do we get it within the system? we should be talking about the idea of this silly demarcation between our parties and our candidates, where we limit in extreme fashion the amount of money that can be transferred or coordinated, as if somehow that corrupts the candidate to have him or her identified with the very party they represent. we ought to be working towards those kinds of changes that will allow a greater responsibility on the party and the candidates to express their positions and to hold to their positions be responsible for their positions. but no, we talk about these ways of how we're going to somehow reduce the impact of money in campaigns. it hasn't worked under >>

house majority leader eric cantor outlines the economic principles he is setting for republican members. after that, an oversight hearing on the effectiveness of the troubled assets relief program known as tarp. >> we define the pregnancy. it made us abundantly clear that my most important job was to protect the country. i made a lot of controversial decisions, many of which i described in my book. the truth is, if i had to do them over again, i would do them again. >> george w. bush talks about his best selling memoir which students from southern methodist university sunday at 8:00 on c- span's "q&a". >> the congressional budget office says the deficit this year will be $1.50 trillion with

the national debt rising to $18 trillion in two years. president obama is expected to release his budget proposal last -- next month. this cbo briefing is one hour. >> douglas elmendorf will give a brief statement on the report. identify yourself by your name and news organization. we would appreciate that. thank you. >> good morning. as we say in our report, the united states faces daunting economic and budgetary challenges. the economy has struggled to

recover from the recent recession. the pace of growth and output has been anemic compared with those of past recoveries. the unemployment rate remains quite high. the federal budget deficit and debt has surged in the past two years owing to a combination of the severe drop in economic activity, policies in response to the recession, and the imbalance between revenues and spending that predated the recession. unfortunately it is likely that a return to normal economic activity will take years. even after the economy has fully recovered, a return to sustainable budget conditions will require significant changes in tax and spending policy. let me discuss the economic outlook first and then turn to the budget outlook. the cbo expects production and employment to expand in the coming years, but only at a

moderate pace leading the economy well below its potential for some time. we project that real gdp will increase about 3% this year and again next year reflecting continued strong growth in business investments and modest increases in consumer spending. both have a long way to go on the employment front. this slide is taken from the report itself. you can focus on the line in the center -- the cbo projection. payrolls declined by $7.30 million. it rose by only $70 thousand between june 2009 and december 2010. the recovery in employment has been slowed by out but and bite structural changes in the labour market -- and the structural

changes in the labour market. the economy while at roughly 2.5 million jobs per year over the next six years similar to the average pace during the 1990's. even so, we expect the unemployment rate, shall in the next picture, will fall to only 9.3% in the fourth quarter of this year and 8.2% in the fourth quarter of 2012. only by 2016 in our forecast will the unemployment rate reached 5.3%. the cbo projects inflation will remain very low this year and next, reflecting a large amount of unused resources in the economy. it will average only 2.0% in 2012 and 2013. economic developments and the government response has have -- have had a big impact on the budget.

we expect current laws to remain unchanged and the budget deficit will be $1.50 trillion or 9.8% of gdp. that would fall of deficits of 10% of gdp and 8.9% of gdp in the past two years, the two largest deficits since 1985. if current laws remain unchanged, as we assume for cb 0's baseline projections, we will drop markedly over the next few years. deficits would average three by 6% of gdp from 2012 to 2021, totaling nearly $7 trillion over that decade. that is the bottom line on that picture. debt held by the public will keep rising, reaching 77% of gdp

in 2021. however, that projection is based on the assumption that tax and spending policies unfold as specified in current law. it understates the budget deficits that would occur if many policies currently in place where continued rather than allowed to expire when scheduled under current law. for example, suppose three major aspects of current policy work continued over the coming decade. first, that the higher 2011 exemption amount for the alternative minimum tax. second, that the other major tax provisions in the recently enacted legislation were extended. rather than allowed to expire in 2013. third, that medicare's payment rates for physicians were held

constant rather than dropping sharply as scheduled under current law. all the policies have been extended for one or two years. if they were extended permanently, deficits from 2012 to 2021 which average about 6% of gdp rather than the 3.6% in the baseline. the cumulative would total nearly $12 trillion. debt held by the public in 2021 would rise to almost 100%. -- debt held by the public in 2021 would rise to almost one under% of gdp, the highest level since 1946. -- 100% of gdp, the highest level since 1946.

spending on social security and the government's mandatory health programs, medicare, medicaid, and insurance subsidies provided to exchanges, will increase to roughly 10% of gdp to about 16% over the next 25 years. to prevent that from becoming unsupportable, congress will have to restrain the growth spending, raise revenues significantly above the historical share of gdp, where produce some combination of those approaches. the longer be necessary adjustments are delayed, the greater the negative consequences of the mounting debt, the more uncertain individuals and businesses will be about future policy, and the more drastic and the ultimate adjustments will need to be. however, changes of the magnitude that will ultimately be required would be disrupted. congress may wish to implement them gradually so as to avoid a

negative impact of the economy, particularly as it recovers from the recession. to get families, businesses, and other levels of government to give -- to have time to adjust. allowing for gradual implementation would mean that remedying the fiscal imbalance would take longer and major policy changes will have to be enacted center. thank you. we are happy to take your questions. >> i am from the associated press. in 2009, the recession, lower tax revenue helped fuel these large deficits. what is filling it now? -- what is fuelling it now? >> there are several factors that have kept the budget deficit from starting to improve

in the way that economic news may suggest. the most important one is that the economy is recovering slowly. although output has been growing, it has not been growing at the rate one might have expected based on past experience in our company with these recessions. slow recovery is consistent with international recessions caused by financial crises. it has been a slow recovery by our standards. the labor market in particular has been coming back slowly. incomes have been coming back slowly. it will take some time. it will take further recovery before we see the rebound in tax revenues. that comes with an expanded economy. one important difference in our current projection for 2011 relative to last august is the

