law firm here in d.c., of with the widespread litigation practice in both federal and state court. relevant to today, he is counsel in habeas litigation on behalf of three guantanamo detainees. i will turn the session over to them now, and we will hear first from judge lewis. .

i spent considerable time discussing and number of the underlying issues, but i am not actually, as my colleague has done, argued one of these cases in a federal appellate court. however, i did spend a fair amount of time has a state prosecutor and then a federal prosecutor, and then as a district court judge, and finally as a judge on united states courts of appeal for the third circuit. had been in private practice since then. all those experiences have given me some insight into habeas law and the appropriateness of the court

review of habeas petitions and some of the problems that can arise when congress, in my view, unnecessarily steps into the fray because members of congress for what ever reason disagreed with the manner in which the courts are handling particular issues. i fear is that where -- that is where we may be heading and concern of the issue of habeas rights and guantanamo detainees. as sharon mentioned, there is no question that congress has the power, as the authority to do so. there is no question about that. when i was nominated for the third circuit court of appeals many years ago, many people ask me throughout the process when

my nomination was pending and in my confirmation hearings, are you willing to practice judicial restraint or are you going to be an activist? act of this bad, judicial restraint could. -- activist bad, judicial badgood. we heard this with elaine a cake in and justice of the mower and my colleague from the third circuit, justice toledo. -- justice alito. this is one of those moments for congress to show restraint. i prepared my statement in this regard in march of this year in the form of an article that the former chief judge of the third circuit and i wrote that

appeared in the "national law journal." with your indulgence i will refer to it now because it pretty much summarizes what i think is the right approach and what i think is the wrong approach. this was written primarily in response to an approach recommended by the charges that were leveled by the brookings institution which faulted congress for failing to act by writing a detailed code that the specified procedures that courts should use in deciding who at guantanamo bay may be lawfully detained. we wrote this piece because of our concern that i mentioned earlier, about congressional action where it is not necessary and where it may well be the likelihood that things

could become more mobile -- muddled. so i will refer to our article. we wrote that in response to that attack, in all likelihood, senator mccain and senator lieberman introduced a bill in the senate that would codify the government's power to detain suspects indefinitely without charge. and then senator graham, someone i respect a great deal, began to draft legislation in support of something very similar. all of these pieces of legislation are still spending -- pending. i think that summer in the drafting stage. we contended that those arguing for new laws such as these misunderstand fundamentally both the limits of the legislative function and the

nature of the judicial process. determining whether prisoners detention is unlawful has always been a judicial function. some reflection should provide insight into why that is so and why it should be so. a wide range of conduct that we subject a person to lawful detention cannot be reduced to a statute. take for instance, we wrote, the detainees alleged attendance at a training camp. what if you stayed only a day for a week and in that time, engage in no training at all and left voluntarily? what if he attended longer than a week but was kicked out because he opposed all form of terrorism? what if he attended the camp on affiliated with al qaeda and was opposed to their extremist

etiology? should any of these people be detained for the rest of their lives? or consider coerced statements, drawing the line between lawful and unlawful coercion a question that judges face every day. the answer to this question depends almost always on the totality of the circumstances. how can the totality be spelled out in a coat? -- a code? interrogators' may not question prisoners for more than 20 consecutive hours. does that mean in a statement taken in less than 20 hours is automatically admissible? or should the answer depends on whether additional coercive techniques were used? and if other techniques are relevant as courts have found

that they are, does it depend on which one and what combination they reduced and with what frequency over what period of time? but the interrogator question detainees for more than 20 consecutive hours? is a statement automatically inadmissible? the problem is that questions like these can be infinitely multiplied and they will always eluded legislative resolution. should courts amid and give equal weight to all hearsay or should it depends on what did the statement comes from a u.s. intelligence officer as opposed to another detainee? what about the here say from the intelligence service or police department of another country? should they be treated differently? the point here is that he had

met. >> in of this of critique in admissibility of hearsay comprises a constellation of factors that by its nature cannot be reduced to codification. the jurisprudence surrounding guantanamo detainees is developing, in our view, precisely as it should. the courts have carefully considered and carefully balance the government's interest in security, the country's interest in security, against the prisoners interest in liberty, all the while protecting national secrets and judicial integrity. some prisoners have one, some prisoners have lost. and a coherent jurisprudence is in fact taking shape. the problem at the brookings institution has was that there was a sense that once judge may

set -- evaluate a set of facts differently than another. but the only acknowledge what is trivial, the brookings institution seems to seize on that fact and complain that these guantanamo decisions made the inconsistent. habeas decisions are subject to appeal the appellate process sans down about issues of judicial independence and gradually produces a consistent jurisprudence. if congress was to do as brookings bids the certainty we're achieving would weigh down in a lot of litigation. that is not wise. we contend that decisions

involving liberty interests balanced against government interests and security must remain in the hands of judges who have handled these cases and these kinds of issues for years. when i was the district court judge, only for a year and a couple months, during that brief period of time, i handled any number of habeas matters, state prisoners and so forth, and when i was on the third court of appeals, i handled many more involving death penalty matters. judges handle these cases all the time. and they do so well. do they come to different conclusions? yes, that is the nature and that is really the beauty of our judicial system. i do not believe that it should be meddled with in this area. thank you.

>> thank you, judge lewis. judge spaulding? >> thank you, sharon. for the past quarter years -- four years, i have represented three guantanamo detainees on a pro bono basis. i've represented the last russian in guantanamo. thankfully two were released by the bush administration and they are back home peacefully living with their families and trying to reclaim the lives that were interrupted and shattered by many years of imprisonment at guantanamo. my saudi client is now the mayor of his neighborhood in the eastern part of saudi arabia.

he got married on the one-year anniversary of his release from guantanamo and he now celebrates that he has a little girl who is almost two years old. we keep in touch by e-mail. he has a hot mail account and he is busily reclaiming that like that were shattered between ages 23 and 28. my russian detainee -- initially there were eight russian detainees and seven were released in 2004. our client was not released. he continues to be locked up today. more than eight years after his arrest in pakistan. in mid april, after many years we finally had the opportunity

to try his habeas corpus case in front of judge henry kennedy for the district of columbia. in 33 years of practicing law, i have to say i have not had a case that has brought with it as much reward but at the same time as much frustration has these guantanamo habeas cases that were brought to me. and i have to qualify it by saying that the frustrations that i have felt is not frustration with the federal judges but rather frustration with the delay that has occurred, the hooves that need to be jump through just to communicate with clients in guantanamo, things of that nature that are logistic. many people ask me, how did you first become involved in representing guantanamo detainees?

it might help if you knew little about -- a little about my background. i grew up in the merc creek -- a marine corps family. my father was a career officer in my mother served during world war ii. but dad was killed in vietnam in 1966 when i was a freshman in college. when i graduated, i was proud to decommission the second lieutenant in the marine corps. -- be commissioned a second lieutenant in the marine corps. it was a great experience for me all around but i decided i was going to go to law school. i got out of the marine corps, graduated from the university of virginia law school in 1977, and i'd been engaged in the private practice of law here is that the district of columbia ever since then. i joined my firm in 1984. i'm a trial attorney in the litigation's department of this

use law firm. we have about 1700 lawyers around the world. the firm to its great credit has always been a very strong supporter of the professions commitment to pro bono legal services. when i saw the pictures, as we all did, of those orange-clad man with the goggles over their highs kneeling behind a chain- link fences and guantanamo, i thought to myself, if ever there was a group of folks who needed pro bono legal representation, these are the guys the need that. so i was introduced to the center for constitutional rights, which is an ngo that acts as a clearing house for the guantanamo habeas lawyers, and i went through the training that they sponsor, and at the

end of two days of training, i took on the representation of three clients that we have represented since then. their petition was filed at the end of 2005, and finally a share in indicate that following the supreme court decision this last june, we actually began to move into the litigation phase of the habeas case. and the district judge's chlorinated their efforts at the request of the chief justice, coordinated with one of the former chief judges, and as the coordinating judge he entered the case management order that dealt with a number of specific and technical elements of the habeas practice. such thing is that the government's filings of its

actual returns. here are the facts upon which we justify detention of this prisoner. the petitioners filing of a traverse -- here is the legal argument in the factual basis on which we believe that the detention is unlawful. judge hogan ruled on such things as the burden of proof, and found that the government bears the burden of proving that the detention is lawful in these cases by a preponderance of the evidence. the detainees counsel -- we were talking about potentially life in prison, should the burden be higher? the government said that we're talking about a wartime such question. shouldn't the burden be lower? judge hogan listened to the arguments back and forth, considered the facts, and established a burden of proof. he established the law with

respect to presumptions in these cases. he set down rulings with regard to how the courts would deal with hearsay evidence, how the judges might handle their preliminary matters, and help evidentiary hinder -- hearings would be held. that case management order along with the protective order which govern the access and the use of classified information has become a fairly comprehensive set of guidelines will the process by which these habeas corpus cases are prepared and ultimately tried. one might agree or not agree with each and every one of the provisions establishing the case management order for the protective order, but i believe that judge hogan in the other judges of the court led been

involved in fashioning how these cases are proceeding have done an excellent job. in my view, i think what judge hogan did in the case management order is exactly the kind of thing that judge lewis was talking about being in the province of the judiciary. our case with the trial in -- went to trial. the trial lasted 3.5 days, although more. throughout the trial, judge kennedy admitted evidence -- virtually all of the evidence that was submitted by the government and by the petitioner was accepted by the judge. there were virtually no objections by the petitioner were by the government to the process that had been fashioned by the judges and was being laid out by judge kennedy in the tower trial. -- in our trial. the 44-page opinion that judge

kennedy issued demonstrated to me that he considered carefully each and every piece of evidence that was submitted to him. perhaps most significantly for what we are here talking about today, not once did judge kennedy ever complain that he needed additional guidance or legislative attention in order to do the job that he did in trying the habeas cases. he did in this case exactly what i have seen him to in many cases throughout the years when i have been before him. he methodically and carefully

considered ways, sifted evidence, and he ascertained the facts. and then he applied to those facts in a thoughtful way to the law. and in doing so, he made a decision. in our case, he made the decision that the petitioner was not lawfully detain. we want our habeas corpus petition in front of judge kennedy. the government has appealed that and we're now in the court of appeals with respect to our particular case. in another case, shortly before our trial with different facts, judge kennedy denied the writ of habeas corpus.

and i think the record of how that judges have decided the reflects that judges are doing exactly what judge kennedy did in our case. they're listening to the evidence, they are weighing the facts, they are applying those facts to the law. that is appropriate. that is what judges do. i want to conclude with some personal observations that i have, having gone through this process. the first one is -- behind the process, fair question. they're people that have been locked up in guantanamo -- in one case unjustly, 8.5 years. how much longer must the weight? thomas longer must his mother way? how much longer must his son, now almost nine years old, wait while congress and the courts go through another round of corrective legislation and judicial challenge to that legislation?

i think the men that are locked up now deserve attention, they deserve it quickly, and they should not be made to wait any longer. the final comment i would make is that unless habeas corpus includes within it a very concrete and very real remedy, which is relief i think it will ultimately do more harm than good to the courts, to the litigants on both sides, and i think ultimately to our national security interest here in the united states. i think the courts are doing just fine. they're doing what courts are supposed to do. they are taking all laws that congress has fashion, and in this case, the use of rigid the authorization to use military force, combining that with a body of law to create the legal

principles that apply in these cases. and from then, they have developed a coherent standard of detention. they have developed clear procedures that are being followed by the courts. there court of appeals decisions -- now five from the district of columbia circuit that gives guidance in terms of both process and substance, and it is hard for me to see how congress at this stage can do any better than the courts have done already. congress has done itsit is not time to let the courts do their judicial job. -- is now time to let the court to their judicial job. there's a separation of power, checks and balances, and judges will be allowed to do the kinds of things that judge kennedy did in our cases and that the

court of appeals judges will have an opportunity to do in our case. the congress should not be interfering with that process particularly in the context of an number of limited ongoing cases. not that the executive nor congress can be immune from the writ of habeas corpus. the bid has been constitutionally determined to be available to the guantanamo detainees. even though their costs may be unpopular, we need to let the judges continue to decide these cases as they had been and as they have demonstrated they are capable of doing. i thank them for the report that they efficient concluding that habeas for guantanamo detainees does indeed work. >> thank you both.

i wanted the project open to discussion portion of our program with a couple of questions. i want ask you to reflect on the charges that commentators calling on congress to act have made is that they say judges are playing a legislative role as opposed to a judicial role. both of you had experience with this. is there something different that is somehow legislating? >> if i had just a nickel for every time i have heard that accusation over the course of my judicial career and even since then, i would not have to

work right now. that is an unfortunate charge has doug has pointed out. judges overseeing these cases are doing so in very delivered, careful fashion. i think the results speak to that. the government has won most of the cases, and the petitioners have successfully brought habeas petitions. the case management order that they referred to come up an excellent approach. it lays out the procedures with what is to be expected. it is certainly within the discretion of district court

justices -- judges, almost like a pre-trial order, and there's nothing legislative about that at all. it seems that when people disagree with how courts are handling certain issues, the first argument made is that the decision making process is legislative in nature as opposed to judicial. there's no court in this country is immune from that charge. the supreme court all the way down. i fundamentally disagree. i suppose that i should refer to doug with actual experience in answer more fully, but i reject the charge. >> de you want to? >> i agree with judge lewis. >> we need your microphone up. >> is that better?

