexus -- it did not have the right mat, itó[ belonged to a

lexus truck. it is the fact that you need a vehicle-based solution to recognize the fact that the pedal could have a problem. >> from what i understand, almost all car manufacturers have had accelerator problems reported to you. the point is, i think a lot of americans look at it and if there is one death or whatever, somebody reports that you should do a recall. but that is not how it is done. as you testified earlier, you have to make sure there really is a cause and effect here, that it is not just necessarily one vehicle, but that there is a problem with the manufacturer for other vehicles to have the same kind of problem, correct? >> there is a new merkel

component to this. if there's a defect recreates -- there is a new merkel component to this. if there is a defect causing a safety risk, we will do a recall. çóin terms of execution, nhtsa's mission is saving lives and preventing accidents and injuries. not only on the issue of numbers of people involved with accidents because of defects. nhtsa's mission is to all the deaths that have happened last year. . .

brakes were smoking so hard that she had melted her hubcaps. that was an example of a case we had in minnesota. >> i am going to ask one question. let me put something forward. you had your first complaint into nitsa, in your data base about conics -- unexplained acceleration in 2003. some people said that you cannot be responsible for the past, which is true. forward. y clear and it's very clear

the sudden unintended acceleration in toyota vehicles in the database work, it is clear. ar. there were a lot of people that complained, and they're all in the database. what didn't work to this observer is what nhtsa failed to do because it failed to determine the cause so that sudden unintended acceleration in toyota vehicles, so i think its investigations have failed. now, why do i say this? what reason could there be? our committee staff reviewed thousands and thousands of pages of nhtsa documentation, other documentation, and i think it fairly clearly shows that nhtsa employees are reluctant to do investigations of the vehicle electronics because it's much more difficult to detect.

you had juan investigation which was limited to floor mats even though there were clear instance unrelated to floor mats. and so i just make this point and then i ask you react to it. i think that nhtsa investigators taking the whole period of time would rather focus on floor mats than micro chips because they understand floor mats. they weren't comfortable with floor mats. they don't understand microchips. you're going to change that, but this is what the situation has been. so i -- i feel that very strongly and i feel that's been the major letdown on nhtsa's part. looking back and up to the present. so how do you react, what are you going to make sure that the microchips solution to unintended acceleration works? >> well, my response, mr.

chairman, is that we are going to do a complete review. i'll be happy to share the copy of the letter that we have sent to toyota asking for every possible piece of information to make sure that we haven't missed anything or that they didn't disclose some things that we should have looked at. >> but you won't disagree with me about my so-called stipulation? >> well, i don't know if nhtsa was turned a blind's eye on the -- because they didn't understand chips or the electronics. i know this, we're going to get to the bottom of the electronics. that's what i commit to you. >> and that's what i want to hear. i'm just telling you that you got your first complaints about this in 2003 and the record clearly shows that your folks stayed away. not your folks but the prior

person's folks stayed awhich from microchips. >> and if the information from toyota that we get, information that we haven't received, you know, we're going to be pretty darn mad about that. it will help us in the future. >> mr. secretary, mr. administer, i totally thank you for being here. we have -- administrator, i totally thank you for being here. we have one more witness for the next 12 minutes, but then that witness will be back again this afternoon. i thank you for taking the mr. ditlo, director for auto safety. we would like to start with you, sir. >> chairman rockefeller and

members of the committee, thank you for inviting me to address you today. my name is uchiyamada, executive vice president of toyota motor corporation. and i am the chief engineer for the overall company. i was fortunate to be the chief engineer of the first generation prius. i helped develop the first mass produced hybrid in the world and this hybrid made other automakers realize the importance of environment friendly technology. as the toyota president@@@@@@rr being the following. first, 50. second, 20. third, 40.

our rule in decorated technology is not only to comply with regulations and standards, but to strive for good safety ratings. also, to include consumer safety. there have been many things said about our electronic controls system. it presents a great safety advancement, actually, in variable traction control and electronic stability control, amongst other things. because the etc controls the

the controls the engine structure system, toyota takes the greatest importance on insuring that the reliability of the system is absolute by undertaking design and testing processes. three things insure this absolute reliability. the first is defensive mechanisms we built into the design. second is its tolerance to extreme environmental conditions. and third is it resistance to other problems. systems in toyota's cars are robust. the design includes two separate central processors. the main or control cpu

calculates and executes the operating command for all engine systems. the subcpu monitors control input and output and main cpu processes. what's significant, the pass between the two cpus many times are seconds to confirm that the processors are working correctly. if the two cpus are not in agreement or either the main or sub-cpu hasn't received the signal, the engine management system will alert the driver and go into a safe mode of operation. it is also designed and tested to make sure it with stands all