legislation enacted in december that pushed off for another two years many of the scheduled increases in tax rates. also, in particular, and limited a payroll tax cut that was not in place last year. that also is providing some boost to the economy, but means less revenue is being collected that would have been collected otherwise. a third thing to emphasize is that there is an underlying dynamic affecting the government budget. spending on the large entitlement programs -- social kicks -- social security and medicare -- is moving up over time. on top of that, we have had a number of entitlement programs that focused on people in economic trouble -- unemployment

insurance payments, food stamps, supplemental nutrition assistance programs -- they are laying out a lot of money right now because despite the improvement in the economy, many families remain short on income. it does the combination of the slow recovery and legislation keeping tax revenue from growing very rapidly with spending growth that is unusually slow because the economic conditions. >> i am with the wall street journal. can you tell us about the interest payments? what is the impact of this on the index? >> we say in our report that interest payments in nominal dollar terms will more than triple over the coming decade. even relative to gross domestic

product, will double. that is a consequence of both an increase in debt and increase in interest rates that we project. interest rates are very low right now by historical standards. we do not expect that to persist throughout the decade. in fact, our forecast calls for looking for them to begin to rise at the very end of this year into the following year. if one applies these higher interest rates to the debt, the cost of servicing that debt becomes very large. our projection for interest payments over the next decade is more than $5 trillion. that is one of the consequences, of course, of accumulating debt. we have written a number of pieces over the past years.

a few last year that talk about some of the consequences of rising debt. one, of course, is the traditional argument, at least to economists, that by directing savings into government borrowing rather than into productive capital, one is slowing down the growth of production capital and holding down future incomes relative to whatever might occur. we also talked about the more one has borrowed, the more one pace in interest. that requires higher tax rates for any given path of debt the government suggest is unsustainable or inappropriate. the third problem we talked about is that as debt prices, it reduces the flexibility that the government has to respond to unexpected problems either -- unexpected problems.

the more that one has, be less room the government has to respond to that. the fourth consequence we talked about of rising debt relates back to your question about interest payments. it is the rest of the fiscal crisis, by which investors lose confidence in the government's ability to balance its budget and the government loses its ability to borrow at a good interest rate. as we said before it repeated in this report, there is no analytic basis for judging the tipping point or where it might be, but the risk does rise as debt rises. we think it will also rise to some extent as investor confidence in the global economy and global financial system rebounds. there will be more willingness on the part of investors to invest and not just in u.s. treasury securities. the more we have to borrow, the

more important it is to borrow at reasonable interest rates. >> , the president last night proposed a five-year spending freeze. the republicans' proposed scaling back spending to 2008 levels. in the greater scheme of things, even if these proposals were enacted, what impact would they have on this larger debt problem that you were describing? >> i am not sure what the proposals or that are on the table. non-defense spending is a well- defined budget category. you'll find it in our report. haleh security spending is not well defined. the money goes to a number of

pre-existing budget functions or budget categories. you'll not find that specified in our table. many people can mean different things by it. if you look at -- we did an exercise of freezing and non- defense discretionary spending. apart from that, it goes to the homeland security appropriations committee. if one friezes that for five years and then for us to grow again at the race we use in the baseline, but at the lower level -- this saves us about $400 billion over the decade. that is a large amount of money, the doubt, but it is also clearly less than 10% of baseline budget deficits that we project for the coming decade. only a few percent of the budget

deficits that we project assuming the continued extension of those policies i extended -- i mentioned. i want to say, i do not think there is a single policy change that will eliminate the fiscal imbalance. i would not want my comments to be interpreted as "you cannot do it all, so it is not worth doing anything." as one can see in the work of the fiscal commission appointed by the president and in the work of other groups that have offered their own proposals, addressing a problem of this magnitude requires a number of different pieces of policy working together. >> if yes? -- you look at what the impact on the deficit would be. what about the impact of the economic recovery at those cuts

were made now? >> we have not studied that specific -- the economic effects specifically of any of these changes in appropriation. i could offer a few observations. the analysis we presented last january, we look at some changes in tax policy and some changes in spending policy. we looked at the effects of increasing spending on infrastructure, increasing spending to state and local governments. when cannot roughly, not precisely, but roughly reversed the findings of those effects if thinking about the consequences of reducing spending of those sorts. i state roughly because those estimates are sensitive to economic conditions.

it is not an all-time estimate. you can see some of the effect there. beyond that, we have a very large economy. gdp is about $15 trillion. that makes it hard to move for good and for real. that is one of the reasons that despite the large increases in spending a reduction in taxes over the past few years, the economy has not let up words even though we think it has been supported by these actions. -- the economy has not leapt upwards even though we think it has been supported by these actions. the savings are fairly small and grow over time if we are talking about the defense budget.

we are coming up the baseline at a slower rate and been turning up. with respect to the budget in 2012, it is single digit billions of dollars. in 2013, it is about $15 billion. the $400 billion, much of that number comes in the last half of the decade. i think what is important and was highlighted in my opening remarks, it is important in judging the mass economic effect of the policies being considered -- partly the magnitude, partly the timing, and partly the specifics of the policy being undertaken. not every dollar of higher spending will lower taxes. it depends a lot on the nature of the policy. >> i am from the washington post. your new deficit projection for

2011 is about half a trillion dollars a bigger than he suggested in august. is it fair to say given that you are putting the tax bill at about $400 billion that the tax bill is largely responsible for changing your trajectory? >> yes, that is right. one caveat i would note is that the numbers we provide in here hold macroeconomic conditions. in fact, in our baseline projections week look at the economic effect of our projections. the change is to provide -- is to support more economic growth this year than we otherwise would have had. there is a little feedback on revenue, but not enough in that sense. it is a very large share of the

increase in the deficit. >> is $400 billion a number we can tend to the tax cut? >> [unintelligible] over fiscal year 2011, we estimate the deficit to be $414 billion. -- 48 -- $414 billion worse. >> [unintelligible] >> there is a -$390 billion. that is on page 9. that is the 2011 legislation. that is part of the legislation.