it is very common when there is any kind of legislation and there is a court proceeding that deals with that legislation, that some of the legislation will be filled in by judges to apply that law to specific factual situations. that is precisely the kind of process that is unfolding with the guantanamo habeas cases today. if we took the suggestion that the courts were legislating to an extreme, i think that the guantanamo habeas legislation -- judge kennedy's opinion was 44 pages long. the opinions in other cases are of similar length. one might have a piece of legislation that might be 2000 pages long in an effort to deal with every permutation of fact

that could be applied to the law, if congress was willing deciding that it was going to immersed itself to that level of detail. i think that is inappropriate in the context of these cases, where there is a legal basis upon which people can be detained. it is set forth in the authorization for the use of military force, the courts have had no trouble at this stage identifying what that process means. particularly with the court of appeals, given its role as a to legal issues. the court of appeals has given guidance to the district judges as to how that law is to be applied. and then it is that district judges who have the

responsibility to ascertain facts and put it into the legal context that is there. i think that is what they have been doing and i don't think that this legislation at all. that is the judging. >> you mentioned that you have handled a number of habeas ones. can you share lessons learned on how you apply to congress? >> my service as a federal judge proceeded -- preceded the attacks of 9/11. naturally i was not dealing with petitions involving enemy combatants and that sort of category. he frequently would handle matters involving prisoners and

prisoners rights and so forth. i would not say that these are fairly routine matters because they tend to detract from the importance of each one of these petitions. but there were many and judges over time developed an expertise in examine them -- in examining them and for deciding them. some of them are very important. the point that i was making in respect to the brookings the a habit infrequent for two justice -- judges to view a petition one way and one just to do it another. i recall one case involving an exercise of religion issue. i thought that we should grant the requested relief.

and there are many matters like that that would come up all the time. the point here is that judges are well-equipped based on years of experience and based on the history of this country, really, and the judiciary to address these matters. some are very complicated, some very complex, and some involve issues that no one has thought of and they cannot be codified because they are new. i think that part -- i use the term beauty -- is that it is

human in nature and creativity is not taboo. we frequently call. our judges to come up with answers to difficult questions. i think that it is not -- i have not heard a rationale for taking these procedures out of the hands of the federal judiciary, from the federal courts, that makes sense to me. or that is rooted in any necessity. that is why i argue for congressional inaction in this area. >> time for a question for mr. spaulding before i open it up to the audience. one of the charges leveled by the commentators is the lack of consistency. you talk a little bit about different cases coming out differently before the same judge. would you expect more consistency of the outcome or is that the goal here?

>> i would think that there was additional legislation if it was detailed and minute an essentially tied -- an essentially tied that judges hand in an inappropriate way. maybe there would be a greater level of consistency, if you will, but i think the second part of your question is the important one, is that what we

really what we want? the real beauty of our system, and frankly the beauty of habeas corpus which has been around for thousands of years in our common law tradition, but for magnet card of -- before magna carta, is that it is someone not the king of the parliament somewhat rigid a chance to see whether this prisoner is lawfully held or if he should be released. the judges have fashions, as judges often do in all kinds of complex litigation, a passion the process and procedure. they have philbin the substantive law in such a way that they are able to accomplish exactly what habeas corpus is designed to accomplish. >> this is being filmed by c- span so we need to make sure that your questions are heard.

you have to wait until you get the microphone into your hand. we need to get the microphone in your hand, please identify yourself and your affiliation, and please actually ask a question. aisle? ok. the gentleman in the front row here. >> i am a retired -- i writ -- i am a retired trial judge here in d.c. i believe that judge hogan has written either in opinion or in legal literature that there is some need for congress to act in this area. i may be wrong in that. do you see some gaps in this whole area of birth legislative

solutions or involvement is needed? something that comes to my mind -- if the habeas decision is denied, how long will they remain in carson nation -- incarceration? is that a legislative decision or someone else's? that judge hogan has written calling for some legislation because of the perceived gap. he may well have. i'm just not aware of that. quite frankly, i am not familiar enough with the tax will on the ground -- the actual on the ground gaps that may have to be filled in because i have not tried one of these cases. i do not think that i am confident to answer that.

-- confidence -- competent to add to that. if there is a procedure for a time limit for bringing an appeal -- i am sorry, for addressing the issue of how long one may remain detained pending appeal -- i think that is your question. she did after the appeal is over, -- >> after the pill is over. >> i think obviously there should be. the question we are addressing here is the idea of congress taking out of the hands of the federal trustee harry -- judiciary oversight of the habeas oversight procedure that seems to be working pretty well. i don't think anyone is suggesting that there may not be specific areas that, if

redresses needed, congress should take some action. i am not aware of those. maybe you are. >> with respect to judge hogan, he did in the context of issuing a decision in one of his cases that he is personally handling, commented that the courts at that stage -- this was probably about a year ago -- said that the courts or operating in a context where there was not legislation and that legislation could have provided guidance to judge hogan and to the other judges in the context of doing what they were doing. i do not think it is surprising -- and judge, you may have a better appreciation for this -- i do not think it is surprising for a judge to say in some respect here, i am operating in a context where i do not have a lot of guidance from the legislative body, and if i had guidance, that would make my job easier. on the other hand, what judge hogan did in the context of that situation was to fashion, as judges often do, of very comprehensive and reasonable case management order that filled in those kinds of things

that any judge would say, it would be great if i had some guidance in doing it. now we have many habeas trials under the belt, if you will, of the federal judges were those procedures have been put into place and are being worked out in the careful, methodical way that the common law procedures unfold. i think it would be a mistake to go back to the beginning, which is where judge hogan was at the time that he observed

that there was not a lot of guidance from i that the supreme court for from congress in fashioning these rules. believe that to stop that process -- are in place and i believe that to stop that process would further delay, and in my view, having watched what happened when the detainee treatment act was adopted by congress, having watched what happened when the military commissions act was adopted by congress, there was much more confusion. what had been established as a procedure stopped immediately law challenges were made to those congressional enactments.

it also engendered a lot more confusion in terms of what is the substance of law, how do we proceed, and i think we're almost nine years into this process already. we do not need more confusion. we do not need more delay. in terms of your question of how long will someone be incarcerated if they are bound to be an underprivileged enemy belligerent, if they fall into that category, a lot is that they can be detained -- the law is that they can be detained until such time that the hostilities cease. this is not a penalty. this not a punishment. it is not like, well, you are a

bad person and you need to be locked up or six years. it is a situation of, you can be detained for as long as the hostilities continue. i believe that at some point there will be legal challenges, properly so, as to whether the hostilities continue or whether they have ceased. i suspect that that judges will be able to look to a well- established body under the laws of war and make that determination when the issue comes up. >> one other point about the flip side of that, where they have won the habeas petition anyone released to happen. the executive branch has a lack of standards and they need more flexibility and timing themselves to work out how those releases will ultimately occur. we have another question. council. both of you are making a persuasive case about the capacity of the judiciary to handle the cases that you are talking about. both of you have asserted,

however, that deferring to the congress for summer much of this matter has some downside. i've not heard much detail except for your last point about confusion. i like to draw you out more on what those downsized might be. >> for starters, i would point to a different area of the law. the anti-terrorism and death penalty act of 1994, i believe -- 1996, thank you. seemingly a good idea. the habeas provisions caused all kinds of disarray in the courts, as many of you probably know. i think that i am not here to suggest that our representatives cannot do of very fine job -- a very fine job of oversight and taking appropriate action to enact legislation that is helpful to the ongoing functions of the court in society and so forth.

i think that there are some areas that are simply better left to the hands of those who have practical, direct experience that has resulted in an evolution of wisdom and practice brought to bear in dealing with these very difficult, complicated problems. in this area, i believe that is the courts. i do not want to the day. i think that there are areas of the law where we have seen over time, at least in my judgment, congressional action that has made things a lot more difficult than necessary. when i was an assistant united states attorney, congress enacted sentencing guidelines, very confusing initially to

judges and prosecutors and defense attorneys. what do these things mean and what did they do? discretion in sentencing was taken out of the hands of district court judges. when i was a district court judge, i remember the difficulty in deciding a lot of sentencing issues that arose because of the guidelines. now the supreme court has done -- made it very clear that these are guidelines, not requirements. you still have discretion in making a decision. the idea on those guidelines was a wonderful idea. it was uniformity in sensing. but it did not work. they did not work well and they were criticized roundly by all sides. in a similar vein here we already have an effective functioning system that is

developing and it will develop more overtime. i am not trying to be baked. i am simply suggesting phrygia i'm not trying to be vague. why in five codification that only invites additional challenges -- invite codification that only invites additional challenges and complexities that will ultimately -- that will inevitably arise? >> i want to add that i do not think that this is an area where substantively there are complaints about the decision's been made by that judges. i think that there was a time before that judges started trying these cases in issuing their opinions were people thought, these liberal federal judges are going to look at these cases and let all of these terrorists go free.

in fact, i think that the opinions that have come out reflect a very thoughtful determination of who is properly detained in who is not. it is interesting that there would be an interest in further legislation in the context -- i know what is broken in the system that is in place for now. and just the time delay. when you think about it, there are probably -- do not hold me to these numbers, but maybe another 55 that would take place? there are a number in guantanamo that i think that if we got the situation with yemen squared away enough, they could be released.

there's a moratorium on that for the most part now. but it is a relatively limited number. each week or month as the judge is trying these cases, is a relatively small number of cases that remain to be tried. i do not think that we need legislative enactments to fix something that is not broken. >> anyone else in the audience have a question question -- a question? well if you would join me -- a concluding remark. the tanker panelists. -- i wanted to thank judges lewis and judge spaulding and sharing. how one of the thank everyone for being here today. please make sure that you pick up a copy of the report. it has are websites for more

information about this important issue. and thank you. >> thank you. in [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> tomorrow, on washington journal, gerald on tax on plans to send more u.s. card that will expire at the end of the year. also, the signing of the americans with disabilities act. then a look at how we some bills affect community banks. that is live at 7:00 a.m. eastern here on c-span. tomorrow, a hearing on subcontracting in combat zones. the commission on wartime contracting host this event. that is live at 9:30 a.m. eastern on c-span trick -- national guard troops -- on c- span3.

some emergency officials would rather see that go directly to them. dick mirgon ed thomas discussed the proposal tonight on the communicators on c-span2. >> c-span is now available in over 100 million homes, bringing you a direct link to public affairs, politics, history and nonfiction books as a public service. it is created by america's cable companies. >> a member of the european parliament gave a talk in washington about the economy and the future of the eurocurrency for the this is one hour.

all could join our invitation today. >> i am the representative of the foundation in washington d.c.. i also want to welcome the viewers of c-span today. it is a great pleasure to have you with us. since we have been such a great turn up, i feel obliged to say a little bit about what we're doing here. the foundation is the german political foundation. one of the german party is in germany, we have offices in 60 countries all over the world where we promote democracy building and human-rights. of course, and that is very hard to do in washington d.c.. i am the head of a project.

the name basically says we do. we are trying to create dialogue among decision makers on both sides of the atlantic's as well as in washington d.c. and brussels and berlin. for these reasons, we are delighted to welcome our guest who is a member of the european parliament. he is here on his own initiative which i also want to commend. he is getting information on consumer protections and on class action suits. those are issues that are before the parliament and he wants to get information on both sides. i am really thankful that he, on his own initiative, made this

trip. i took the opportunity to ask him to speak on a subject. i think that the number of people that are here show how interested washington audiences are on the issue of a single market without a single currency of want to talk not only about the single currency, but to talk about the financial reform efforts that are going on in europe. i am really happy that he was very willing to do this during. he has been a member of the european parliament since 2009. there was a european election beforehand. he worked for 25 years at a giant german chemical company.

in his later stage, he joined the state parliament he was a state representative for 11 years and among his duties were to be vice president of the karla. he was the last -- you is the chairman for the last four years. -- he was the chairman for the last four years. they asked him and he said why not. he had promised his wife, and i asked him if i could tell this story did he promised his wife that he would retire from politics and then he ran on a position where the free democratic party never got anybody into european politics. he basically said that he was not running. by the way, i am on this list, but it is doubtful that i will end up in the european

parliament. last year, we have a very good year and all the sudden, he was a member of the european parliament and his wife was really happy about it. that is his diplomatic and political skills. i am really delighted that you are here today and i am delighted to see all of you and i am looking forward to your presentation. please welcome our guests. [applause] >> thank you very much. i would not be in the european parliament, but we will see how fast something can change. anyway, we are elected for five

years, from 2009 until 2014. this is where a report was made to the parliament. . . i said, okay, this is close to class actions in the united states, and that's the reason why i'm here to inform you a little bit what is in favor and against that. i will see what the commission will bring us in autumn, i think. now to my topic of single market without single currency. it's not up for me to stand before you today to present to you a european view of one of the most pressing issues of our time.