of the foreseeable environments in terms of temperature, moisture, vibration, and he loek troe m electromagnetic resistance. we have testing that confirms the reliability from which all the markets we operate worldwide. on emi -- sorry, on emi, there is no regulation in the u.s. but we test it to withstand that with the european regulation or emi. in none of these cases has it failed. in addition, we test the software in the system extensively both in the design phase and after areas developed to insure that there is no

possibility of sudden and unintended acceleration. i want to be absolutely clear. as a result over extensive testing, we do not believe sudden and intended acceleration because of defect in our control stim systems has ever happened. however, we'll continue to search for any event in which any event ever occurred. you no long ver to question the safety of our ecs. we have asked a scientific consulting firm to conduct its own independent, comprehensive evaluation. we're also addressing the issue of unintended acceleration through new technologies including event data recorders

and break ovake override system. we have plans to rollout the industry was its environmental performance. now, we will strive to continue to be the leader in the area of safety. i help drive our team's effort to meet this challenge. insure our drivers' safety and regain their trust and confidence. thank you. >> thank you, mr. chairman. and now i'd like to turn to mr. sasaki. >> thank you for inviting me to join you to day. my name is mr. sasaki, i'm

executive vice president of toyota motor corporation where i am responsible for quality assurance and customer service. in my testimony, i will outline the significant ways in which toyota is changing its approach to customize safety in light of the lessons we have learned from our recent recalls. as we look to the future, we have to listen more closely to our customers' voices and address them more quickly and aggressively. we have fundamentally overhauled toyota's quality assurance process under our president akio

toyoda. this overhaul will cover entire quality assurance from vehicle planning and design to manufacturing, sales, and service. in the design stage, we previously had been focused on -- [ inaudible ] however, we need do need to consider customer expectations and real world usage over our peoples. even irregular use, we also will reduce the number of things we ask our customers to do correctly. while quick and reliable recall decisions are important, so, too, are the steps we can take to prevent such an event during our quality assurance process.

therefore, we will intensify our focus on safety design and the principle of preventing any harm during the full vehicle ride. with regard to customer service, we will build a better network to correct customer information in a more timely manner at the site. in the position, in the united states, we will establish additional technical branches in several cities. this will reinforce our local customer service and allow us to deploy s.w.a.t. teams over technicians to make on site inspections of reported instances of unintended

acceleration as quickly as possible. to make this activity more useful, we will not only use the data but improve our vehicdiagn tools w regard to recalls, in order to help us make timely and appropriate decisions, we will share global field information by allowing each regional staff to access toyota quality network globally. for the future, our u.s. stock, we'll have a clear additional making law or made to be our goal is for the united states to have an even greater voice in decisions on recalls and other safety and satisfaction issues.

the quality and safety of our vehicle are toyota's life line. i will do my uphmost to make sure that our vehicles remain among the safest and the most reliable in the world by meeting and training all toyota quality and safety personnel in united states and all other areas. chairman rockefeller, members of the committee, these important actions reflect toyota's unwavering commitment to respond to the question of quality that our company has built in the united states over more than half a century. we look forward to working with nhtsa and with congress to advance our shared world of

improved road safety for the drivers and the general public. thank you. >> thank you very much mr. sasaki. and now i would like to call on the president and chief executive officer of toyota motor company of north america. please? >> chairman rockefeller, members of the committee, thank you for inviting me to testify today. my name is yoshimi inaba. in my testimony, i'll address the deceasive steps toyota is taking to restore the trust of the tens of millions of americans who purchase and drive our vehicles. for 50 years, toyota has provided americans with cars and trucks that are safe and reliable. for the past 25 years, we have built many of those vehicles

here in the united states are 200,000 toyota team members at plants, dealerships, and suppliers in this country are united in their determination to provide even safer, high quality vehicles in the future. i'm honored to be joined by several members of the toyota family in the united states. their dedication to our values has helped establish toyota's record for quality and dependability. in recent months, we have not lived up to the high standard our customers and the public have come to expect from toyota despite all of our good faith efforts. we sincerely regret that our short comings have resulted in

the events associated with our recent recalls. i can assure you that we have learned from this experience. here are the actions that we have taken. first, we have developed effective and durable solutions for the vehicles we have recalled. our u.s. dealers have repaired more than one million vehicles to date and continue to make xrart efforts to complete these recalls quickly and conveniently. they're literally working around the clock. second, we're making fundamental changes in the way our company operates in order to insure that toyota sets a higher standard of safety, responsiveness to customers and transparency with regulators. at a global level, we have established a special committee for global quality led by