>> are you saying you have not done any analysis of the republican proposal to bring this year's level down to 2008 levels? i guess you could do homeland security and subcommittees? >> there is this question about exactly what the policy is that is being proposed. i do not know what proposal chairman ryan will introduce or that the house will adopt. we did look up a couple of numbers we thought might interest you. this is for the 2008 regular probations act. this excludes defense, homeland

security, and military construction. these are categories that are often discussed in this context. the total 2008 appropriations were $378 billion. in the ninth emergency appropriations, the continued evolution on 2011 on the annualized basis for the same category will be foreign to $61 billion. that is a difference of $82 billion. if one proposed to go back to 2008 levels as defined in my table, that would be and $82 billion reduction. >> congress may want to do some of these policies gradually. are you saying that cuts such as this could enter the economic recovery? >> i think policy -- could

the economic recovery? >> the longer they wait to address the economic imbalance, the worse the consequences the rising debt is. on the other hand, moving tax and spending policies very quickly can be destructive to the overall economy and to the households, businesses, state, and local governments whose individual experiences will be affected by that legislation. balancing those considerations is for policy makers, not for analysts. we have found, as you know, up from reading our work in the past few years, our analysis is that reductions in taxes are increases in government spending -- or increases in government

spending provide short form solutions to the economy. -- short-term solutions to the economy. it can see that in the testimony to the budget committee -- budget committee in september. it can see that in the analysis and we do of many other contexts. the amount of effect on any given change in policy depends on the magnitude of the changes envisioned, the timing, and the nature of the change. we tried not to make any generalizations about the effects of different policies. >> is there much change in the outlook for social security from the last report? >> there is some change. i do not think it is particularly large.

the payroll tax cut by itself reduces the flow of money into the trust fund. that is all set in the legislation by money from non- dedicated revenue sources. the revisions that we make do effect the flow of money into the social security trust fund. i believe the change this time was a little adverse to the trust fund. the most important thing is that we expect the disability insurance trust fund will run out of money in 2017, i believe. under the rules that we follow for constructing a baseline, we assume those payments continue to be made, but in fact, there is no legal authority for that to happen. the last time the trust fund was running out of money, money was moved over from the old-age

survivors trust fund. >> that requires congress to act, right? >> yes. >> i have one technical question. the score of the tax-cut bill was at 374 last year. i was wondering what that was about. also, we have had at least two stimulus packages and arguably a third wind with the tax-cut program. what, if anything, have you learned about what works or does not work in terms of stimulus? >> trawler the technical question, i believe the changes in the holdings happen a little more quickly than the tax committee has assumed in forming their estimates. more of the revenue is lost in

2011. that is a timing shift, not a more fundamental reassessment. it is a very good question what we have learned over the past few years. i think the right answer is that we have not learned much yet. i mean that in the following way -- when you look at the path of the economy, it is very dangerous to attribute any particular movement to some single factor affecting the economy. there are a lot of factors affecting the economy at the same time. i think the best evidence about the effects of fiscal policy have come not from individual episodes looking at the aggregate data, it comes either from looking at the data from individual households in

particular episodes -- for example, careful analysis of households that receive tax changes at different times in the previous recessions has not formed the estimates we made. that was a very regular looked and it takes some time to get to. there has been some work on the recent fiscal policy. the other sort of research that is important is research that looks at controlling for the factors that affect the economy. for that sort of work, every expert perception is one more important set of data. they can't overturn the reports. we are watching very closely at what happened. there are people that look at the timing of the economic recovery and the composition of

that and concluded that it supports the view that recovery legislation was important. other people have looked at the over all very slow recovery of the economy and the slower recovery of unemployment and that shows the recovery act did not work. our consistent view has been that we do not want to draw too much conclusion from that sort of look. we really rely on the economic research that unfortunately take some time and altered the course slowly. if you look at the back of the report be released on the affects of the recovery act, you can see a tiny bit of discussion that was longer than it was two years ago. it was work that had been done

and we were following it closely. it did not change our view fundamentally. next question. yes? >> on the economic growth projection for this year, how does that compare to private sector economists? how you justify the differences? >> it is well within the range of private sector economists. it is a little less optimistic in the near term. it is a good lesson on the difficulties of economic forecasting. if we could today, we would change our economic growth in 2010. the fourth quarter turned out better than we and most analysts expected we closed this forecast. part of what happened is that we had a little better economic news in the past month and a

half. that has led other forecasters to market their forecast a bit. if we were doing it today, which was slightly increase the near- term growth we project. when i sat here in august and said that we had closed out the forecast in june and the news was work that we were expecting, it is a reminder that this is a complicated business, especially in the economy that we think is in a slow recovery. there will be times when it will look stronger for a few months and things have leveled out and will be trying to extract a signal from that and not just get caught up in the regular volatility of high-frequency economic data. in broad terms, though, our view that the recovery will take some time is widely shared.

we are about 10 million jobs short of full employment. the pace of increase in employment that we have is about 200,000 jobs a month. that is better than we have been seeing so far. we are looking for a pickup in employment growth. it will take some time. moreover, the population is growing in the labour force is growing. jobs will have to be created for those people as well. that is why it may take a to until 2016 to lead the labor market back in normal condition. i think inflation -- are forecast is a little below the consensus of private forecasters. we have been below the consensus for the past couple of years. that has turned out so far to be

correct. i think those were the crucial aspects. again, we certainly pay attention to what other forecasters are thinking. we watched carefully what x -- outside experts are doing. i think we have seen qualitative futures of different numbers in some of the details. >> had been factored in anything in terms of the state budget deficits and the problems that could come from them in the recovery? >> yes. our economic forecast includes the effects of state behavior. as you know, declined in incomes and sharp drops in house prices together with the extra demand

for services provided by governments have put those governments in a tremendous financial squeeze. they are required, as you know, to take action to be back towards a balanced budget. to do that, their actions or simply by doing the automatic stabilizing effects that would have occurred on the federal level. we incorporate our anticipation of that behavior in the forecast. i will also direct your attention to a brief we issued in december about the fiscal problems of local governments. i think it is an interesting brief about a large and very serious problem. >> there is a mismatch of skills in jobs available and that is part of the problem. there is some dispute among other economists to disagree with that.

i wonder how much of the economic difficulties you describe are due to the mismatch? >> most of the elevation in the employment rate is due to a shortfall in the economy. in addition to that cyclical factor, we think there is some role being played by structural factors. we talk in the report about some structural mismatch -- in other words, certain sorts of jobs -- construction would be a good example -- are not there in the numbers they were and workers who have experience and skills for those jobs will not necessarily move quickly to other jobs as they open up. we also talked about the possible hindrance to the labor

market that comes from the difficulty in moving -- people who are under water in their mortgages. there are some disagreements in the professional literature about whether being under water affects one's propensity. we talk about that in the report. we talk about the role of unemployment and the extension of unemployment benefits and so on. these are important, but we emphasize -- this is consistent with most analysts -- that most of the shortfall in jobs comes from the shortfalls in demand for goods and services. that affects the firm's demand for workers. we have a slow recovery in employment but it -- because we have a slow recovery in output.