what is in the crisis measuring between germany in europe to prevent crisis in the future and working together at the global level for a sustainable economy. the financial crisis in global economies in the summer of 2007 is a presee dent in history. it created the deepest recession since 1930. in 2009 the gross domestic product shrinks by 4 percent. finally, in the third quarter of 2009, the economic recession came to an end in the eu in large part to the exception of the largest measure put into place in the european economic recovery plan. the economic to recovery plan included a fiscal stimulus of

about 2 billion euros and about 3 billion euros at the eu level and the european investment bank. the fiscal stimulus was completed by proposals to speed up construction reports and measures at those european and national levels. as you know, the crisis has causes, innovation and products, willingness to lenders to take excessive risk, low interest rates, and the greed of investment for higher yields with belief credit agencies recommendations allowed complex investment products to include a wide range of investors. the credit interest complexity of products and the license of intermediation change may

sometimes be impossible to clearly evaluate the nature and magnitude of the risk involved and identify those who buried. by special purpose vehicles banks could invest in such products without fulfilling the capital requirements. between banks eventually led to a crisis that had to address the stimulus packages and financial aid to support banks that were too big to fail. in the eu economic recovery measures led to enormous increasing in public spending. at the same time as another consequence of the crisis, eu faced sharp decrease in text revenues. all this led to public deficits, budget deaf sis, and widely public debts. the first references are found

in states including italy, greece, and spain which had high property spending for many years. as you are all aware, greece marked the beginning of the -- from government bonds, they had to accept the highest grades introduction of the euro. this increased the payment obligations and review credit waiting even further, so we had a vicious circle which ultimately threatens the country's in 2010. it became a euro crisis with rapid shifts with investors massively pulling out of the euro. following government on the ninth of may you remember state

agreed on the seven 150 ewe row rescue plan to save and protect all the big states too like spain. in total, loans were 500 billion euros were approved by the e. u. in addition, it was were available by the ims. in spite of the spes of these short term measures, recovery from both will be slow and painful, the financial and euro crisis shows the monetary union needs to be reformed. last week the u.s. congress

adopted president obama's reform package bringing the biggest changes in banking regulations since the financial crisis in the 90/20. what is being done in europe to reform the markets? the european party and parliament requested a relation and following guidelines and principles. first currency. there has to be more currency on the market. for example too many credit defaults are traded over the counter and not on property trade market. second, responsibility, all market participants must take risk responsibility for their actions and take corrective issues. third, stainability, market sustainable must be restored on a long term basis without hindering those and innovation.

we need stronger corporation of superviz ri bodies and invest in protection which must be approved in european and national level. the parts of my speech to translate this into more concrete proposals. financial markets this means in concrete terms, supervisory bodies must cooperate more internationally and exchange information of sees systematic risk. also for the national supervisors and central banks. they need european supervisory authority to work as a dente official system much like the european system of the central banks, such european supervisory authority should directly supervise trust border financial

activity in the e. u.. they submitted a legislature proposal to grade three european authorities. these are the banking authority, pension authority, and european market authorities. in addition to them, the european systematic risk to act as an early warning system was in the federal bank. the free democratic party consider these proposals are going in the right direction, however, in the european parliament they don't go far enough. we would prefer a reform in the supervisory party as outlined before, however, the members state the problem only want to limit this new authority to the

supervision of rating agencies. the negotiation has been difficult and are still ongoing. with regard to banks, we ask the following. banks must be able to go bankrupt. if they do not constitute a risk. otherwise we have a problem. banks should be prepared for crisis situations with emergency plans which would also enable the quick separation of certain parts of the banks. the system needs to be more long term oriented and transparent. risk management needs to be improved, balance sheet activities must be limited. they should follow business models, for example banks specialize on small and medium businesses. at the same time, the deficit

that are familiar to a bank must be regulated as a bank. further more requirements needs to be revised and must be implemented both in the e. u. and in the usa to prevent unfair competition. in passing the three negotiations, they should follow the commissions own legislative proposal in july 2009 increasing capital requirements for book and reauthorization. further more banks are required to have sound practices that do not encourage or reward excessive risk taking. on july only a few days ago, european parliament and member

states doomented the new directive. banks must keep bonuses on their basic salaries. the other limit for bonuses, but you have strict guidelines in order to prevent the bonuses. the biggest part of the bonuses are paid after three to five years when the transactions have proved to be successful. if the bank gets into financial difficulties, bankers are liable that have not yet been paid to them. in addition, the commission is working on proposals to harmonize insolvency laws going hand in hand across management system proper banking industry. such a european policy mechanism would allow the practice to survive and the remaining parts of the company particularly

bankruptcy. rating agencies should become more transparent, assist more quickly, and provide clear information on the methodology. it has to be clear what a rating means. we have to discuss inherent con clintons and rating services at the same time. in april twin e. u adopted agencies to tackle these points. from january 2011 our ratting agencies work with the market authority. supervision is to increase in general, but supervisory authorities will not be allowed to influence the credit rating system. these are to prevent conflicts of interest and to ensure

increase as well as a stable policy of credit ratings. however, the new regulation also makes it more difficult to small waiting agencies to access the european markets which strengthens the big three agencies. in fact, this political structure should be broken. the e. u. should swiftly go abroad of an independent counterrating of its own. the european parliament would make shier they are carried out. the private rating agencies should be be european rating foundation which would to the german. this rating foundation would be

limited to country ratings is very important only for country ratings to start competition with and between the other rating agencies. it would be dent of the central bank and influence of the commission of the member states. the foundation should be independent financing itself for selling ratings to investors. in future it is mandatory to have two ratings. one of them from the european rating foundation. now i have spoken a lot about initiatives of the financial market reform in the e. u.. however, financial markets are more interconnected than in any other market. thfer, if you really want to prevent another crisis from happening, we need to reach international agreement on financial market reforms. the most important form in

global reform in emerging economies. in the submit last june all countries agreed, i quote "to lead on a sustainable path" however, the u.s. and european in political positions can be aligned and public budgets. the u.s. in some emerging countries want to strip savings policy and ask for more stimulus to increase. by contrast european countries made clear in the transition of the budget after spending billions on the crisis. france and jeremy and usa failed to reach an agreement to make banks pay for the cost of the

financial crisis. to adopt and improve the levy on their banks. however, e. u. countries are planning to go ahead with the european bank levy and it is very important and crucial also because when you have the bank levy on the european basis for the european member states and others don't take one, it's very, yeah, it's a very crucial point that the money goes in that area where you don't have such levies, and for example, you know we are discussing about if when the united states and europe go in the same direction perhaps the next nice place to address that don't have all the regulations, and that could create a problem because it doesn't work when you make that

relations. of course, it is to fear the levy could lead to a loss of competitive banks and could lead to other companies that do not have a levy in place. a document made no reference to transaction tax chilling any chance of bringing such measure on a global scale in the near future. the parliamentary checks supports the financial activity debt limited to high-risk transactions. i know that transactions tax with very small margins could perhaps and would create money to form the budget. it would be help to review the budget deficit from the last years, but as i mentioned it

doesn't work because you can go and make orders on the internet all over the world. we failed that proposal. we can agree there is a long way to go until a comprehensive global reform of financial market can be reached. now let us assemble this as a crisis. we need a new basis for the economic and union. we need a new basis for that, and that is very important. budget has shown a need for monetary policy is only possible in the long term if economic policies are correlated with other members, and that's the problem we have. when you compare the euro with a dollar, it's -- not only a single market, but also you have the same taxes.

you have the same basis on economy when you push it, but you have different currency, and that can create problems. the first, the euro crisis confirms critics who never believed that it could work. some politicians in germany demanded three. nevertheless the euro brought considerable economic advantaging. if you recall what's at stake here let's go back to the gurned lying assumptions. first of all, price stability. since the end of the second world war, germany has also been a champion of fiscal policy, the bank with an excellent reputation and success in the fight against inflation in germany.

this single strength which also is located in germany. the first ten years of the european economic and monetary union, the ecp has even more successful than its predecessors. since the introduction of the ewe rows, inflation rates dksed in all european countries. second, the exchange rate was a dollar. since spring 2002, the ewe row was always racing against the dollar. it led to devaluation of the euro, and you know that he recovers a little bit. most of the ewe euro countries have exchange rates before currency has been less frequent.

third, boost of the economic growth. the trade of products of services in the internal market because it saves cost for change and prices are earlier if you had to compare. further more, businesses no longer need to agent against exchange rate. that's important because germany and export driven countries, and for us it was very important that we introduce the euro because we have now a big advantage to deliver on our products into the european market without looking to exchange rates. in germany and other countries one of the growth boosts of about 2 percent. the boost for foreign trade takes along to the euro has increased by around 5 percent especially because some companies which had never exported goods in the other e. u

countries and the export business. fifth and finally, protection from currency crisis especially in european countries which credit ratings suffered most in the economic crisis. if greece and spain still had national currencies, this would have come under enormous pressure to devaluate. since these countries would have been mostly foreign country, that debt could become more threatening. in the list of proposals of reform in more detail, we should have a look on how the economic and the economic monetary union works at the moment. at the moment 16 of 27 e. u. countries are members of the euro. eleven countries have not entered but have the obligation

to do so except from great britain and denmark. in order to change the monetary union, the country must fulfill the criteria adopted in 1991. this is to ensure a similar stable economic development of the participating countries. the following conditions should be fulfilled or must be fulfilled. the country must prove price stability. this means the inflation rate may only be 1.5 percent above the average inflation rate of the three most stable euro zone countries. the stabilization of the government must be sustainable, this means the yearly deficit of the public budget may not be higher than 3 percent.

gdp gross domestic product and may not exceed 60 percent of the cost domestic product. the exchange rates must be stable. this means the national currency may not go beyond the margin of deviation of the european monetary system for at least two years before the exclamation of the application. the interest rates of long term credits should be similar that means the long term credits should not be more than 2 percentage points of the three countries with the highest price stability. however, as you know greece and the euro zone of a basic stay tissics this is clear as we learned later they put in the budget for defense, not in budget of the whole budget and put it out, and so it was

brought up to increase the cost for defense, and you know what is fighting and thinking against turkey. they are close to them both part of the nato, but most money is spent in the military budget to protect a little bit what we are thinking for the against the turkey. belgium and italy missed the debt criteria with more than 100 personality letting them charge the monetary union and that was a problem of political decision. in addition, the criteria is stability and gross spike of 1999 was intended to ensure that the member states maintain budgetary discipline after the single currency is introduced.

it is open to the counsel to penalize any member state that fails to take appropriate measures to end excessive deficits. usually it takes form on interest bearing deficit with the community, but it could be converted into a fine if the excessive deficit is not corrected within two years. however, concerning these penalties they are subject to assessment of the circumstances by the counsel, and that's a problem. in march 2005, the european counsel under the pressure of france and germany who elects the rules, the ceilings of 3 percent of budget deficit and 60 percent of public debt were maintained but the decision to

declare a country of deficit can rely on certain parol. . i will not give you the measures, but the behavior of classically adjusted debt budget for a level of debt for the duration of slow growth period and the possibility about the deficit is related to productivity enhancing procedures. it is clear that the economic and monetary union needs to be reformed in order to prevent future crisis like the one caused by greece. the european parliament asks for concrete measures in this respect. first, the european commission must receive the necessary comp sigh. second, compliance with the stability and prospect must be enforced on the basis which put more emphasis on the exeness.

compliance needs to be improved. it could range from naming to shaming, warnings and voting rights in the counsel to agriculture, structural and cohesion funds to reach the member states. the commission should receive more rights in order to keep recommendations to member states already at the formulation of the economic policies and draft budget. competitiveness needs to become part of the economic policies. this is very important because then you will not create devaluation and you are competitive and you can bring your competitive on the international market, but on the european market, and why the

competitive is one of the issues we need. we need the direct crisis mechanism in cases like greece. european monetary stability fund could work as at last resource to stabilize the european monetary system. the objective is not to be allowed which would be a contradiction to the european critics and would not be in aaccord with the german constitution. that is the main problem, and it is our problem too. financial support by the monetary stability fund would not mean to take over the debt, but to take a temporary credit. however, the idea to set up the lender as last resort which has

found support of the government has attracted critics from the european federal bank and also from the french government. many questions are still open including who would pay into the fund and how independently it would be from the commission. that's the -- how the economic should be organized in the future. the french president was in favor for permanent directory european countries and inclusion of other member states. as a compromise only emergency situations, the euro zone countries are meet on an exclusive basis. although the european commission made several proposals to reform the stability and however, the proposed measures represent the

commodity nomine tore and that's very important, you know, and you change the treaty you need all the accept of the member states, and you know in germany they have to be of the parliament and other member states sometimes need a vote of the population, and that's why nobody offers a list on the treaty and nobody is in favor to change again the e. u. treaty to try to handle problems within the list country. according to the proposal member states coordinate national budgets in a structured manner. each is a so-called european semester. this process stops already generating in 2011.