toyota's president to thoroughly review operations. in addition, we are sending a blue ribbon panel of distinguished independent experts to confirm that the in-house quality controls we are putting into place conform to best industry practice. i am pleased to say that former transportation secretary rodney slater system into place to better enhance the quality of information across overall operations and to work more closely with the government agencies, including in the united states. at the regional level, we will ensure that our customers voices are heard in a timely manner. in the united states, we will deploy swat teams of technicians to make on-site technicians -- on-site inspections as quickly

as possible. our north american operations will have more autonomy and the decision making power with regard to recalls an idol safety issues. in addition, we will establish a new automotive center for quality in the u.s. where a team of our top engineers will focus on strengthening our quality control. at the customer level, we have taken significant steps to bolster confidence in the safety and reliability of our vehicles. toyota will be one of the first automakers to make great override system's standards on all of the new models sold in america -- in north america, which has a system that achieves a similar result. we are also installing break overrides on several existing models. . installing brake override on seven existing models. in addition, we have commissioned a comprehensive

independent evaluation of our electronic control system by a world class engineer and scientific consulting firm. chairman rockefeller and members of the committee, toyota continues to produce manufacture the best vehicles in the world. we are proud of our heritage and deeply appreciate the loyalty of toyota drivers so many of whom continue to tell us how much they love our cars. for the future, we will revitalize the simple principle that has guided toyota since 1937 to build the highest quality, safest and most reliable automobiles in the world.

>> thank you so much. >> thank you, senator rockefeller and members of the committee. i won't go over the earlier points from this morning. >> i can't hear you very well. >> sorry. >> thank you senator rockefeller. i won't go over my earlier points from this morning. i'll focus -- i want to go to some policy issues. first of all, strong regulations and infective enforcement protect not only the consumer from deaths and injuries and crashes, but it also protects the manufacturers' reputation by insuring the safety and reliability of the vehicles that they sell. no one wins by cutting corners on safety. the unfortunately the department of transportation is not kept up with modern automobiles. the standards should lead

technology, not lag behind technology. the agency, toyota itself, during the last ten years has lost sight of where it was. in 1980s when the camry was first introduced as one of the best vehicles in america, it had problems. but toyota stepped up within a year, found the problems, fixed the problems, notified the consumer and took care of the consumer. toyota needs to go back to what it does best which is building safe, reliable vehicles and responding to the consumer. but out of all of this, toyota and nhtsa need to move forward. first and foremost for toyota, it needs to install the brake override on all vehicles with the electronic throttle control. to restore consumer faith and the openness of toyota, it needs to release all the information that it submitts to the government and the acceleration

investigation. it needs to conduct a public engineering study into electronic controls that has experts with no ties to the automobile industry. nhtsa needs to immediately set a standard for accelerators and not the old mechanical standard that dates from 1973. it needs the standard for electronic brake overrides for all manufacturers. it needs to upgrade the event data recorder rule. we have to have event data recorders on all vehicles. they need to be standardized and there need to be readouts. finally, one of the things that come out of this is we don't do adequate crash investigations in this country to protect -- to find out what the problem is. to predict defects and catch them before they become major crisis like toyota acceleration

and ford explorer. if we had a national accident sample system at the full design level, 19,000 crash investigations per year, we could have predicted defects like this. we would have found them earlier. we wouldn't have them built up over ten years before we get a recall and before manufacturers like toyota suffer in their reputation. let's build a system that works as we move forward. because it gets back to that final thing, cutting corners on safety is no bargain for anybody. the consumer, the manufacturer, or the government. thank you. >> thank you. i will ask the first question and then senator wicker from mississippi who said he'll be back in time is acting to day as the ranking member. and he'll as the second question. question. we'll good on from there.

last week mr. lentz, the president of toyota motor sales usa, testified that he had no authority to recall toyota vehicles sold in the united states when those vehicles have safety problems. i believe one of you indicated that that's going to change. i want to probe that. is that an accurate statement as of now? >> translator: let me answer. it is true that north american member was not officially

included in our recall decision making process. [ speaking japanese ] >> translator: and we believe that we were taken into consideration the opinions of those members in north america sufficiently. however, we realize that as you pointed out, our old system may have caused some concern or

suspicion on the part of the united states or north american marketplace. therefore, in order to improve this, we have decided to include someone who is very well familiar with the north american market situation to become a panel member, a very important panel member that will be involved in the recall decision making process. and this inclusion is an official one. >> and when will that system start? [ speaking japanese ] >> translator: our north american entity has already selected candidates for this particular position.