>> [unintelligible] >> i am not sure we quantified that in the report. >> can you discuss the possible shots from abroad -- dramatic changes -- the usual culprits. what is the order of magnitude? >> i do not think i can quantify it. we bring a probableistic projection. we do not know what will happen. we try to take account of the possibility of low probability, but is is a very consequential

event, but i do not think we do it in a way that we can readily plot to fight for you. if you think about the problems in europe, the financial system problems, the problem of sovereign debt -- there are a number of channels that we get thought about and discussed with our advisers in which further unraveling might affect the u.s. economy. one would think that the trade balance it would be a small one in terms of exports. possibly a more important wine would be the financial systems. as best we can tell from the conversations we have had with exports -- experts, most financial institutions do not have a lot of direct liability to some of the country debt and some of the bank debt that are

the court -- that are the source of greater concern in europe. there are connections in the financial system that are hard to keep track of. institutions may have some liabilities to firms related to those problems. we think it is a risk, but i would not say it is a very large risk at this point in time. >> are you -- u.s. investors rates slide to about 5.5%. is that where they normally would be? >> that is a good question. our interest rate forecast comes from a combination of our reading of financial market prices and our own modeling of

what interest rates we think would equilibrate the supply of funds. in fact, our old bottling suggest interest rates should be somewhat higher -- our old modeling suggest interest rates should be somewhat higher. you can look at the term structure for interest rates and back out under some assumption of what financial markets expect to prevail. those rates currently are somewhat below the rights of our old modeling -- that our own modeling suggest would be the most likely outcome. our own modeling takes account of the federal fiscal policy. we have picked a forecast that puts some weight on the current financial markets "and some

light on our old modeling -- quoters, andkets some weight on our old modleling. most people expect inflation to be a lot lower. if we look at inflation adjustment rates, what we are looking for is not dramatically different from the past, but our own modeling, those have higher rates from the federal debt there are other factors. one of the changes we made in the forecast is to put a little more weight on what we expect to be former's willingness to buy u.s. assets and to hold u.s.

treasury securities. that is a very difficult piece of behavior for us to get a clear fix on. there is a lot of treasury debt held and received. there is a lot of wealth owned by people overseas. the treasury debt would be part of that. i think we have a reasonable forecast, but there is a piece of uncertainty. it is subject to destruction in financial crises. investor's willingness to hold debt of certain countries can shift very quickly. >> do you have an estimate in terms of with the statutory debt ceiling will be reached? >> what we have said in the report -- i want to make sure

you read all the pages -- it is page 124. we talked about that subject to limits. we note that we think -- maybe it is not here where we know it. we do not try to pin it down -- here it is. in the middle of the right hand column on page 124. as we say here, we mean "reached" under the treasury's normal behavior. there are things that previous secretaries have done. secretary geithner elected in his letter to congress that he could pull some bonds out the various government accounts that would put off the day of reckoning a little.

it is worth recognizing that the government is running a deficit of about $1.50 treen. on average, that is more than $100 billion a month. at the rate of $100 billion a month, even if there are a set of actions the treasury could take that opens up a few hundred billion dollars under the debt ceiling, that is just buying a short amount of extra time. >> is there any plan darted patient -- is there any prioritization of held debt is paid out? with congress set to authorize payment of the debt? >> i think there is not existing prioritization. the policy of the treasury is to honor all of the government's

legal obligations. that includes payments to holders of debt, payments to people who have deliver goods and services under contract, and so on. the bills get paid when they come up. i think it is possible for the treasury secretary to decide which obligations will not be honored if there were not enough money available to honor all of them. that is default. it may not be defaulted to get polders, it may be default to the suppliers of goods and services to the government. we have to look at the mechanics of how that works and how reliably it could be done and the consequences in terms of the operation of the government. it would be a default if the government could not meet all of its legal obligations that it faces.

>> if this is another technical question. what are the most important assumptions that lead you to believe the government will shrink dramatically after 2012. >> there are a number of factors. part is the improvement in the economy, but a very important part also, is the exploration of certain provisions -- the expiration of certain provisions under current law. if one turns to chapter 4 where we talk about revenues -- turn to page 85 -- all the top right column, we see multiple provisions of tax law scheduled to expire of the next two years. in addition, new tax revisions that are scheduled to take affect. -- to take effect.

2% in 2013 -- 3% in 2014 and 2015. there is nearly four percentage points increase in revenue in terms of gdp from those provisions alone. if you go back and look at the difference in the deficit in 2011 and 2014, that is about 6.5% of gdp. nearly 4% of that 6.5% is due to changes in provisions schedule in current tax law. there are some similar things on the spending side. for example, medicare payments to physicians would fall back and so on. in addition to that is the improvement in the economy that will increase the tax base.

the economy will start to pull in some of the spending programs. >> the middle class tax cuts do not get extended in an election year? >> our baseline follow some assumptions that are based on a law that has expired. those rules follow current law. it is not appropriate for us as an agency of the congress to predict what the congress will do. what we tried to do is illustrate the consequences of alternative policies. that is why in this report we talk about what would happen if certain policies were extended. i mentioned a few. there is a table on page 22 which as the budgetary effects of certain policies. it is not on our baseline.