further more, member states are forced to comply with the stability and prospect of the sanctions. if they comply with the deficit or 60 percent debt criteria, it risks losing. this could be a lot of money. nevertheless fishers and farmers are entitled to subsidies, but they are paid from the national budget and this puts punish on the national government and parliament to be in line with all the proposals. if a member state fits the budget, it has to leave the deficit in the e. u.. as soon as it recovers, the money is paid back with interest. in addition to budgets, the commission also plans to introdyings natural economic civilians. an early warning system is going to assess indicators like great

balance competitiveness, private debt and prices. in most serious and controlled cases, the commission would make country-specific recommendations, and could also propose placing a member state in an excessive balances position. for your area of countries, the enforcement mechanism in the case of serious competitive breach could be, unfortunately the proposal did not pick up the proposal and the european central bank to start deficit procedure automatically. it is very important you make no political decisions on the recommendation and then later on reresolve this and later years and make a political decision about that, but you have to get the acceptance of the member

states too, and that's the problem we have. i mentioned it, in order to include a compliant state to exclude noncompliant states on sanctions to avoid -- also the proposal to temporarily restriblght voting rights in noncompliant countries will not have a majority and advocated two weeks ago was dropped. nevertheless, the commission reforms proposal has many of our requests, and it's a step forward in the right direction. at least we can expect reform under stability to be adopted still this year since it seems to be based on a consensus between member states, but the problem with not to implement it in this year and the great

problem, and i hope we can jump to a good solution. in conclusion, financial market reform is an extremely difficult task about on the european and at the global level. also important prospects have been taken, but a lot remains to be done. the same for the european union, we can't afford to lose the advantages of the euro, a euro is a must. without the euro, we can't forget the european soul and the european market. when you need a single market, you need a single currency and it's very important, otherwise when you don't have this, you cannot come out like what we had a few years ago. we cannot afford to lose the advantages of the euro.

we have to use all our energy and political will now to get the job done while the window of opportunity is still open. the crisis can be defined as a crucial and specific part of the situation or a trimming point. in the case of the european union, there's two options that break apart and emerge from the crisis stronger than ever. in my speech the last sentence is i believe in the latter option. it's very difficult and complicated, and you see to bring all the 27 member states with different interests gives you only one example. for example, germany has about nearly 25 percent of the gross domestic product in manufacturing, in industry. great britain has about 60 and 70 percent and france has less.

in london and united states have less, but the industry we have a problem because we need our products to be exported not only within the e. u. but on the global market, and that's very important for us that we have to stay with euro and i hope we can reach it. thank you very much for being here and for your attention. [applause] >> thank you very much. i think what this did was in previous events with had a lot of questions on the greece crisis and financial services and we didn't get the full picture. i think this is the full picture, and i appreciate you

doing this, and also -- we have a little time for questions and answers if there is interest. mike? please introduce yourself. a little louder. >> you made a treaty suggestion, if i understand you correctly -- [inaudible conversations] i guess that's what you said somewhat in the manner of the reference, but that -- how's that going to work because of paper or a bond generally needs to have the rating available for investors before

they issue to assess whether they want to buy it, and a fee is paid to the rating agency, but this doesn't seem to conceive fees coming from the issuers but from the purchasers. there's so many instruments will there be enough perks for each to make that work? >> we are thinking about the european rating agency should be a foundation, and money to a foundation and financed and it is only based on what i mentioned ratings of the funds not of companies because a lot of companies -- we had the problem in germany and in the e. u. that the ratings come out and saying in the moment when the crisis started, the ratings reduced, yes, and it was a push against the euro and everybody was

asking why it was reduced at that moment because most of them know it, but there was a budget deficit, but in that moment the ratings are coming out and everybody was concerned right at that moment, and there were other interests and the interest in the ratings agencies and politically, you must see that, and let's try a foundation which will be financed and which operates as no relation to the european parliament to the commission or to the european federal bank, and that's very important, and the other part to collect money is that the federal banks when i guess they make a proposal or say something about the rating that they can collect the money, and that is the idea to get a little bit more competitiveness on that market because the european -- nothing against the free

american ones, but in the moment greece was ending and bank rating and with spain and that is the problem we have, and say, okay, let's look to try another way or to add something on that. >> i want to react -- >> introduce yourself. >> i'm a specialist on class action lawsuits. i didn't expect you to talk on class actions. i think you will not take a good lesson from the united states partly because our supreme court made a decision that class actions cannot extend to help protect german investors from actions of u.s. banks or others, and the ikb example is not

likely to be extended because that was an scc litigation case. class actions have great promise for protecting against future crisis and collecting on the current financial crisis. the problem, i suggest, which is not on the litany you identified, there's a trillion and three dollars of ceos on debt obligations some referred to by german investors, most of them won't participate in a class-action lawsuit even if the european union fostered class actions because the accounting rules make it possible not to, as you put it, use fake statistics or fake accounting. to be a part of the class action lawsuit, you have to mention loss, and if you are hiding loss in bonds that don't claim value, then you don't have a loss to a claim. your european union that is

about to release passed the bank test, and that's the stram issue in the headlines today. the test at the 91 banks only count the trading losses and allow the banks to hide the bonds they purchaseed which they don't have to record as losses, so i would suggest we're here for a good mission to pursue class action litigation because more class action lawyers on the street may protect against things more than financial regulators, but to have class action lawsuits, you have to have an accounting system that forces real losses to be registered. >> okay, thank you. >> with that said, all the things about class actions, but what i would like to mention is all of accounting and also in the accounting department, and in germany normally under the

german law it was only allowed to count the acquisition costs at the highest amount you had, and then you make a devaluate it and only perhaps to ride it out to maximum acquisition costs. here you have value basis, and that was the main problem to get paper profits on it not realized on it, and it can -- it could go over the acquisition costs, and then you have pushed all the bonds on it, and they went up and up, the increase of profit and equity on the other side and you had a very good assets of value, and later on the nothing everybody has a devaluated to ride down all the assets and there was a problem. everybody has to go into that direction, but i think a little

bit about the fair value is the best principle i have, and it's one of the issues, i think, because of financial crisis coming out. >> a question back there? >> yeah. i'm john koet to hear a penalty to greece for misrepresenting its membership application in the e. u.. is there no provision for say ending the membership of greece in the european union or penalizing them some way so that they understand that this kind of deception doesn't work for the union. it's been a disaster. i don't understand why something

or more hasn't been done? >> that's the problem, and that's why we would like to have and everybody states it's clear if they don't fulfill the criteria, the negative criteria that's with us. i will not blame the last government, but it was a political decision. everybody knows it. . .

it's parliament that have to [inaudible] and the commissioners looking over the budget to and the deficit is too high or whatever and house to change and the [inaudible] and they decide what they have to do after the commission can vote okay to reduce it in that way because the mechanism is the problem. in the prior year's you have an election that is evaluating to

get more competitive in the market. that was but under the year of we have to% before the crisis of for the same interest in the moment still 2% so the profit is from the euro but when you profit from the euro [inaudible] we get out of these proposals judgment between zero to 2% otherwise the high inflation rate somebody told us okay it's

not that budget and deficit and the have and higher inflation rate and that takes between two to 4% to review the budget deficit or reduce the debt. that is the proposed lifeline because we need stability for the industry. >> dinham marshall. i wonder if i could ask the speaker to comment a little bit about one of the most burning issues coming out of the pittsburgh and toronto and that is on the rebalancing side. i wonder what you could expect and tell us we might expect to see in terms of german steps toward rebalancing with respect not only to the e.u. but globally.

>> you're talking about the balanced budget, rebalancing the budget, right? >> rebalancing in terms of domestic demand compared to the export as a means for growth. >> you know from the interest rates or the interest in total are increasing and increasing. and in the same way of reducing the population we are expecting that in 2015 our population is shrinking from 80 million to 60 million. there is a social security you have to fulfill and pension and social welfare and those things and the interest and total, the

portion is increasing and increasing you get problems otherwise and you can only make the two steps you can do to increase your inflation.ñ this is not a good solution and you can reduce the budget and i think the americans will lead to do the same. we have a discussion in the g20 with mr. obama against it and now i hear that the united states will go also the same direction because there's not an alternative. >> the budget will have to bring more to the market but you increase the other consumption.

you know, the increasing consumption is a problem of the population and the population says we are in the momentum of the on the plan there rate. we have data in the moment and some parts less than 5% and when we are feeling as a consumer we have a good and safe charge to also spend your money and they say okay we have similar programs and to consumers and germany which doesn't work so i prefer to say nikkei good

economic policy and in a moment we are increasing all the chinese people are buying the bmw and mercedes and the highest advice is because now the of 5 billion nobody to pay. >> cash for clunkers.mñm >> it was a push for the industry. now it is working and the chinese would like to have a bmw and audie [inaudible] >> ok. thank you. >> thank you i very much. [applause]

>> thank you all of you for coming. i think this gave you a little taste of what the transnet dialogue mean. i do get more knowledge about europe than you ever wanted to know but that is the price for lunch. [laughter] on that i wish you all a very nice summer. enjoy the nice weather outside. have a nice weekend and see you then next time. thank you. [applause]ww?

order. walt whitmanwrote that to do the labor of a prudent wash prudent who are vents outrage is one of the proper duties of the government.

our witnesses today are the sort of folks that walt whitman had in mind. their hard work and aggressive oversight has gone a long way toward keeping the t.a.r.p. program relatively sufficient. that is no small task when you look at the size of t.a.r.p. in the speed in which it was set up. t.a.r.p. remains one of the largest and most complex programs the federal government has ever created. that means it is all thmore importantly important we have the three oversight teams before us today. i worked hard to create the office of the special inspector general for the t.a.r.p.. back when congress was developing the program so i'm especially pleased to welcome mr. barofsky back to the committee today. so far the special ig has done a great job. you are providing critical transparency for the program, developing important studies on specific aspects of the program and even busting bad gu. i congratulate mr. barofsky and his team for the work on the

farkas case who was arresd on june 15 and charged with a $1.9 billion fine. he and others were charged with scheming to steal $550 million of t.a.r.p. money. that scheme was stopped dead in its tracks. and the special ig has conducted independent analysis that has brought critical transparency to the t.a.r.p. program. an example of the special ig report on monday. an ireport he concluded the auto task force pressure gm and chrysler to close many dealerships without adequately considering job losses. this news is quite troubling. in montana and across the country are otter dealers and businesses are the heart of the community. i am disappointed to learn that many of the decisions by the auto tk force made without full consideration will affect these communities. fortunately some auto dealers

have successfully restored their franchises but many others have closed or had have been forced to adjust to losing a franchise agreements during the most significant economic downturn since the great depression. mr. barofsky i applaud you for bringing issues such as this to the attention of congress and the american taxpayers. elizabeth warren of the congressional oversight panel can bring bring us up-to-date on how on how small banks are airing under the t.a.r.p. program. her most recent report raises concerns about how ast small banks will be able to pay t.a.r.p. back. more than -3/4 of the large banks who receives t.a.r.p. money have already repay the taxpayers. by contrast only 10% of the small banks who receives t.a.r.p. funds have repaid their money. there's also interest in an update othe aig goldman sachs relationship that he reported on earlier this year. oversight is sometimes a lonely job. and it doesn't when you many popularity contest.

we have all been pleased to witness the perseverance of your three teams over the last year and a half since congress created the t.a.r.p. program. in some reects the end of the program is in sight, just over the horizon. the wall street reform bill we passed last week barred any new tire program and initiatives. the bill also caps t.a.r.p. disbursements at $475 billion. and the treasury reported that the total amount repaid to taxpayers for the government funds used to bail out u.s. companies have surpassed for the first time the amount of t.a.r.p.'s outstanding debt. losses from the t.a.r.p. program are still projected to be high. the government will not see a 700 billion-dollar loss as som said back in the fall of 2008. yuriko losses were projected to be $341 billion. some are saying that figure is

lower, depending on repayments from aig and the auto companies. the debate over the necessity for t.a.r.p. has its effect on the u.s.economy will continue. i know that our colleague judd gregg said last week that t.a.r.p. did what it was supposed to do. it basically say the financial system on main street too. allen binder the former vice chairman of the federal reserve said t.a.r.p. was a necessary evil to save the economy. think of it as collateral damage in a successful war against financial armageddon. what we do know today is that the hard work and sacrifice of our three oversight teams s given the american people a relatively clean, well-run program and i do believe that. i think it is your oversight, you three, is largely the reason why there is not in difficulties, scandals, problems and so forth because you have worked very hard all three of you to exercise vigorous

oversight and the american taxpayer is appreciative that. we are grateful for your efforts and we stand ready to help you continue your good work at the t.a.r.p. program comes to an end. and we hope it comes to an end and we hope thatill be in the near future. >> i associe myself with remarks that the chairman just made on complementing on your oversight, eh of you. we have this 700 billion-dollar program, a focus of numerous hearings and at every stage each of you has brought more transparency and accountability to the activities. in short you have kept treasury honest, a critical service with so much taxpayer money at stake. each of of the organizations has published numero reports on different aspects of t.a.r.p.. indeed, just this morning

special inspector general published its seventh quarterly report with t.a.r.p. scheduled to expire on october 3. i look forward to hearing each of you update the committee on your activities. mr. barofsky, your office released a report this week describing the process by which the administration forced, the administration forced gm and chrysler to accelerate the closur of 2243 dealerships, putting at risk as many as 100,000 jobs without first determining that the pace and scope of the closures was truly necessary. while your report is insightful unfortunately it comes too late for many car dealer owners and suppliers across the country that were forced out of business for very little reason. it is frustrating to know that at a time when small businesses are hurting and we are facing record unemployment, this administration was pushing to shut down these dealerships. and your new quarterly report

contains a startling observation that although t.a.r.p. appears to be winding down, when non-t.a.r.p. aid is included, the amount f overall government assistance actually grew during the last 12 months. last year you estimated the total amount of taxpayer money at risk through various programs to be $3 trillion in your new estimate is $3.7 trillion, a 700 billion-dollar increase and at is as much as the original t.a.r.p. program was ever expected to be. i also know your office has been actively investigating excessive aig executive compensation payments that have been largely ignored by the treasury. and i've been continuing my inquiry into the severance package received by a former aig execute. it seems that the executive received nearlthree times her salary in severance and bonuses or about $1.4 million although she was terminated, her severance was increased in treasury could have stopped the payments but did nothing.