so although i hope bewouldn't ha we wouldn't have to come to that, however, if we have to come to this, then this new system will be deployed immediately. >> let me ask -- we have two members who are full board members, actually special board members of toyota motor company. so i can't help but wonder when this shift began to take place. it came as a surprise to me. but it evidently has taken place for some time now. enough to affect quality. and your president has so indicated. was that a board decision? was that just something that evolved? how did that come to pass that

there was a little bit less adherence to quality and safety which is what i always associated toyota with and the desire to become the largest company in the country. that is a shift that was caused by something, some decision. >> may i step in? [ speaking japanese ] >> allow me to answer. >> translator: as our president indicated in the house hearing

last week, we really did not keep pace with our business expansion, our reinforcement of the human resources of the quality assurance. >> translator: how this issue came about is because there were many vehicle -- excuse me, many

voices were sent to us from the customers. but we really not listen to every one of them very carefully one by one. we should have really listen the to them carefully and rendered some technical analysis. so that it would be connected to our following product improvement. however, the quality of this work or the efficiency of our work or the speed with which we worked had become sluggish or sort of failed gradually. and this has come to a much larger issue. and we have taken this very seriously and reflected upon it very seriously. and then as we said earlier, we have changed our system and we are to improve our system very drastically and very greatly. we're working on it very hard right now. >> we have a rule here that each questioner can only ask five minutes of questions. and my time has run out.

i will come back. senator wicker is not here now. so i'll call on senator cantwell. >> thank you, mr. chairman. i think i'll direct my questions to mr. inabaf somebody else knows the answer, that's great. under what circumstances does toyota make available the c contents of the electronic data recorder? >> i will be glad to answer but he is the specialist. [ speaking japanese ] >> translator: at this time all

the toyota vehicles have the electronic data recorder or i is set in such a way that event electronic data will remain. it is not the case whether this is disclosed or not disclosed. however, because there is a special interface that we use, it is -- it just turns out in such a way that only toyota can read it out. may i continue? >> yes, go ahead. [ speaking japanese ] [speaking japanese] >> we believe that and we're trying to make it available.

we're trying to provide 100 such been recorders by april and 150 units of such recorders by >>in north america. >> one of my constituents died in a vehicle crash driving a toyota tundra. they requested the company to give them access to the software to read the contents. toyota has turned them down. in my state, there is a law pending in the washington legislature as a result of a toyota's refusal. pending in the washington legislature as a result of toyota's refusal. i want to know, is it possible that you will provide -- can you provide that information to mr.

eaves' familiar sloi th eaves' family? >> we o would be glad to do so. and this is also our desire to find out what has happened and very, very sorry that what has happened to that family. but we will be -- as he said, you know, 100 units are going to be made available by first of january -- or beginning of january. and also just for your information, we are delivering first three units to nhtsa tomorrow. and also at the same time, we are dispatching our engineers to train how to use it. so we are doing this just tomorrow. >> does toyota store all the information? i should say thank you for. that we look forward to getting that information. does toyota collect and store all the information from edr rz it decodes? and what does the company do with the information?

[ speaking japanese ] >> translator: i am not 100% sure. however, so far in the united states when the data or information was requested by entities such as nhtsa police or court, we would submit data to them. and i would assume that they are the one who is keeping them. >> isn't this all valuable information in preventing accidents in the future and seeing trends and seeing information? [ speaking japanese ] tran >> translator: i think you're

completely right. we should use the data to prevent accidents and other matters. >> is there some reason that it is not standardized as it is among u.s. manufacturers why that data device isn't a open interface that is readable by other individuals? is there some reason why u.s. manufacturers do that and toyota doesn't? [ speaking japanese ] >> translator: i understand at this time there are makers who make them open and others don't. so it's not really uniform state. >> i see many i time expired, mr. chairman. i think this is an issue for us to continue on and look at and investigate. >> senator cantwell, i decided that because of translation, each member will have seven

minutes rather than five. so you have another two. >> okay. if i could then along that line of questioning, obviously this is a big contention among the victims of people, these accidents that they can't get access to this information. there's only one electronic data recorder. and so i know you think maybe making a move to 100 is a big step but then when they have this information but i assume that data and information analyzed by lots of different people could yield important information. so besides the 100 devices, when will you try to make it an open interface? >> let me address that. i think by middle of 2011. we're working with vendors and

therefore it is going to be commercially available, health regulation. ahid ahead of time of the regulation. [ speaking japanese ] >> translator: we would like to make this interface open or public so that it can contribute to the finding out the cause of the accidents. and not just waiting for that to happen, we would like to bring more data readers to the united states so that this will also help to make this information available. >> and nhtsa would also have