we run through here alternative assumptions about defense spending, non-defense appropriations, medicare payments, a number of alternative tax policies. none of those are intended as a prediction of what the congress will do, they are just their to illustrate the effects of changing policy. the baseline, current law, is the natural benchmark for considering action that congress might take. >> on page 15, the mandatory spending law, sort of it ends up in the same place at the end of the jin years. it will be about 14% of gdp. it is a forked fall off. does that have to do with

physician payments? >> physician payments are part of that, but i think there are forces pushing in different directions. medicare and medicaid are growing over time compared to gdp. other programs, especially those that are larger because of the weak economy, will shrink relative to gdp over time. if you read through chapter 3 where we talk about the different components of spending at some length, you can see some of those effects. there is a table if you get to page 58. there is a table that shows our assumptions of mandatory outlays. actually, a better table would be page 66.

these are annual rates of growth. if you look over the 2013 and 2021 period, you can see the social security and medicaid move faster than the nominal levels of gdp. the other mandatory spending is changing very little of that coming decade. that reflects the improving economic conditions. i think the fact that overall mandatory spending has changed in relation to gdp is just a net effect two different factors that are pushing in different directions. once the economy is back to full employment and the effects of these other programs have stabilized, then it really is

patterns of social security and the health program that drive the longer-term outlook. it is that growth rate that has been the most important factor in our projections in the past and will be again this year. >> under the discretionary spending line where it is basically cut by a third between now and 2021 to 9.3% of gdp, is your assumption the continuing resolution? basically a freeze in spending? >> no, i do not think so. our baseline assumptions for discretionary spending take the latest levels appropriated by the congress and inflate those with growth in the employment cost index for the part of the budget that concerns payment of benefits with the gdp index of outside goods and services.

we always grow the latest levels of appropriations with those inflation rates. but those inflation rates are below the growth rate of gdp because they are mostly just price changes, not real output. it is always the case if you look at cbo projections of this sort that discretionary spending tends to decline. the starting point to that is the funding of the continuing resolutions. we do not freeze it at that nominal level, that is just the starting point for the birth rate. if that makes sense. >> if this current law in other words? >> that is the current law from which we are starting. as we know it, and i did not talk about this in my opening remarks, we note in the report

that the history of discretionary spending over the decade or more leading up to the recession is that discretionary spending has competed with gdp on average, not just with inflation. the pattern in the baseline projection is shrinkage of discretionary spending relative to gdp would be rather different from the few decades leading up to the recession. when he made the projections a decade ago did you project that? >> we followed the same rules following the baseline projection that we all now. it is not our place to guess what congress will do i get appropriations. starting with the 1985 law, we projected discretionary spending to keep pace with inflation.

if one wants to look at the alternatives, this table i referred you to show you what will happen if discretionary spending was frozen in nominal terms. thank you. >> is there an updated final expenditure in number given from the paybacks and so on? >> we have not updated our estimate since november which we thought the overall cost of tarp would be $25 billion. we have done that analysis since then. we are required by law to report on the chart. i am us and we would do that again later this spring. -- i assume we would do that again later this spring. >> [unintelligible]

>> the biggest change before was the economic picture. unemployment benefits turned out to be more expensive than we thought. that changed last this time. any other questions? ok. thank you very much. if you have further questions, you should just give us a ring. >> more from the democrats on the budget committee. this is a half-hour.

>> i am the one that has something. congressman dan hollen is going to be here in a short period, he is detained by house business for the moment. we agreed that i will began and he will address you when he arrives. i am here to discuss cbo's a new economic outlook was which was -- which was released this morning. the report should be another wake-up call to all of us on the need to get deficits and debt under control. this first graph depicts cbo's new 10-year assumptions. it shows that you to passage of the tax extension package and the slow pace of the economic recovery, cbo is now expecting

to see deficits of more than one $trillion a year until 2012. it shows that deficits will then briefly all before rise again when the baby boom generation retires. under the same scenario, a gross federal debt is expected to reach 100% of gdp this year, and continue rising. i should emphasize publicly held will reach 69% of gdp. economists regard anything above 90% threshold on the gross debt as entering a danger zone, affecting future economic growth. as disturbing as those near term deficits and debt are, the long- term outlook is even more serious. it is the deteriorating long- term outlook that is the biggest threat to the country's economic

security. the warning signs are clear. earlier this month two of the leading credit rating agencies, moody's and s&p, warned again that rising u.s. debt could loot -- lead to america losing its aaa credit rating. if such a thing were to happen, it would be extremely serious for the united states and could set off more global financial tensions. in his recent testimony before the budget committee, chairman bernanke call for red demonstration of political will to address the long-term fiscal imbalance. he stated, nobody doubts the united states has the economic capacity to pay its bills. it is really a question of having the political will to do that. demonstration of political will -- is the congress and the

public and the administration able to demonstrate that they are serious and have enough willingness to work together to make progress? at the point where confidence is lost, that is where you can see a relatively quick deterioration in financial conditions. i very much hope that the people of our country and the people of the congress and the administration are listening to chairman bernanke. i believe he has got it just right. we cannot afford to wait until the markets lose confidence in us. we need to act and we need to act this year. let me be very clear. that does not mean we need to impose deep and draconian cuts this year. every bipartisan commission that has worked on this problem, including the president's fiscal commission, another commission,

and the commission put together by the magazine "esquire," all of them conclude that what is imperative is that we adopt a plan now that is credible and will lead us to a stronger financial footing for the future. i believe the deficit and debt reduction plan was assembled by the presence -- the president's fiscal commission provides one way forward. i was a member of that commission, as many of you know. i was one of the 11 that voted data that, other than that of 18 who supported it. -- 11 out of 18 that supported it. i recognize that it could be improved on. it does not have to be precisely that. but the element of that plan -- the elements of that plan was really good. tax reform, to provide a way to

bring down rates and the american much more competitive, going along with what the president said last night. entitlement reform -- recognizing that we will have to adjust medicare and social security and medicaid in light of our current the natural realities. and also domestic discretionary spending -- i must say that when i see some of our colleagues in the house talk about $2.50 trillion in cuts on discretionary spending, i don't see anything about reforming entitlements or the revenue side of the equation. i do not think that will solve this problem. frankly, the domestic discretionary spending has not been a part of the federal budget that has been growing in relationship to the size of our economy over the last decade. the part of spending that has been growing dramatically as a

share of our economy are the entitlement discounts. we will have to deal with that as the commission indicated. important, the commission plan has bipartisan support. five republicans, five democrats, and one independent voted for the plant. i think we proved that democrats, republicans, an independents can come together to solve this problem. under the plan as you can see, instead of seeing the debt rises a share of the economy, the first day belies the debt and then brought it down to a publicly held debt of 40% of gdp in 2014. looking at the cbo alternative fiscal scenario, we're headed for a debt of 233% of this size of our debt -- of our economy in 2040. that is a stunning, stunning projection. we cannot permit that to happen.