mr. chairman i have documentation on this that i would like to put in the record. for ms. warren, last month or congressional oversight panel reported on aig bailouts and we learned among the ultimate in the fishies of the tax funded aig bailouts was not just aig's counterparties goldman sachs but also goldman's counterparties. it is estimated that goldman's counterparties may have benefited from the taxpayer bailout of aig by avoiding as much as $11 billion in losses and yet incredibly, we don't know who those counterparties are. goman has refused provide your panel with the names of those companies and mr. chairman i have a summaryhat i would also like to include in the record as i ask on another matter. the congressional oversight panel also issued a report this week about t.a.r.p.'s capital purchase program. it details the treasury seems to

have treated the nation's largest banks much more more favorably penetrated the nation smaller banks. many of the smaller banks now are struling and their participation in t.a.r.p. is neither stabilize the financial system nor increased lending activity. let's look at gao. mr. hilman's office released a report about aig. one focus of the reort is the status of aig's attempt to repay its debt to the american taxpayer. over time the government has exchanged much of aig's debt for stk, meaning the government's ability to recoup the billions advanced to aig will depend to a large degree on aig's ability to sell its business assets as it restructures. the recent collapse of 35 billion-dollar deal to sell aig life insurance subsidiaries in common assigned the taxpayer may not get back their money or at least take a lg time. one of the purposes of t.a.r.p.

of course were to preserve homeownership and protect home values. treasury announced that 50 billion-dollar home affordable modification program in march 2009 and all three of the watchdogs on the panel today have issued reports on the program's progress and that is not good. the progress hasn't been good. a program treasurysaid would result in three tofour million-dollar modifications there up in only three and 40,000 permanent. in fact there have been 430,000 failed trial modifications and failed modifications vastly outnumber successful once. just as they want it look like there would be a problem but t debt-to-income ratio for borrowers that have received a mortgage modification is 64% even after modification, a level that all but ensures. moreover treasury still has not established performance goals or

benchmarks for the program, meaning that there is no effective way for us to know whether the 50 billion-dollar program is accomplishing intended purposes. that is not accountability, that is not transparency and it is just more taxpayer money flying out the window. american taxpayers invest in t.a.r.p. program is unprecedented and as good stewards of the taxpayers money it is essentially exercise the highest standard of oversight. as you present your findings today panel, i has to do specifically advise the committee, each of you of any areas in which your oversight is being limited or constrained by a lack of cooperation from the administration, the treasury department or others and how best i end this committee can help you. thank you mr. chairman. >> thank you. i want to tank-- thank are our witnesses for their rd work. mr. barofsky special inspector general for the t.a.r.p. program

and elizabeth warren, and the third witness is richard hillman, general accountability. thank you all for your hard work on behalf of the american people and thank you again. your smary statements will be automatically included in the record. elizabeth warren has a commitment so we will try to accommodate that obligation. ms. war and why don't you first begin and mr. barofsky and then we will go down the line there. >> thank you mr. chairman. chairman baucus, ranking member grassley thank you for giving us an opportunity to come back. is a privilege to testify before this committee to release her most quarterly report and i do want to thanyou and this committee for your tremendous leadership in support of our office.

our ability to accomplish what we do derives directly from he support of the committee and i'm happy to report senator grassley that we don't have, haven't had any issues or problems getting information in large part because i think those we deal with know that this committee is standing squarely behind us and the repercussions would be severe. our quarterly report to give an update on the previous quarter and has a chairman and ranking member noted for both sigtarp and-- the chairman noted more monies that that is currently outstanding. the loss projections are going down and the cap is getting smaller. for sigtarp, as the chairman noted, think we have demonstrated this quarter that robust brought that law enforcement is an important part in vital part of any oversight program. the charges against lee farkas, that case was initiated in connection with an application for t.a.r.p. funds and colonial

bank which was affiliated with mr. farkas and received conditional approval from treasury for $553 million in taxpayer funds and through the hard work of sigtarp agents and our law-enforcement law enforcement agent of sure that money didn't go out the door, thathat money didn't get poured into the abyss of fraud that was colonial bank and as a result we have assured this agency sigtarp will have paid for itself over the course of its life by those savings along. as the ranking member noted in ouquarterly report we provided an update on what we had done last summer at the request of the chairman the last time i testified before the committee of the 50 or so programs in addition to t.a.r.p. that address the scope of the financial crisis, e government's sponse and financial markets. in our report we summarize each of those 50 programs and we provided numbers, three key numbers for each one. the total or maximum amounts pledged are committed by the

federal government, by the agency either explicitly or implicitly for each of the programs is the high watermark, the maximum of up money out the door either in guarantee or explicit expenditure that anyone period given a time and what the current outstanding is as of june 30 of this year. has a ranking member noted when we compare that number the same number or a year ago we found notwithstanding the reduction in t.a.r. and a lot of liquidity programs in in the federal reserve increases in other programs designed to help the housing markets and the financial that participate in them far out weighed that. the current amount of $3.7 trillion, $700 billion more than the 3 trillion gallons last year. by mayor report, we go over our previous audits and outstanding recommendations including the one mentioned by the ranking member. one of the greatest failures in transparency and accountability in the current program and that

is treasury's refusal to identify meaningful benchmarks, goals and expectations for the mortgage modification program. the single recommendation we made the treasury putforth how many people truly expects to help stay in their houses through permanent modification. it is a recommendation that all three of us on this panel have made to treasury and the treasury has ignored. this failure to adopt this recommendation fails to recognize the basic tenants of good government programs. clear goals, clear expectations and clear description of performance against those benchmarks. its failure to do so has essentially resulted in the nation's taxpayers having to oulder an additional $50 billion in national debt without being told how many people expected will be helped by this program to st in their homes, how many people are going to be helped in the alphabet soup of programs and how the monies going to be spent to achieve those benefits. treasury has continued

indications that this is a successful program without the-- identifying these goals and benchmarks is simply not credible and i fear the growing public suspicion this program is an outright failure will continue unless and unl treasury adopts its recommendation and comes clean with what his goals and expectations are. mr. chairman, ranking member and mbers of the committee i can't thank you enough f your continued support of our office and all of our efforts and i look for it to answering any questions you may have about the quarterly report of other audits we issued earlier this week on the auto dealership terminations or any other subject. thank you. >> thank you. thank you mr. barofsky very much. ms. warren. >> thank you chairman baucus, ranking member grassley and the committee. i want to start wi a reminder that i am a chair of a bipartisan five-member panel so while i will do the best to

oversight panel any additional sentences are my own and my colleagues may have different, different views and different nuances so i want to make that disclaimer. since weast met before this committee, much has changed in the financial markets and in t.a.r.p.. a year ago, our country was in the dst of what seemed to be a deepening financial crisis, on the edge of economic collapse. it is easy now to forget the panic that gripped the markets in the fall of 2008. a very real threat that it would spread through the broader economy, devastating families, small businesses and communities. t.a.r.p. has had a profound effect is part of a corrugated government response to bring our economy back from the brink of collapse and everything i say and the work we do in oversight is in that context. i also want to say at the beginning, with we raised issues from our very first report which was in december of 2008 about

accountability and transparency. difficulties we were having at the time with the treasury and what we felt we brought to oversight by trying to bring these issues forward. after we met up with this committee, things changed substantially, and so i come here in part on behalf of the congressional oversight panel, to thank this committee for your ongoing support. i recall in particular a conversation in which mr. grassley said if the is anything you can't get professor warren, you let me know when the two of us will walk over to treasurynd see if we can find what we need. senator baucus, your office has been enormously helpful. that has made a real difference in what has happened in our oversight efforts. we have been tough on treasury, that there really has been a great deal more transparency, a

great deal more openness with treasury about the infortion we need. our oversight panel has been in effect for 19 months. we have issued 21 monthly reports and two special reports. we have hit the range from llars and cents report from a value of bank treasurynder the capital purchase program to a review of the government's investment in specific companies such as gm, chrysler, aig and g. all of the reports along with videos, summaries, backup documents are available line at cops.senate.gov. we we are part of the senate web site and glad for anyone to come and see what we have. i'm going to just give a very brief summary of two of our most recent programs. the small banks program. you mentioned that senator baucus in your opening remarks. it is a reminder that t.a.r.p.

money went to 707 banks. the 17 largest banks got 81% of the money and they got it fast. 76% as you noted have now repaid and are reporting substantial profits. the 690 smaller banks had a very different experience. they got their money more slowly. only 10% have repaid in more worrisome, 15% have already missed at least one of their dividend repayments. the small banks troubles are many. there is a coming crisis in commercial real estate. the value of assets held by these banks will decline by the end of this year by an estimated 50% compared with the peak when many of these loans were made, and 2988 smaller and intermediate sized banks have,

by their own auditors, admissions deep concentrations in commercial real estate. these banks also have limited access to apital and if they don't find a way to pull themselves out of the t.a.r.p. program in a few years, their dividends will go up from 5% to 9%, which will put even further pressure on them. the reason i mention this report in particular is our most recent but also because they help with the small banks is directly related to the help with small the small businesses. small banks that are constrainet are under financial drescher are not small banks that are able to support small business lending. so we have a problem that gets in a way of restarting the economy. we have also talked recently about aig, but the small business credit crunch and the foreclosure mitigation program.

i am here to answer questions as best i can on any of our reports into say again that the congressional oversight panel very much appreciates the support we hae gotten from this committee. >> thank you ms. warren. mr. hillman you are our wrap-up here. >> members of the committee, i commend you for holding this hearing today and i'm pleased to be here to discuss their work on the trouble troubled asset relief program. my statement today draws primarily on seven reports we issued since october 2009. specifically the statement focuses on the nature and purpose of activities that have been initiated under t.a.r.p. in their ongoing challenges. the process for making decisions related to unwinding t.a.r.p. or grams and indicators of the credit conditions and markets targeted at t.a.r.p. programs. regarding our first objective, treasury has initiated a number of programs under t.a.r.p. some of which have ended or being

unwound, others especially those involving aig, the automobile industry preserving homeownership and encouraging lending to small businesses may continue for some time. many participating institutions have repaid the funds they received, reducing the federal government exposure under t.a.r.p.. since t.a.r.p. was authorized treasury has disbursed 385 alien dollars in loans and equit investments as of june 32010, treasury had received almost $25 billion in dividends and interest payments. as well as more than 190 odeon dollars in repayment. although treasury has received significant repaymen of the funds are provided to the financial institutions, some institutions and lns could still result in substantial losses to the government. we have been monitoring t.a.r.p. program since their inception including the financial condition of those institutions that have received significant

assistance. in particular chrysler and general motors companies have shown some indications of progress toward returning to profitability such as doing better thathey had initially projected in terms of revenue, operating earnings and cash flow. however the extent to which the federal government will fully recoup its investment in the auto industry is uncertain and the coanies say several challenges in the coming years including returning to and sustaining strong growth and profitability. since early 2000 we have also been monitoring the status of the federal assistance to aig and its financial condition using indicators we have developed. in april 2010 we reported reported their indicators showed aig's financial condition had remained relatively stable largely due to the federal assistance provided by the federal reserve and treasury. but the extent to which the federal government will recoup its investment remains uncertain and will not only depend on the

long-term health of aig but also on the company's success in selling businesses as a restructures and other market factors such as the performance of the insurance companies and the insurance sector and the credit derivatives markets that are beyond the control of aig or the government. many of our reports have also highlighted the challenges facing t.a.r.p. programs and we have mad recommendations to enhance the transparency and accountability of the programs. for example in a recent report on the home affordable modification program we stated the program had made limited progress in preserving homeownership, issevered from a consistent program implemention and continues to confront additional challenges. these include converting tri modifications for permanent status and ensurg programs stability and effective program management. we eported that while treasury had taken some steps to address these challenges it is urgentl needed for treasury to finalize and implement the various