this information and make it available if necessary? >> translator: that is correct. we'll be handing over our readers to nhtsa. >> thank you, mr. chairman. >> thank you. senator wicker? >> thank you very much. i was out of the room whether this hearing began. it is great to see senator lautenberg back and looking so good. he had his first treatment. he tells us that it's good for weight loss. but, frank, you're looking -- i don't want to try it. but i think i speak for everyone. it's wonderful to see you back and looking so great. let me ask my question about three analysis of the

electronics. you have december 2009 -- and i'll ask this of which ever representative from toyota would like to volunteer to answer this question. commissioned to an outside firm and it's my understanding that there has been an interim report confirming toyota's contention that the unintended acceleration events could not be caused by the etc system because the fail-safes are successful in preventing it. now you have another study called the gilbert study, this is a study paid for by, basically, plaintiff's lawyers and people interested in bringing a lawsuit against toyota. they have a perfect right to do. mr. gilbert, professor gilbert

is a professor at southern illinois university. he did a study that determined that the system did not properly detect electronic malfunctions. and, of course, we understand that toyota disputes these results saying that professor gilbert's tests required a manipulation of the system that cannot actually happen on the road during driving conditions. and then let me ask about the 2007 study done by nhtsa. it was done on the lexus. they concluded that there was no defect in the electronic system. i understand you've been critical of that study. but i'd like to ask toyota and

mr. ditlo about those three analysis. and ask when this sort of thing is done, are they peer reviewed? who takes an outside objective look at it? people have a right to hire an attorney and make an assessment. toyota has a perfect right to do an assessment. and then nhtsa assessment, i guess that was done internally, perhaps. they contracted that out. but is there an accepted peer review process to look at the methodology and tell us whether it was skewed one way or the other, whether the table was tilted in one direction or another? whether it was absolutely called by the numbers? so i'll let mr. ditlo go first

and then toyota can -- >> there are a known peer review process to review any scientific test and study. none of the three studies that you cite have yet been peer reviewed. and our taking the -- >> even the 2007? >> no. as a matter of fact, there's nothing to peer review because the government has no data from that test on the electronics. it has no test procedure that it did. so if you called in a panel of scientists to look at the information on the testing, there is no information to look at. i mean i know that this is difficult to fathom. but i called up -- we filed a freedom of information act request, didn't get any data or procedure. i called up the government and said are you sure? you know, speaking as an engineer, you have to have a data. you have to have procedure. they said, no, we have nothing

other than the conclusions. it is what it is. so you can't peer review something that you don't have. certainly to the southern illinois study, it should and could be reviewed. >> who will speak for toyota? >> let me start. my colleague will supplement. first of all, to that question that i have said in my testimony that we have asked the honorable rodney slater who is the ex-secretary of transportation as our outside adviser who set up a panel and we will also ask him specifically that he can set up a different from ex-poen ent

laboratory or whatever he deems appropriate so they can test again our ets system. as far as the exponent is concerned, it is a reputable consulting firm. and when the final report is available, we'll certainly make it public. [ speaking japanese ] >> translator: i would like to talk about the exponent case and also dr. gilbert report. [ speaking japanese ]

>> translator: we asked exponent to evaluate this. we asked them to do it completely independently. we have not interfered with them at all with regards to the method they might apply. [ speaking japanese ] >> translator: i'm sorry. so i think we can call it a pure third party evaluation. [ speaking japanese ] >> translator: we have tried to re-create the experimentation based on our estimate. we were able to reproduce his result. however, this we could do only

in the laboratory and we believe it is extremely unlikely or very difficult to reproduce in the real world. [ speaking >> we also use the other car manufacturers available to do this experiment we were able to create the same result using another vehicle makes. >> thank you, mr. chairman. it is amazing how quickly seven minutes pass. >> seven minutes and 40 seconds. [laughter] >> there is an entity of the national academy of science that those independent. use. i have found in my 14 years -- independent peer reviews. i have found in my 14 years of experience that it might be

worthwhile to ask nas if they are interested in doing an independent peer review of these analyses show that the committee can benefit from it. >> thank you. >> mr. chairman, thank you very much. i have been sitting here thinking that, four months ago, i responded to a want ad and purchased a two thousand toyota camera. i knew that tokyo was a car with quality and reliability. -- i knew that toyota was a car with quality and reliability. what has gone on with this issue, i am enormously troubled by tokyo to's response, going back some seven years or eight years to this -- troubled by toyota's response, going back

some seven years or eight years to this issue. the customer and the federal agencies would expect better of your company. nd certain the federal agencies would expect more of and expect better of your company. mr. ditlow, you said in your testimony of the 2002 to 2010 camrys linked to unintended acceleration, the unrecalled camrys have twice as many fatal crashes and deaths as those who have been recalled. >> that's correct, senator. >> are you confident with those numbers? >> yes, i am. i expect that the numbers will increase as more investigation is done. we have two other cases right now that we're looking into.