those who listened as the money to float this boat will not allow it to happen. so the consequences to our economy would be enormous. if we say on that course. it simply cannot be permitted to happen. let me just close by saying we cannot continue to put this off. i believe strongly that we mean -- we need to adopt a plan this year that is a long-term plan, not just a budget resolution or five-year plan. virtually all the budget resolutions have been five years and we understand the necessity for that. but we need a plan that goes way beyond five years. we're talking about picking relatively modest changes now that will pay big dividends as time passes. in that way, time is our friend. but for time to be our friend, we have to use it.

we have to make decisions. i am very hopeful that we would choose to do that this year. i will stop there and be happy that answer any questions that people have. what we start right here and go right around? >> boehner and paul's plan -- rand paul's plan? >> i have not seen his plan. it would not be fair for me to comment on it. >> are you disappointed the president did not discuss reform in more detail? >> i think the president did a very good job of saying to the american people these of the things we have to do as a nation to be competitive and grow the economy. we have to do the best job of educating our kids, we have to continue to the american trade and innovation, we have to do

everything we can to improve our infrastructure is if we're going to be competitive in this world economy, and at the same time, we have to deal with our deficits in a responsible way. that requires women fundamentally reform our government performs. -- that requires we fundamentally reform our government performs. i would like very much if the president would have spent a bit more time helping the american people understand how a really big this problem is. we are borrowing 40 cents of every dollar that we spend. you cannot continue that much longer. on top of that, if you look at the revenue and the expenditures, in 2009 the revenue was the lowest it has been in 60 years as a share of the economy. spending in that same year was the highest it has meant in 60 years as a share of the economy.

that tells me that we have got to work both sides of the question. you have got to to hard work on the revenue side, and that is what the commission called for -- tax reform to broaden the base, lower rates, make us more competitive, and to reduce the deficit. and we have to work on the spending side of the equation. he cannot just be limited to non-defense domestic discretionary spending. that is a tiny fraction of the federal budget. that cannot be the piggyback to get out deficits and debt under control. it is too small. yes, sir. >> you mentioned the tiny fraction. what that actually accomplish anything? >> yes, it would help a considerable amount. the five-year freeze would pay

big dividends down the road. but again, he was careful to point out and i would be careful to point out, that is just one part of a plan. we need much more. we have to deal with the entitlements and revenue side of the equation. >> number of republicans introduced a balanced budget amendment. is this something you are ready to support? >> i do not support a constitutional balanced funds -- budget amendment that claims balance by raiding the social security trust fund. >>. talking about the need to reform entitlements. the president did not weigh in on what he would like to do things like social security and medicare. would you like more leadership out of the white house on this kind of things? >> i think he made it clear last night that has to be part of the consideration. he mentioned entitlement

programs and especially the health care accounts. that is where the spending is growing most rapidly, that an interest on the debt. it will there be a bipartisan effort in the senate to put that in the legislation? on the corporate tax, can be tackled outside of the tax code overhaul? >> i personally believe it all has to be done to gather. -- together. senator gregg and i fastened on this idea of a commission and we did this after hours and hours of discussion. one of the conclusion we reached is that it has got to be a grand compromise. you that they have all of the elements of a package together. that is the only way it will be big enough to address the problems that we confront. second, we believe everything

has to be on the table. third, we believe everyone had to be at the table, including the administration. in our design of the commission, the secretary of the treasury and the head of the windy or two of the 18 commissioners. -- the head of omb were two of the 18 commissioners. we did not get a super majority and we were left with the only option being a presidential commission. we convinced the administration to format. -- to form it. when it was formed, the secretary of treasury and the head of the omb were not included. to reach a conclusion here, it is imperative that we have the leadership of the house and the senate and representatives of the white house at the table negotiating. >> to talk about the bipartisan effort? >> the work is very much under

way. it is a fairly large group of senators, republicans and democrats. [inaudible] >> are you going to try for the first time in a long time to bring republicans and democrats together in a resolution? [inaudible] >> it may be. i personally believe what i said publicly and privately, there needs to be a summit. involving the white house, the house, and the senate, to agree on a long-term plan that goes way beyond at five-year budget

outline. i personally never thought the budget resolution was the place to do the long term plan required. almost always congress does a five-year budget. what is required here is much longer term than five years. >> you clearly stated the need for this. how likely is there going to be any action? >> is extraordinarily difficult. let's be very, very clear. when the american people are asked what they want done and to prioritize what they want done, they want the deficits and debt dealt with. but when they are asked very specifically will they support changes in social security? the polls say no. changes to medicare? the polls as they now. changes in defense spending?