components of the hamp program and ensure the transparency and accountability of these efforts. we will continue to monitor these programs and have ongoing work on several factors at t.a.r.p. including those initiatives that have a small business focus. we have also received and reviewed treasuries framework for deciding to extend t.a.r.p. beyond the december 31, 2009 and found the process was sufficient that could be strengthened for similar decisions that will need to be made in the future. specifically we found the extent of coordination could be enhanced and formalized between treasury and the federal deposit insurance corporation and recommended the treasury formalized coordination with fdic for future decisions. going forward, treasury will continue to base decisions in winding down programs in many of these decisions will require interagency coordination. because t.a.r.p. will be unwinding concurrently with other regulatory intervention decisions about the sequence he of the exit from the program

will require regulators to work closely together. we also know treasury can strengthen his analytical framework to identify clear objectives for small business initiatives and explaining how relevant indicators motivated t.a.r.p. or grand decisions. regarding her last objective, on the indicators of ready conditions and market targeted by programs we have noted in the past of some of our anticipated effects of t.a.r.p. on crit markets the economy have materialized and some securitizati markets have experienced a tentative recovery of. indicators we have been monitoring to adjust credit markets have been able to sustain the cover despite the winding down of key progms initiated by the federal reserve treasury fdic and others. the cost of credit and perceptions of risk as measured by premiums over treasury security have fallen in interbank lending, mortgage lending and corporate debt markets. further the volume of credit as measured by new and or bridge

loans insset-backed securities has improved since the first t.a.r.p. program. unfortunately,y any measures foreclosures and delayed wednesday'for residential housing remains well above the historical averages despite program such as hamp. full recovery will take some time given the buildup of imbalances in the real estate, fiscal and household sectors over several years. finally because any new t.a.r.p. activity will be limited to homeownership preservation and small-business lending programs we will also be continuing to monitor indicators such as the foreclosures and delinquency rates as potential measures of e t.a.r.p. program success. mr. chairman and members of the committee i appreciate the opportuny to discuss these issues and i would be happy to respon to any questions. >> thank you very much mr. hillman. i stated to my colleagues here that mswarren does have t leave soon and 10 or 15 minutes so i will give questions to her

so she can leave early and then we can ask other questionsf other witnesses. >> if we don't use up for five minutes then we can you reserve the time? >> yes. ms. warren, i would dislike your thoughts on the hamp program, white is not working very well and mr. barofsky the bnchmarks and standards and so forth. the front page as of super call in "the wall street journal" today is about the housing market not doing so well so if you could just tell me what are your thoughts and what is your advice for small banks, new banks, what needs to be done here? >> thank you senator. have now witnessed three reports about the homeownership mortgage foreclosureprogram, and we said in our first report, which was months ago, that the program was too small. it was too slow, and it was not

putting enough people into permanent modification. we said at the time we urge treasury to design a program that could get ahead of the problem. instead, the position we are in now is that we continue to trail the problem. 15 months into this program, for every one family that appears to have mated made it to a permanent modification and is likely to stabilize, that family and at home, 10 more have been moved out through foreclosure. this is a program that is behind the curve. >> why is it not working well? beat it is too small and it is too slow. the program is based on the sumption that we will get the servicers, people pay the services to make a deal that

works between the homeowner and the investor who is was still holding the paper. and, it has not worked well. in many cases, the servicers can continue to make more money if the family goes through foreclosure. it is just not a program that is woing r homeowners. it is not a program-- in some cases it is working for investors and most importantly it is not a program that is working for the economy overall. >> mr. barofsky, your buts in the program and what needs to be done and if you could amplify more in your statement that we need more benchmarks etc. a. >> that is absolutely essential although that does not ultimately get to the heart of wipe more people being held. the numbers the treasury has put out as dismal as they seem, in a way it gets almost worse than what we have done with this quarterly report for the first time and not reported in treasury numbers we disaggregate to aspects of the hamp program, so part of it is done by

t.a.r.p. funded modifications. the other part is done by fannie and freddie in the $50 billion in t.a.r.p. money is only for those t.a.r.p. modifications. it was originally announced, basically which is go by the numbers 50 billion for t.a.r.p. d 25 billion for fannie and freddie was anticipated there would be roughly a two-to-one ratio but when you break out the most recent numbers of about 390,000 permanent mods only 165,000 of those have come from t.a.r.p. so if you look at the last 16 months that is 10,000 permanent mods a month being funded through t.a.r.p.. this is part of the transparency we try to bring by breaking these numbers down so you can look at the tar piece of the program. the problems are as professor warren has noted are all valid. part of it is we have made some recommendations on bowler ability to read a full than make these programs more effective and more attractive. one thing treasury is that much

i think is atep in the riht direction is to finally address the issues of principle reduction, which is i think a vital issue. all the predictions, predictors are readable with the federal with the federal reserve or moody's or s&p, we cite a bunch of studies that all pointed negative equity is being a major issue so they will love significant programs but even those are somewhat flawed. >> what you want the treasury to do? the one thing we point out as they should make the reduction plan mandatory. as it is now the servers get to pick and choose and decide whether or not they want to give homeowners the benefit of principle reduction. we have been ithe back and forth. we have asked them what are your arguments nd we are you doing this? we found them to be completely unconvincing and i think it is currently planned to be, could end up in--. >> i think that special inspector general brodsky is in the right direction.

we can have a program in which effect we put incentives on the table paid for by the taxpayer to say please do the right thing here. we have a crisis and the consequences of not having cooperation on the servicers are not just by the investors that are harmed in homeowners by-- that are harmed. we need a program with far more urgency and some real teeth in it. >> thank you. >> i am just going to ask one question now of professorarren and if my colleagues want to a her, i won't use u other peoples time or keep her from going. in your report on aig bailouts, you indicated that goldman declined to provide the pan with the names of the entities that ensuredgoldman against aig bankruptcy. you called these unnamed insurers quilt indirect beneficiaries of the government to rescue last vote earlier a place in the record a sumry of

your attempt to get information from goldman that would explain who these indirect beneficiaries were and as i understand it about $11 billion of taxpayer money provided to aig ultimately benefited companies or individuals who remained unknown and so to you professor warren can you explain why goldman won't provide this information and why should the public know who these ultimate in the fisheries or taxpayer support actually are? >> thank you senator. i assume the reason goldman will not provide this information as it does not bump the public to no. let me make it clear, we are looking for information in both the counterparties to the financial transactions, and also information about who the alleged insurers were. that is, when goldman says, we have no exposure in this, we were completely neutral, it was because they claimed to have bought insurance policies from third parties. obviously went aig was rescued

they did not have to pay off and we want to know the identity of those parties partly just to know where american taxpayer dollars went the partly to assess goldman's claims. if we can't see who the parties are and can't see what the transactions are, we cannot evaluate the credibility of their claim that they had nothing at stake one way or the other and the aig bail out. ..

>> in late june said near times reported on the latest aig of rage as part of an agreement to cancel the derivatives and pay the counterparties off. ag also waived all the gulf rights to sue goldman sachs and for other reasons of the mortgage-backed securities issued a and aig issued. since that deal was partly funded with t.a.r.p. money, have any of you looked into the latest giveaway of the big banks at the taxpayers' expense?

>> senator it is not part of that aig reports because that came out before the documents. >> is it being looked at now? >> yes. we are senator. think you. >> if you aren't you have any idea how much money each of you expect the taxpayer to lose on the t.a.r.p investment? >> that is a very difficult qution, senator. the consequence of giving up o one '08 to pursue legal remedy when the other party to the transaction may have made bess bess-- misrepresentation are misbehaves, very difficult to assess i don't want to be in a position of over promising. >> i don't want you too either.

is there a reasonable chance of us finding out without getting the papers that was talked about to know exactly how much money is at risk? >> i will say this the other way. the consequence the of waiving the right to pursue remedies so that aig 1/2 potentially been able to sue other parties and draw more funds back into aig which in turn could be used to repay the taxpayer, that is the transaction we are talking about. i want to be honest if not sure we could ever put a dollar figure on that. but what we will try to do or what we can accommodate is at least track down where the waivers are and some

assessment of their value but we cannot promise beyond that because when they go for word said dave it is never just eight -- discovered and never come forward. >> you pointed out in your testimony the different fects are pat on the large banks and the small banks. as it has played out the large banks have benefited the most and got some larger at the expense of the small banks faja creek back have you found that anybody is worried about that impacter that it was ev considered when t.a.r.p funds were being handed out? >> senator, there is no dot there has been increased concentration in the banking industry's since t.a.r.p was put into the

system. and we are very concerned the numbers indicate although some banks have been to fail and. we can sign no evidence that ad that's higher the initial t.a.r.p was signed and the money was put into the banks and that the treasury was concerned about the increase seeing concentration. >> thank you, mr. chairman. are witnesses think you and i have a question miss warner. >> if you may suspend briefly. i am told you have to be better quarter till to go to

the white house? let him ask a uple three question >> of course, . before the small banks situation with respect to the home affordable mortgage modification program i think you use the word bribe. what i said from the banking committee where were the defer mortgage modification programs working? we heard that to we need the cooperation from one is two be cooperating of the servicers than being asked to do work and endangered for being sued for the work they're doing and wouldn't get 210 1/5 they felt they were being sued for their involvement. one incentivize them to be a

far this the solution and compensate them. i am not sure reduce negative term bribe by treasury and number of other flow first thought there was needed to participate. >> let me ask a qution about the small banks and 54 bearing with us. the concern of the small banks' ability to repay the t.a.r.p obligations and as you know, a number of small banks required dividend payments. >> what is your solution to the problem? >> i always wanted to be modest. we can do is far as the dated takes us to point* out where the problems are. with small banks we have be urging treasury for more than half a year to get to a head of the coming problems with commercial

real-estate. they are disproportionate. those loans are disproportionately concentrated and not evenly spread among the banks and they concentrate within a certain banks and then that would create additional profound stresses on the fincial system. i am afraid i have to back up to the role that we're not policymakers but where we urge ... treasury to move is that direction to move now before the crisis is upon us with commercialize the aner. >> whether the recommendations? >> i am sorry. fair enough. that we acknowledge d deal with the obvious coming problem in real-estate that

small financial institutions will be held that to help t.a.r.pand treasury establish a program to do with the number of small banks who are not as a blow to make their prepayment. >> host: faq senator warren. if no other questions. >> apologize for leaving. >> mr. barofsky if you could elaborate more on the report about the gm chrysler dealership dismissal by the administration resulting in job losses and other

consequences and i do not want to put words in your mouth that you said it was not as appropriate? could you expand? >> of the note as a result of the white house reaction to our report there is little chance i will be called away for the invitation to the white house at too any time soon. [laughter] what we've tried to do in this report is with respect. >> that is what i like about you. you call them as you see them. >> with respect to the treasury peace is we look at the process. what is that the auto team used to make the ultimate decision to reject the pitch by gm to determine the dealerships over the course of five years and its response and determination that it needed to excel rate the process which resulted in the encouragement for the bankruptcy process to get

around the state franchise lot to terminate them all at once and what gm did was terminated the ability of the viewers and to wind down chrysler also takes the ku and what we found out engaging in this process there were several flaws. first of all, the diligence that you would expect to make a decision of this consequence particularly giving the timing obviously in the midst of a great is recession in a generation. they don't do any modeling you would expect analytical review the day speak with wall street analysts and ask them their opinion in the opinion that came back was generally, yes it is important to reduce the dealer networks this too

much competition in the metro areas but basically that opinion was not universal one expert treasury spoke to and others that dissented from that opinion but not until after it was made any other diligence or work done. second, no consideration of projected cost savings and not a factor in all not done until after words and third, which was the biggest flaw is that apparently no consideration given whatsoever to the fact that the decisions would abolish utterings thousands of small businesses given a timing at the same time rehab says j. jobless epidemic looking last ar's 700,000 jobs lost her month in that is a

big law of the process. but having analyzed all that data and did the benefit to gm and chrysler verses said job loss perhapthey may have come to the same decision but from what we saw the adm that the dealers then gm and chrysler would have foundered oregon and of business, no evidence to support that we did not see any evidence that the government must do before making a decision like this. >> a good news is the t.a.r.p losses are less but there's still be losses in rare will that come from? the auto dealers? ag? where will they come from d what can be done to

minimize? >> treasury's most recent estimate put at 105 billion estimate 45 billion aig 25 from the auto industry including their auto financing arm and the dification program 50 billion nothing can be done about that because that is a subsidy there is no way to recoup money from there but the auto companies and aig the horse has probably left the barn. the ability for the decisis made and terms provided is essentially money out the door. the best we can do is hope given the restructuring of these companies that they return to profitability and a market cap increases there is plans for an ipo it has been announced roughly a

fourth quarter to get the ball rolling. ag could successfully liquidate its assets there is the talk of ipo for one subsidiary of market conditions continue to improve hopefully the numbers will come down even further but the bottom line is peoe get more jobs if the housing market's rebound and the economy improves we will improve to get the money back. >> are there conditions that are required to be repaid to do better have better sales? >> we aren't justbout down to equity investments and there is some outstanding debts but fell lion's share is equity. so we have to liquidate our ownershipnterest us some

point* and that will only happen if these companies go public or ag is public but if it can shed enough assets to pay off the federal reserve obligations first because treasury does not get technical until the various parts of ag is taking care of five for the auto companies it is a question of how successful are profitable and how to liquidate the investment. >> you have five minutes plus two minutes 30 you have a lot of time. [laughter] >> i probably won't take it because i after go to agriculture and ask estions over there. first of all, i am glad senator baucus ask the question about car dealerships by what a fast a similar question but let me follow-up on a specific inference you did about general motors not consistently following the stated criteria and there was little documentation of the decision-making process to terminate or retain

dealerships. i heard that those of strongly believe there was little rhyme or reason some believe the rationale was always evolving meeting the criteria was objective but could you elaborate and tell us what you learned by lookingt general motors data? >> general motors originally said to congress said it would pursue they made it congress -- promise to congress on a case-by-case basis that they did not want. but they describe the metrics to us with different internal scoring methods a use and other objective data but the problem is when we reach behind did it they did not always follow it and in some cases there is some significant variances to the objective data indicated vs. what the actual decision making process.