>> if mr. ditlow is correct that they're linked to unintended acceleration, if there are twice as many that are not recalled as there are that have been recalled, doesn't that raise real questions about whether the recall is extensive or as extensive as it should have been? >> senator, i'm not personally familiar with that information. i will ask mr. ditlow to look into that. >> if the information is accurate as mr. ditlow has presented it, you would reach the same conclusion that i have reached, that recalling body of automobiles that has only half the rate of fatalities of unintended acceleration is hard lit answer you would want to recall particularly those that have twice the rate? >> i should not speak of it but that shouldn't be the case. >> right. let me ask you mr. inaba and

then i want to ask about the accelerators. i want to have the time. you have indicated in your testimony that mr. uchiayama, you said as a result of our extensive testing, we do not believe that unintended acceleration results because of a defect in our etcs, in fact, we don't believe it's ever happened. and then mr. inaba, you have said we are taking significant steps to bolster confidence. then down later in that paragraph, we have never found a defect that caused unintended acceleration. i think what i hear you saying is that you're doing things here to bolster confidence but you don't believe there was a defect that caused the unintended acceleration? is that what you're saying to us? [ speaking japanese ]

>> translator: it gendz dependse results of the test. there was not a single case where we could identify that etc defect was the cause of the unwanted or unintended acceleration. >> so at this point you don't think there is a defect in the throttle sensors that has caused sudden acceleration? if that's the case -- i just want to try to understand what you're saying to us. and then i want to ask this question finally. the -- mr. wicker mentioned the

study by professor gilbert of southern illinois university. i don't know the voracity of that study. it's very technical, i'm sure. i want to show a chart that i believe -- this is a chart, a photograph that is on your own website. and it shows some technical data with respect to sensors. the first image shows how the sensors in the accelerator pedal send signals to the engine computer. and professor gilbert wrote this model has the potential for the engine computer not to recognize or short circuit in the pedal censor. i think you've indicated you're not -- you don't necessarily agree with that conclusion. but then there's another censor on the throttle belt inside the engine, and that is the second chart. and toyota uses -- and by the way, this is a different censor. toyota uses sensors that

correspond to the second picture. most automakers use the type of sensors on the second. both -- for both the accelerator pedal and the engine throttle, toyota alone, i believe, uses the better censor on the engine throttle control but the less reliable censor on the accelerator pedal. and so i guess my question is why does toyota use a different and at least concluded by some a less reliable censor on the pedal assembly than most other manufacturers use? is it a cost issue? what has pushed toyota into that judgment? who could answer that question? [ speaking japanese ] >> translator: we do not use a censor less reliable because of

the cost. >> translator: we put together a system under which the two sensors do not really give up the same values at the same time by so doing we could examine the va b validity of the signalling system. >> all right. i'd like to inquiry with a written question a bit more about that subject. let me, again, just make this point, if i can. i think what you are saying to the committee is you're doing a lot to try to establish reliability once again. i don't think there's any question -- everybody in this room has read the ratings over many, many years. toyota has been a brand that has inspired confidence and reliability and dependability and quality and so on. but i do think even those of us

that purchased that vehicle have some great concerns about what we have learned in the recent months about the company's response to the questions of sudden acceleration. and i'm especially interested in and also concerned that you're saying to us that the sudden acceleration issue is not -- is not in your judgment resulting from a defect in the electronic system of a throttle or an accelerator pedal. it seems to me to be at odds with what many others believe to be the case. and so you're doing a lot of things with respect to recall. you've got, i know you've got good men and women working 24 hours a day trying to call vehicles in to dealerships and so on. but is it because you think there is no defect just because you're trying to instill some greater notion of reliability?

[ speaking japanese ] >> translator: as i said, there is not a single case that etc's failure led to unwanted or unintended acceleration at this point. however, we would like to do the following to insure the safety of our product. [ speaking japanese ] >> translator: our first point is it could be sciences you'd liesing a third party organization to do another evaluation.