the poll say no. there has got to be leadership to help persuade the american people this problem is so big that you have to deal with all of those things. nothing can be sacrosanct. nothing can be excluded. we will take a break and have congressman dan hollen -- van hollen speak. >> i want to thank the senator for all of his leadership on these very important budget matters and issues of importance to our economic future and being fiscally responsible. a long history and night before to working with that. a lot make some comments and i

look forward to answering questions with the senator. look, what the cbo report said and this came from the first hearing in the house budget committee, is a mix of good news and bad news. the good news is that it indicates that the economy seemed to be on a sustainable growth path. the double dip recession that many of us. it is not likely to happen. it is clear that is the result of many measures taken by the congress and president over the last two years that helped provide stimulus and support to small businesses and other businesses around the country, to help get the economy moving again. obviously two years ago, when the president was sworn in and that first stated the union, the good news is that the economy seems to be rebounding. the most important thing we can

do in terms of resolving -- getting ourselves back into better territory when it comes to deficits is to get economic growth going. now the bad news. obviously what it shows is that we continue to face a very difficult fiscal situation and longer-term problems are very real and cannot be measured by as it -- economic growth alone. i'm sure the senators discuss some of the challenges that we face. he served on the commission. let me and with this. our number one priority has got to be pursuing tw attracts. one is to make sure that we do not do anything to damage the economic recovery which has been very fragile. it would be a big mistake, as mark zandi and other economists have said, to take deep,

immediate, draconian cuts. to put the brakes on a fragile coverage, it risked putting people out of work. do we need responsible reductions, yes, the president talked about that. and senator conrad has been a leader on this, we have passed now -- we need act on a bipartisan basis to put together plan that was this country on a sustainable fiscal course. i think the president last night indicated that he wanted to work with republicans in serious fashion, and i've told a new chairman of the house budget committee that democrats look forward to working with him and the white house to try to do that as soon as possible. >> excellent statement. yes, sir. >> [inaudible]

what he think of that idea and contingency plans to be made? >> what they are saying is that we're one to forget about the american public and the things that they need. somehow they are secondary, and pain that chinese and japanese is the first priority of this country. i do not even know how to describe that i did except it is a very bad one. >> just a second that, but they are saying essentially is that the full faith and credit of the american government does not extend to the american people itself. >> we have other questions. end there.e happy to an

>> is said the short-term deficit would be necessary. at what one man does it become a problem? -- at what point does it become a problem was a margin if you listen to chairman bernanke he has been clear on this. we need another 18 months to two years before we in -- start imposing they're really tough medicine that will have to be imposed if we are going to deal with the long-term debt threat. it is interesting -- if you look at all the bipartisan commission, that is what they have concluded. one that had the most distinguished people in the country serving on a came to that conclusion. do not in danger this growing it

cut -- endanger this growing economy. but adopt a plan now that is credible and gets back on track. that is what the president's fiscal commission concluded. that is what the esquire commission concluded. all of them are bipartisan and said, do not impose draconian cuts now. the economy is still too weak. with one in every six americans either unemployed or underemployed. but not now a credible plan which you enact that in 18 years pivots and be -- in 18 months to two years begins to pivot and begins to bring the debt down. we have a level of debt now at the end of this year, it will be about 69% of gdp. we can manage it. what we cannot manage is where we're headed. and by 24 to come up the debt

will be over 230% of the gross domestic -- gross domestic product of the country. we have to make decisions now that the fact that long-term outlook, but does not endanger this recovery. >> republicans rolled out a budget amendment earlier today. what is your take on that announcement was a margin obviously within our caucus we have a mixture of use. the consensus position is that if you can balance your budget, let's do it right here, right now. one of the things as the result of the last election is our republican colleagues share responsibility for government. but show by their actions in budget and appropriations had you put together a long-term plan to do it. we all know in the past and we've had different views, but

they have been filled with loopholes and gimmicks. the most serious approach to deal with this problem is to get together on a bipartisan basis and put together a long-term plan rather than pretending that these other things that are filled with all kinds of loopholes will do the job. >> go back to " point i made earlier when congressman van hollen was not here. the balanced budget amendments to find a balance budget as one that raided the social security cookie jar in order to balance it. they were claiming balance based on the use of social security trust fund money. if that is what we adopt around here as the definition of balanced budget, god help us all. >> what is the democratic game plan on this after march 4?

are you waiting for republican budget cuts or are you when to be proactive in come up with a run? >> we are back together now. we do not think there is a finnish plan on how to deal with the continuing resolution. -- it finished plan on how to deal with the continued resolution. >> as you probably know yesterday, we did a budget resolution in the house with no numbers senate. not $100 billion, not $60 billion, we do not know. we were told we had waited until cbo came out what the numbers. today cbo has come out with numbers. maybe later today we will have some idea of what they are. the speaker of the house was asked on television a few weeks ago to identify any specific cuts he would make. he did not come up with one. senator conrad has pointed out for fiscal year 2011, the

commission that was tasked with reducing the deficit and the debt assumed in their projections a number that was slightly above where we are with we arecr. -- with the current cr. but sit with the republicans come up with a house. it is important to stress that they are playing with fire in the immediate term, talking about draconian cuts. that is what the commission indicated. >> on the cr, would you agree to cuts to the current spending levels? >> i supported the commission plan. it was $30 billion below.

x is me? >> republicans are demanding major reforms on the budgeting process. you think that is an appropriate debate? is there a potential or you do not hold -- raise the debt limit and you have a catastrophic situation? >> first of all, we have no choice but to extend the debt limit. to do otherwise would put in jeopardy the full faith and credit of the united states. and virtually every economist said that would be catastrophic to our financial standing in the world. these are debts we have already run up. they have to be paid. that is like getting your credit card bill in saying, gee, i regret what we did before but now i am not one to pay now. that does not work. i personally believe we should ask for and insist upon a long-

term plan to be agreed to before we have any long-term extension of the debt, so that we keep the pressure on to write a long term plan that everyone agrees is important to the country. just a final point on this. mr. bernanke, the head of the federal reserve, has made very clear he does not believe we ought to impose draconian cuts now. he believes we ought to adopt a plan now that gets america back on track over time. i think he is exactly right. that is what is required of us. but that means we need a plan. and it is not a five-year plan. we need a plan that goes well beyond five years to get us back on track. >> just to be clear, are both of

you saying that neither of you would like to see any reduction in spending, they should not go at all the the remainder of this fiscal year? >> what i said was in relationship to the president's budget request, at the commission had 8 $30 billion reduction. remember -- >> do you see it going down at all? >> what is appropriate is what i said. $30 billion below the president, level with where the cr is that. very substantial reductions of already been made. i would support the reduction is that the commission called for from the president's budget. >> i have to run.