so during phase number one, that a certain criteria if it was below 70 would be terminated but 40% of the dealerships below that number were retained. that suggest it was done on a more case by case basis so we asked gm for an explanation and we got was general and vague knowledge that it was the objective criteria was more of a guideline and there was a case by case looking at it and when we looked at the never read decided to keep the numbers in their rural networks because that is where some of the dissenting experts pointed the fact fact, that those companies have a competitive vantage soagain they told us that but if reluctant the old

members of the determination, almost half are in rural aas which was in contrast to their original pitch. and asked for just see the back up. basically the explanations we received were after the fact and reconstructed and it took took them weeks to get back to us why this the bishop was terminated. we have our process that lacked accountability and one of the reasons we fought the oddity implore is having put into place the accelerated determination that they had smuggled -- obligations to oversee the process and rethink a abdicated that responsibility and resulted in what we saw with gm and chrysler which was a much more subjective process up front but did that even have the basic peat appeal process.

we thought the ottawa team they set the wheels in motion last week the security and exchange commission said they settled at 550 million and the sec said day eighwere put together by the independent advisor and a hedge fund manager who created a security and goldman itself and secretly betting the investment would go bad. of these traactions should not involve aig and at her last hearing she may happen similarly a miss led by goldman and since it is a t.a.r.p recipient, a contributing the need for the taxpayer bailout, could you explain aware give an

update on your independent assessment of whether the taxpayers subsidize payments to goldman were based on in this fraud and insults whether any can be recovered from goldman? >> we opened a broader investigation looking at exactly these issues and have assembled committee task force that combines elements and i put my chief of staff in charge of it because i think it is an important priority not looking whether or not they have a central remedy on behalf of the aig or federal reserve? to the extent, i am sorry not the main facilities but through its credit line see whether there is any potential remedies and also looking at made in it des moines and also to see

the us civil remedies on behalf of the taxpayer. r investigation is that the initial stages. it is a lot of information and documents but we are rking on it. >> i yield back my time. >> thank you, mr. chairman. mr. barofsky there a few questions of the autumn bailouts in the report you issued on money. first, we're able to tell of dealership closers will do anything to increase the profitability of gm or chrysler? >> all i can tell you is that that is the basis of the theory the audit team was working endure and shared by a number of financial analyst on wall street. generally speaking even those experts that we spoke to that dissented from the overall strategy did believe it was important overall for

some dealerships in the metro areas where there was saturation because basically of two dealers are close to each other that drives prices down. the ada is prices will go up and the consumer will pay more and gm and chrysler will save money and have to have fewer incentive it payments still going forward and what happens. >> looking at said dealership closing in plans to have any individual closures did you find anything to suggest that the car companies or treasury gave any consideration to the fact that many of the dealerships that were closed were profitable for themselves or for gmnd

chrysler? >> it was not a consideration at all. for companies themselves they eight that i would give two examples right in my backyard. i am in a cincinnati metro being on the short side i went to school with day may and by the name of a submerged chrysler plymouth they had it 90 years. chevrolet just invested a million dollars in a new plant, i mean a new showcase park but if they were profitable for the 60 years of their existence, simmer

was profitable for all 90 years of their existence. both of those places were closed for pro because they had to compete with a o because of the dealerships and. >> but if from cincinnati on the wrong side of the refer to me, that i the most unfair thing i have ever witnessed in american business. when you are running a profit, it was not a small profit it was just not celly enough cars direct 450 million and 600 in another. when you consider the big picture of the metropolitan area favor at the lower end s you were saying 70%?

and i cannot understand that. how will that help chrysler and general motors make a profit? >> senator it is counter intuitive and indeed in our report we took a sample market but the dealership that was eliminated was that that sold aha is. >> more chrysler's debt and the other serious but for every objective criteria was the highest with the best performing dealer and chrysler was up front and said the reason they got rid of him is that he had in his agreement the ability to prevent other chrysler dealerships from selling jeeps within a certain radius. he did not play ball so they got rid of him. we heard the story over and over and to research an

extent on the gm side with lack of documentation on the chrysler side the ability two over appeal that has been termed. >> let me ask the last question. this is of follow-up on the aig waiver that i asked earlier professor warren. do either of you or have you looked at the latest giveaway in the form of aig legal rights touse do? to make the indicators of financial performance and the ability to restructure fell off with businesses. we do have an ongoing and -- issues but a major

cause for the downfall of aig. >> also were they returned menageri on money and heats? >> the extent to which when the decisions were made but that basis our criteria that was followed. >> tnk you both for your questions. august thank you for turning s today and weook forward your responses questions of en to ask a special visa read type of dealers i just want to go back up to 30,000 feet and looked at the mile high club or not. what with respect to the capital infusion from the financial institutions and their ability to meet the dividends requirements their

ability to buy back preferred stock and make payments as we exercise. how is that going? >> i think overall especially with the larger financial institutions it is going very well. there has been more money paid back and currently outstanding. a lot of the larger players but we saw some issues of the profit but with the results irrigating prices close to the estimates that we believe are reasonable and reworked with professor warren to look of that issue. of the problem but that is the strongest what the have prayed back. now we are dealing with a capital purchase program with those institutions that

have not yet been able and we listed 105 institutions that missed dividend payments over a handful of failures. >> out of a universe of how large? >> generally smaller. the total number or the dollar value. not insignificant but hon at -- 150 million but what was paid by the larger institutions, and also structuring that we go through but obeying is struggling -struggling and frequently on the verge of failure and treasury is on the verge of basically getting wiped out with but often by taking a cat to see it attract more cover all

and with the preferred status dropping down to comment or mandatory convertible that is another area where we see losses but treasury is trying to get some value out of it and it is the processhat is a complicated process and we look more closely. >> with respect to gm and chrysler? >> it is like taking money out of one pocket and paying peter with paul's mon. can you refresh my memory? but also talk about the ipo process that will begin with gm later this year a chrysler next year. >> with respect with the debt payment of treasury provided 49 by $5 billion in done in a number of different payments the bankruptcy process but a chunk was put into the escrow account of gm and it

was part of the support. for a while it could not access money without treasury's position and were position to say we want to access this money and use it for x or y. ultimately every part of the billions of dollars we had equity and approximately $7 billion loan and it was repaid by money that came out of the t.a.r.p escrow account so the money had gone over to gm in tir position but a segregated account so gm said the series of memos that said take money at of the escrow account to use it to pay back t t.a.r.p loan and the treasury said okay. >> talk to us about the ipo and that they hope to have one major th year and buy

out the taxpayers at the 61% equity position. i met with the ceo of chrysler and he indicated he hoped to return to profitability by the end of the year and conduct the first of a series of ipos. maybe 10 or 20% equity position. >> our information is borrowed from information from treasury and companies but they have contracted to its highest -- be advised of the ipo there is potential to be a ipo in fourth quarter this year and a lot of variables r that of course. i don't think treasury liquidated the entire investment but what it is discussed that it would bring the curls down below

but but i think gm and the treasury or looking forward to the ipo and chrysler i think your information is more up-to-date than line. >> i will just note with respect to the ipo and gm i am pleased to hear we will not try to recoup the entire 61% dollars once but hopefully over time when the market returns a bunch of good products are in the pipeline and then we can recover all that money. >> i have a question then have to leave. mr. barofsky i want to explore where we are auntie

but controls have gone up 3 trillion up at 3.7 chilean thus their best numbers. >> expend it lowered guaranteed. >> if you too just expand on that frankly what the components are and why it has grown? >> the areas are mostly related to the housing markets of fannie and freddie and indirect support of them but a breakdown the biggest number is the federal reserve purase of fannie and freddie mortgage-backed securities that led to of50 billion in the last year. the fed has purchased directly debt of fannie and freddie went of 70 million and a program to buy treasury that increased

125 million. for hud increases of fha guarantees and ginnie mae guarantees on the mortgage-backed security increased about 500 billion. that directs to the housing market as well as the institutions and all the treasury's five with the backstop with preferred shares with the two entities but through a commitment to the imf and the $65 million increase in support for student loans and asset-backed securities. obviously those numbers add up to a lot more because those are offset by the reduction of t.a.r.p or let the liquidity programs

spread that would-be entirely? >> how much is real? >> it is all real. >> did this all actual expenditures and guarantees but not unit assays government is at a loss. >> almost entirely most of these and not collateralized so there is some double accounting some way ample is that the fed buys an agency mortgage-backed security guaranteed by fannie and freddie it is guaranteed by fannie and freddie it is not really at risk of loss but fannie and freddie them. >> of course, standing behind that is the house

which as collateral so that is the protection is doing it there is a default, again there is recourse to collateral summer movie go for the asset-backed security program. >> there are laws that underlie as a but the man he was if you may were secured by the actual houses and generally ginnie mae buys and securitize as though fha loans. >> but still the numbers that indicate greater federal support for the economy but we're not out of the woods? >> absolutely even with double counting each hess belts -- spill to increase their commitment by a

staggeng amount of money. >> what is the one thing you want to leave with this commission at this point*? i think you have done a great job. but stay what you want to stayhat what we should know. >> one of thenduring frustrations that we have all the treasury has come a long way from transparent save we still have some ways to go? but looking at the housing program makes the program better and more credible and where treasury falls down whether the housing program or the process by not documentation conversations overour will process zero or in many other areas it herds the program in ways other entirely unnecessary. >> host: thank you very much.

you are in charge. >> okay. senator, have you been called on? >> choice. >> we have had two rounds before you showed up. >> iill call on you in just a minute. good morning. would you tell me of the 34 million that we expect to lose on the automobile bailout, i do expect but if the projection for that loss assumes that the payback through the initial ipo. the reason why the number is not much higher is because this is the estimate that either see it -- cbo or on the have and assuming that

there is an ipo survey rebuttal for what i am at leftover. >> how do you have the bail-out between the two? >> reit of the aggregate numbers provided a senator. i could ask the treasury for the breakdown and provide it. >> with regard to the 36 billion reem will lose with regard to a g but as aig liquidates some of the larger holdings and gets the cash money back and those of have become prominent, the first thing that happens is the federal reserve gets paid back within number of different but when the far

subsidies are hauled but now all but brain for it share's performance but it has extended the line of credit after all that occurs then treasury gets a blind and r interest right now with preferred shares are redeed at that point* but basically it will only happen to increase profitability and increase sales so the treasury money went into ruutu tranches but the federal reserve credit line almost i don't know that even a pass through a g but it is hard to tie that to any particular business. the additional 30 billion they have not taken in the draw down on that since mid march.

that you could hide individual activities because they're talking how they will. >> 36 million lost is what they're projecting in the future but it could be less faa's g. is getting more profitable? been a 36 million of the cbo most recent estimate a estimates a higher loss of 45 billion but the projection is that after all is said and done and the federal reserve is paid off after treasuries ownership and all of that is left over we will be having 45 billion in the whole and to put that in context and still some next day's show standing and

looking to see a potential near complete loss. >> originally t.a.r.p was looked upon a program to keep the country from going into financial meltdown. later it was a program thought to be and assistance to resuscitate back to life the housing market. that has not woedoo well. will you give us your comments? >> i think your perception is widely held and it has been a great disappointment but during the 17 months a sense of knows there has been fewer than 400,000 modifications of those only 365,000 are resuing from the t.a.r.p portion the rest is done by fannie and

freddie. the numbers have been very disappointing. one of the problems i laid to earlier is that treasury still refuses when is a basic frustrations to have what is it trying to accomplish with the 50 billion they have last war? how many did they think those will stay in their homes and frankly. >> and 12 treasury comes clean it is inevitable there will be reception programs but if it is and operate sillier. >> we looked at them as if -- program as well a one othe major points we have made is that a program up and standing running today is the first

green modification program and there are ny other programs that treasury has announced that yet to to be fully decider implemented. the first program was announceone year before it was ultimately implemented. that level of urgency contrast very sharply to the activities of the t.a.r.p program as a related to fit. >> after they were passed they made to maintain financial stability. >> with the freclosure issues it seems the yadda similar to what happened on the banking side and with the issues is dealing with a level of resources and have recommended that treasury reevaluate what it needs to design and implement the program and they have resulted in a tertiary

workload and but with her estimate, as someone once estimate is that it will be a $20 billion loss on that home suggest those lost. >> the amount the signatures a total expenditure to e program with no expectation there ribby any dollars returned. whenever is ultimately spent 27 i must say i hidn bated to paycheck i was tempted to go to it before are super

jealous with the anticipation that would help the housing. but in my state of florida 310,000 properties they he gone into foreclosure and 51,000 new feclosures filed last year. soon need this and. >> but then with this part of t.a.r.p? >> senator bending and mr. chairman. 581 to follow-up on the chairman's question of mr. pronounced the there is where they talk about treasury's handily a different our program. in the program for modified mortgages the treasury

refuses to set benchmarks for success. when it sold warrants for companies that received the t.a.r.p funds treasury did not document the important parts of the negotiations well enough. fully one year after the office recommended devaluation, system and internal controls for the public. >> treasury has refused to do so despite claims that it would. the list goes on and on. >> mr. barofsky why do you feel or think treasury is so afraid of rio transparency and accountability in the t.a.r.p money spent their

are some that i can answer. >> richest answer them once it i don't understand new-line it is. >> >> what? economic care of recommendatis and no ability to come pell to do so i don't know why they would not document every conversation they have whether negotiating in the warner program where it was providing information some get the benefit knowing what the price treasury will except in other banks are not record cannot imagine truly why they would not imdiately come forth and say we deny year with respect.