>> translator: for example, right now when you look at the notations in the vehicle sped control of a nhtsa data base, there is something we should work with a third party. but as far as we could see it, more than half of those complaints related to nonacceleration. [ speaking japanese ]

>> translator: so we would like to continue to look at these one by one. we want to ask nhtsa to give us the vin number of certain event. we're deploying the s.w.a.t. team and sending the team to the site of the ua. we would like to use that data. we want to, you know, do various things and we really want to work on this. >> we are very eager to find out. >> thank you very much, senator dorgan. >> thank you very much, mr. chairman. as can you imagine, you have a lot of loyal customers in minnesota and group that hasn't been mentioned today, a lot of loyal auto dealers who have been, of course, hurt by this as well and are doing everything to meet the requirements of the recalls. and want to do that. do you know, mr. inaba, how many

vehicles have been recalled so far and how many remain to be fixed? >> well, talking about two recalls related to this unintended acceleration, we have about in total of 5.3 million customers. and we have done more than 1 million. we are doing them as quickly and as conveniently as possible with the dealers really fully backing us up. and i'm really they are doing. >> and do you know how many remain to be done? >> obviously, there are about 4 million. and we like to do it as quickly as possible. >> okay. thank you. and then i -- my major focus this morning was, as worthy as a discussion is about what you're going to do to fix these cars, which is incredibly important, how are you going to deal legally with some of the victims and their families and things like that. but my focus is on our own government and their relationship with toyota and

other industry players and how we do a better job of regulating. so that when we go forward, we're going to be able to do a better job. and so i was obviously concerned by this power point presentation that was -- came out in the last toyota. i understand businesses have to do well and get wins and move ahead. but it seems these were wins for we week. toyota but arguably losses for where it talks about wins for american customers. and this was the document that was presented to you by toyota's washington, d.c., office. is that correct? >> that is correct. and what does it mean when they talk about wins for toyota here? >> first of all, this is only after a few days of my arrival to the united states. and this is the very first orientation material by our washington office. and, to be honest, i do not recall the meeting or the data in any depth, and i reread it again and i'm very embarrassed.

first of all, this tone of this information is so inconsistent with our company guiding principles and also my beliefs. and, of course, you can expect i think this is a small sample. i want to believe that. at the same time, this is my job. if there's any limit -- and it -- any element of this thinking, i need to make sure that this is not going to happen anymore. >> do you know what they mean when they say negotiated equipment recall on camera regarding the sudden acceleration which said 100 million plus with no defects found. what does that mean when they

say "no defect found?" >> i do not know the basis of the calculation of $100 million or so or using the word " negotiation" as a wrong one . >> de uno is the people that were involved with negotiating -- i know that there are some tokyo of people in with the washington office. -- some as toyota people in the washington office. were they involved in this negotiation? >> two of them came from ntsa. i know them personally by now.

they are a very high integrity. i respect their expertise. and they are of very high integrity. i really respect their expertise, and we value them. not their influence, but their experti expertise. and i think also they came from a very -- it's hard to imagine they can exercise any strong influence rather than expert. and i really value the work they are doing. >> i understand under the current rules this wasn't like a violation but they were involved in these negotiations then. >> discussions. >> mr. ditlow, i went through earlier with secretary lahood and administrator strickland some ideas on how we can fix this going forward. i want to throw them out there again because that's what i'm most interested in. fixing the relationship between the government regulators where our public and my two customers and many more in minnesota who

had these acceleration events and one was so bad for six miles that it burned her hub caps, the brakes did. fortunately, both of them survived. the thing i threw out there was the resource issue, the procedural tools for nhtsa so that they maybe can move things quicker when they want to do their own recalls. the fines which are, in this case, maybe as much as this cap may be something like $16 million compared to the $100 million saved. that's right up here on the chart. it seems to be not a good balance. and the fourth thing i raised was doing something differently with the rules so that people won't be negotiating that used to work at nhtsa. can you talk about what's your favorite of those choices and if you think they all would be helpful? >> we have -- in terms of my favorite, could you -- >> i'm just asking what you think should be our highest priority as we go forward to try to change the situation. >> well, in the near term, the highest priority has to get -- to be to get electronic brake

overrides in not only the recalled toyota vehicles -- >> i totally understand that that's our first priority. i am talking about the government agencies who -- seems to me need to do their job differently so that people who file complaints feel like they are going to get an answer and feel like they're going to get an answer when there's a rash of complaints that's consistent with what's going on here. >> the government has to totally revamp its investigatory system. it has to recognize that it is, in fact, the cop on the beat. it's not mr. nice guy. and they need to go back and look at what the agency was doing in the 1970s where the only thing we had were safety recalls. we didn't have safety improvement campaigns. we didn't have regional recalls which excluded some parts of the country. the agency needs to -- when it does an investigation, look to obtaining a full recall of the vehicles, not something that