>> and hidden but california acknowledgments of their fallen. >> let me just remind you that the only thing that they need to do to redo t.a.r.p is for the secretary and treasurer to write a letter to himself. >> there should be more accountability for a $700 billion slush fund that is not being used as senator nelson said, for the purpose of which it was created. do you think in one instance that this panel and other senators would haveoted for t.a.r.p how they know and what is going to the major bankers in new york city if secretary paulson would have came to this congress and is said by the way we wilma ago after bad

assets were toxic gas cents in the system. we will give the money to the bankers and let them work out. do you think one minute would they get there for 600 billion. >> but there is a frustration but the use of the t.a.r.p funds is so outrageous about what they did and how they did it and the misuse of language when they sold the program to the congress of the united states. and we want you to do everything in your power to make them accountable. that is why we voted you into the position in. so far we're pretty pleased with what you're doing. you can go for there. you can make them

accountable for every penny they spend. >> we will continue to strive to do so. >> thank you very much. >> senator carper? >> let me just say to mr. roski i have known the senator for a long time and that is some of the highest praise i have ever heard him give tremendous. [laughter] >> he was pretty pleased. this is a good day. [laughter] >> every day i have my job is a good day. >> i feel that way. >> i have been talked to amy and did to the 30,000 feet direct election says if we could find the t.a.r.p program at it was too much of a good way to strengthen the balance sheet.

my recollection is that they decided to take a different approach after provided because of some other countries may be in europe for england decide to take an approach but it is my recollection. either way. >> it is consistent. we did a report to the capital purchase program november last year and initial decision making process that led to the equity investments and one of the things we've found is that it was a factor with the europeans were doing and another significant factor is the conclusion to set up the mechanisms for the purchase of toxic assets would take longer and they felt there was a sense of immediacy that chairman bernanke thought it would take three or four months to set up t process and there was just not enough time because of the continued

spiraling financial crisis. that is my understanding. >> of us all are better okay the decision that was made but to use them to purchase a liquid assets. did we make the right decision? >> and a heartbeat there is a lot of trade offs but in looking at those two options taking those toxic assets off the balance sheet is an enormous exercise fraught with a lot of problems and valuing the liquor assets and having those be maintained within treasury for a long period of time so they could sustain profitability than returning back to the marketplace

would be an enormous unrtaking providing for the capital injections, who played the creasing stability and increasing ability to lend to businesses and consumers in hindsight has turned out to be a program which has a relt has some profitability this far for the treasury's feliz does a relates to the larger institutions that have paid back purchases of securities whether it turns out to be a positive results to something yet to be determined by right now there are four obeying two years -- failures and if you go to the high risk list risk. >> can you quantify how much money involved? billions of dollars are tens of billions are millions?

very rough. >> it is tens of billions of dollars of the majority of the funding had gone to the larger institutions for what types of capital injections made and the treasury has received back 72% of the 204 billion o t.a.r.p investment to date and if you add the amounts received from dividends they receive 80% of what they paid out but that remaining 20% will be much more complicated and but concerned with the profitability. >> but talking about 20% is a 20 billion or 30. >> in the third year 40 billion range. >> think mr. barofsky said earlier with respect to a g? the amount is between 35 and

45 and probably will not see that recover. >> we are looking at a. >> but that is still up in the air. is that right? >> absolutely. >> like some of my colleagues high simply had operations in the area of retrained chrysler and florida declined 18 months and i am encouraged the most it but it will be sold in a couple of months and we will see how what does. we have been working with

the auto industry that is between 17 million units per year last year i thi they sold 10 this year they may be able to do 11. the quality of the cars improved and the perception has sunk and on the consumer. i tend to be more optimistic than not and chrysler i am told is about to too not have allot in the pipeline but the one they should see and we will keep our fingers crossed there. . .

most everybody else in the audience here is doing their level best even though their margins might be underwater to meet their obligations and there is a concern, it heard a voice from others that sometimes preference is given in terms of risible for those who are unable or unwilling to do what it takes to meet their obligation. it is actuallyn incentive to those who are working hard to play by the rules to say why shouldn't i just walk away from my obligations? could you all comment on that? >> sure. the moral hazard issue with any mortgage modification program and to be clear it is not just principle production-- reduction it is interest-rate reduction. it is the basic idea that if someone can default or an eminent default they are going to get a benefit for us if it is somebody continuing to make a payment doesn't have that, that

also creates a moral hazard. i think in a certain way we have to appreciate the fact that as a whole, t.a.r.p. has jumped into the deep end of the moral hazard pool where we are looking at the financial institutions or the homeowners, there is going to be a degree of moral hazard that is at play with all of these programs. specifically though with principle reduction. first of all, you know it based on our recommendation and our discussion back and forthwith the treasury reflected in our report, principal reduction, under basically as we are discussing it would only occur if it was in the best interest of the investors so run the present value test and it indicates that if the investor would bebetter off to have a higher return with a principle reduction modification versus an interestnly modification. for someone to take advantage of this, in other words i'm going to intentionally default so i can ke advantage of this program, there is a number of

roadblocks that wod be there in the existing program and first of all you have to file a hardship affidavit that shows there are a letter should've met reason why they are defaulting. they have to show verify ird-party income so someone is checking net income. that would mean someone who wants to do this is not only willing to scrap their credit history and do that but they have to be willing to commit a federal crime by executing a false affidavit. secondly, they, the payoff is an immediate. it is over the course of three years and third they would have to have such an intimate knowledge of the net present value test and how it interplays and the fact that the net bressant value test would be more positive for them with a principal reduction versus a regular modification. these tests are not made public. they are complex, based on gao's work in our work the services themselves have tremendous difficulty implementing them. we are doing an audit just on that process so while there is always a moral hazard whenever we are getting benefits to

people who basically have been unable or unwilling to make their required payment, you think the difference between voluntary and mandatory principal reduction is so incremental compared to the broader moral hazard that art exists and i do think there are some petty good safeguards and i would say the treasury if they are willing to go with us on this and continue to exploit it we will brainstorm and try to come up with more protections for moral hazard. >> thank you. and a closing comments? >> i think that description you provided as to what is happening across the united states is an accurate one and it all comes down to an issue of fairness. is it fair to provide a reduction on a principal payment on one when another is orking hard to maintain the mortgage payment that they have? i don't think we dispute treasury for the actions it is taking to develop a home affordable modification program. our view is though that there are a number of other initiatives the treasury has announced that they have yet to

design and implement including a second lien mortgage program, alternative to foreclosures looking at underwater borrowers and our recommendation is that treasury urgently needs to complete the design and implementation of those programs to provide the relief needed in the market are i would just add there is this an inherent unfairness in a voluntary program versus mandatory because to homeowners who make their applications to their service or, if it is in the best interest of the investor, they should be treated the same. under voluntary it is basically under the discretion of the servers are in is aswe know servicers have a disincentive to reducing principal because they are paid on the out handing principal balance on their portfolio so i think mandatory would actlly be potentially a much fairer system than a voluntary one. >> mr. chairman you have been very generous, more generous than the other chairman so thank you for coming to chair the end of this hearing.

into the witnesses thank you so much. >> to summarize on that home affordable modification program, mr. hillman, why don't you comment on why so many borrowers failed to complete the trial modification. >> one of the major reasons why borrowers are not completing their trial modifications has to do with the level of documentation that was required by treasury initially in the program. in order to get individual entities trial modifications quickly they did not ask for the level of documentati that is normally anticipated on income and other levels of assets of an individual. and as a result they wouldn't ask for that information until they were in the trial mod and going into a permanent modification. upon checking for those permanent mods a lot of that information has shown that ty were not qualified to be

included in that program and therefore had to exit the program. today, the initial modifications that are being undertaken are requiring up front documentation so you shouldn't be seen as many trial mobs not performing when the program began. >> how about in the whole hotline where many of the-- don't have the wherewithal to demand the transparency of the lenders in the review process? >> in our last report, we noted that there really was no effective appeals process for borrowers interested in appealing the decision associated with their, joining in with a hamp program and the only availablrecourse was the hotline and that hotline was not aggressively advertised so that our worst new of its existence

and we recommended a greater atntion being provided to ensuring that all bar words were aware of that possibility. >> either one of you, and we will adjourn the session just momentarily. we are getting ady to consider some legislation that has derisively been designated as t.a.r.p. junior. it is about dirty billion dollars that would be anticipated to expand to $300 billion of loans through the small business jobs bill. what do you think about this capitol capital investment by the treasury? does it present different considerations and risks than those of the capital investments made by t.a.r.p.?

>> i think one of the concerns and we have raised this concert inetters to the committee is that there is a potential increased vulnerability to loss or fraud in the design of this program. i think that vulnerability can be addressed by vigorous oversight. it is very rare that i look for work senator, but we have advocated and we believe that in the con form of the bill we are not granted oversight authority over this fund and i think that would be a mistake. the program is very similar to the t.a.r.p. capital purchase program or code there are some differences but the lessons that we have learned providing oversight, lessons that have resulted already in more than $553 million of savings to the taxpayer is born from experience we had in monitoring and providing ersight to this program. the incentive structure of the program does leave it open to the potential of gaming of the system of financial number so they palover dividend as a

result than we do blieve while this program may have the ability to do some very good in encouraging small business lending, if it doesn't have the proper oversight it could be all for not. we will continue to encourage the senate to put us, have us involved in the oversight or graham. >> have we learned something from t.a.r.p. as we approach this small business lending bill that certain regions of the country, namely an example, my state of florida, weak real estate market, weak banks because of bad loans, has t.a.r.p. had the effect of penalizing those regions of the country, and should we make the

modifications on this small business lending bill to address that? >> i mean, i do think that some of the goals of the original goals of t.a.r.p. to increase lending were not met the and in part that was because there was absolutely no incentives o penalties for banks that don't go out and actually lend the money, and the result is that lending has continued to go down since the original infusion of t.a.r.p. capital. now treasury will say in the banks have told us that that is beuse the rection would have been even greater had there not been t.a.p. funding but there were neither carrots or sticks with that money and i think the proposed bill has some carrots and have some sticks. i don't want to speak for professor warned because she is not here but they put out a report that looked up the program and questioned whether the carrots are in the sticks either one of them are sufficient enough to compel small business lending.

it is very informative and has some other issues that the congressional oversight panel has with the structure of this program. >> treasury decide capital capital purchase program to treat a large institution and small institution on the same basis. that was one of their premises in the beginning, and the idea was to provide fairness across all of our institutions. however, it is also the case that the larger institutions have been able to repay their t.a.r.p. funds because they have access to the capital markets, and can therefore through their shareholders obtain sufficient funds to repay the t.a.r.p. program. the smaller nks don't have that same access to the capital markets. they are making profits through lending activities, and there are many local lendingssues

that are prohibiting smaller banks from making a ofitable return so the situation for smaller institutions is different than the situation for larger institutions. this lending fund that is being debated within the senate would provide additional funding to smaller institutions similar to what was done with the capital purchase program with the intent of enhancing their capital positions to allow them hopefully then to lend to more small businesses. in o view, one of the things that needs to be considered as part of the debate of this legislation is the quality of data that is available to make those decisions as to whether or not an increase in small business lending would actually occur or not. it is difficult to ascertain whether or not the concerns that we have in the small business

sector is a supply-side weakness or a demand-side weakness, and further exploration of what is really occurring would help inform with the right decision not to be. >> thank you gentlemen for your enlightening testimony. the meeting is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> of the $787 billion stimulus funding signed into law one year ago, over $417 billion, more than half of the total has been committed to states but the federal government to spend on stimulus projects. that is up $14 billion from