will save the manufacturer some money and get a quick out. but the other thing is you -- the agency doesn't have the resources to do it. they simply move on from one investigation to another. there's always another one that's in the back of their mind. but they need to do a good job on the one that's before them before they move on to the next one. >> okay. thank you very much. >> thank you, senator. and senator lemieux. >> thank you, mr. chairman, for holding this hearing. i want to thank mr. inaba, mr. usada, mr. ditlow for being here today. it occurs to me in listening to the testimony that when we're talking as my colleague did about pedal sensors and engine computers and microprocessors that these cars are very complicated. and gone are the days when we could, as consumers, at least nearly all consumers, understand

how these vehicles operate. and as these cars become more complicated, i believe the burden is more on the manufacturer to make sure that things operate properly. this is not my old '66 mustang that i could get under the hood and maybe figure something out. these are extremely complicated vehicles. my wife and i have one of your cars. she drives an suv and puts our three small kids in the back. so when i learned of this, i did probably what most families do and i went home and had a conversation with my wife about what she should do if her car accelerated out of control, whether it was the floor mat or some other problem. that's not a good conversation for us to be having in terms of your company. and what my colleague senator cantwell said, i want to echo is that part our disappointment, i think is because of the reputation you have for being such an excellent purhave aveyo

quality cars. i understand what you are doing now. i applaud you for doing it with the independent evaluation. i applaud you for the efforts you are taking. my concern is how long you've known about this problem and the efforts that you took in the past. we have been given, and i believe that the chairman has entered this into the record, a power point presentation that was given on september 20th, 2006, by mr. jim press who was the president, i guess that was your predecessor, mr. inaba? is that correct? >> yes, correct. >> and this document has a group of -- it looks like it was a slide show presentation. could someone from toyota provide information to us as to where this presentation was given and to whom it was given? >> i do not personally know that document, but we will certainly

get back to you with more information about that. >> is there anybody from toyota who is familiar with this document who is here today? >> not from three of us. >> well, let me read to you, because i'm reviewing these documents, mr. chairman, as they've been presented to us. this is a slide show presentation about a new era for toyota and tma in north america. and it goes through several issues, including safety issues. and there are notations in the back here which are notes to this slide presentation. and on the document that is -- has as its ending bates number 25, there is reference to slide number 25 and it says the following. our ability to manage the tide of safety investigations rests largely on our ability to work well with nhtsa. over the last few years, we've seen our relationship begin to

slip slightly with nhtsa. the reasons are complex. they include a combination of increased recalls, more investigation and tougher negotiations between toyota and the agency. not all of the recall increase can be blamed on slipping toyota quality. and it goes on from there. none of you have, i guess have seen this document, but this is from the president of toyota motors north america or at least it contains information that he, i guess, presented. and i am worried about some of these phrases about managing the tide of safety investigations. i am concerned about not all of the recall increase can be blamed on slipping toyota quality. and to the point that was made before, this looks like more of an effort to get in front of, in

a public relations way, a problem in order to instill confidence in the consumer and to deal with the government regulatory agency then it does trying to solve a problem. and from the documents that i've reviewed, you've known about an acceleration problem whether it's been caused by electronics, which you don't believe it has been, or whether it's been caused by floor mats, which i guess you believe it does, and you've taken measures on that. you've known about this problem for some time. and i have a concern that the efforts that you took in the past were not appropriate. and you did not go far enough in the years prior to what you are doing today. do you care to comment on that statement? [ speaking japanese ]

[ speaking japanese ] >> translator: around 2006, the

number of recalls in north america increased and with regards to this, i do not have a -- any data on me personally right now. so i would like to submit to the committee later more accurate numbers. it is certainly an embarrassing thing for an automotive manufacturer to create a -- or produce a vehicle that have to be recalled later. however, when we realize that recall is needed, then that -- the work of recall should be done properly. so this may sound a little bit contradictory or complex or a bit strange, but the number of recalls -- recall was increasing and that meant that on the one hand, we were doing our job properly.

[ speaking japanese ] [ speaking japanese ] [ speaking japanese ]

>> translator: with regards to our relationship with nhtsa it is really unfortunate that some of you may have a concern or as some people might suspect, it is -- it was unhealthy. i would like to clarify a -- clear that going forward and build a healthy relationship with nhtsa. in the past ten years, toyota has conducted, in total, 66 vehicle recalls in north america of which 57 were on a voluntary basis. in other words, we were not given any instruction from nhtsa to do these recalls. however, we did do that. unfortunately, the remaining nine cases our response was not good enough and it ended up in the instructed recall by nhtsa. but we are not trying to work on the relationship with nhtsa so that if we can

this is a piece of information that i would like you to understand. >> tomorrow, william galston from the brookings institution talks about the current trend of extreme distrust of the government. christine todd whitman, the co- chair of the clean and safety coalition, talks about the role p