i have two minutes left on a vote. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> and at the moments, house majority leader eric cantor outline principles he is setting out for republican members. in 20 minutes, and oversight hearing on the effectiveness of the troubled asset relief program known as part in helping homeowners facing foreclosure. after that, the congressional budget office releases its outlook for the year followed by reaction from democratic leaders of the senate and house budget committee. a couple of live events to tell you about tomorrow here on c- span. the senate budget committee hears from doug elman door, the

head of the congressional budget door -- doug elmendorf. at 2:00 p.m. eastern, janet napolitano speaks at george washington university on the state of america's homeland security. >> this weekend on both tv on c- span2, almost 10 years after the attacks on the world trade center and the panic and, cnn's national security analysis looks at along this war. his interviewed by max boot. also this weekend, the continuing growth of the military-industrial complex. barack obama spurs campaign for the illinois state senate. find a complete schedule at our website and sign up to get our schedules directly to your e- mail in box with our book t the alerts. >> house majority leader eric

cantor played out economic principles that he expects house republicans to follow for the next two years. he spoke at the heritage foundation for 20 minutes. >> it is a pleasure to welcome leader kantor. his representative virginia's seventh district which he has served since 2001. it is a graduate of george washington university and received his law degree from william and mary. it is the haunted the the state of thomas jefferson. -- is the home to the estate of thomas jefferson.

it shall not take from labor the breath that it is earned. that is the sum of good government. he is come here to speak about government. this decline has been chronicled by the heritage foundation and our index will be discussed later. how will now ask leader cantor to join us at the podium. >> good morning. it is great to be here. thank you very much for that warm introduction. thank you for all of your efforts here at heritage. it is a pleasure to be here.

all bus i know, enjoyed the momentous occasion of seeing the president of the united states come to capitol hill. always a treat for the nation. really, a lot of nice words and positive thoughts from the president about going forward, and supposing and proposing the possibility that we all work together, which i am hopeful of. but in my book, actions speak louder than words. and we will have to, i think, see how it is that this president and his administration are going to carry itself in light of the currency to question in this country and the election we have just been through. last year for the first time ever, as mike just indicated, the united states fell from the ranks of the economically free countries of the world as measured by the index of economic freedom.

this year our overall score fell again, in large measure because of the increase in government spending. this is a wake-up call for all of us and our country and for all of us in elected office. in restoring economic freedom and prosperity, it is a top priority for our new house met public in majority. today i do not hesitate to say that we have arrived at a critical moment in american history. we are a nation at a crossroads. a host of possible seventh thrust upon us, calling into question our ability to carry out the mantle of global leadership in the 21st century. our response is the challenge of a generation. it truly will determine what kind of country we will be. america has always been the land of unparalleled achievement where entrepreneurs and small

businesses are the engine of the economy, and frankly the envy of all nations. the eagerness on the part of the american people to work and to pursue their ideas, despite the risk that they might fail, has spawned unprecedented economic growth from which we all benefit. the resulting prosperity and job creation have benefited us for sure in our country but also has benefited the entire world. it defines who we are as a people. it represents also our best hope for the future. last year i received a note from a university of michigan graduate who was living in kalamazoo, michigan, who is now getting his mba from stanford.

prior the starting business school, it's been some time working in england. he was amazed at how differently entrepreneurs are regarded abroad. he said starting a business, even if you fail in the process, is a badge of honor for us here in the united states, but in europe, japan your ship is frowned upon, and consequently the best and brightest are afraid to take a risk. he calls on the say that many of my year -- many of my european friends are very smart and educated. when i ask them about their career path, no one ever mentions starting a business. they did not think any new big products or businesses will come from the uk in the next 50 years. that letter had a big impact on me, and it ended with a pointed request from this student. he said, please, please be careful that our government not do anything to discourage entrepreneurship and innovation in america.

now we all know that there is a lot being written today as some are actually asking whether the united states is really losing its competitive edge. and over the past year, when i have talked to entrepreneurs around the country, when i meet with people making decisions of where to allocate capital and whether to put money to work, they are actually questioning whether it is worth the risk for them to do so here in the united states. why is that? because of the last several years, the u.s. marketplace has been increasingly defined by runaway debt, by ever increasing growth-stifling regulations coming out of this town, and frankly, an anti-competitive tax structure. the recent midterm election that we just experienced was about many things -- health care, government spending, deficits, lackluster job growth.

but above all, i would argue that it was a repudiation of an agenda that responds to these problems by siphoning money away from the private sector, and therefore reducing opportunity and freedom, and concentrating the power and resources here in washington. now for us conservatives, this election represented a golden opportunity to show america a better way forward. we have got a second chance to produce first-rate results by applying our common sense conservative principles. when you redistribute wealth and impose stringent regulation, it comes at a direct cost to freedom and economic opportunity. right now government is growing so large that it is crowding out the private sector. that is why our first priority in the majority is to rest the

ever-growing government spending and debt which results and ensure that it is not higher taxes which we all must face. that is why we are intent on removing a dark cloud that has formed over our country and our economy and we are committed to getting our country back on track toward the path of opportunity, responsibility, and success. opportunity, responsibility, and success. in short time, it's my hope that this congress under a republican majority, will become known the cut and grow congrs. cut spending and job-impeding regulation and grow private sector jobs in the economy. now, this idea of cut and grow can be put into contrast, perhaps with some of what the

president said last night and certainly what some in the white house have been talking about for the past several days. he envisions, they envisions that administration to be about cut and invest, that somehow we have to go about cutting spending so we can invest it from washington somewhere else. now, all of that gives most of us pause, because using the word "invest" in this town through the prism of federal government, to me, means more spending. so that's why each day our response in the new majority is to wake up and ask three questions. one are our actions focusing on jobs and the economy? two, are our actions focusing on cutting spend? and three, are our actions focusing on shrinking government, and thereby protecting and expanding freedom. and if our actions do not fall

within one of those three lanes, we must ask ourselves why are we doing it. during the current fiscal year, as you know, we have pledged to return spending to fy 2008 levels or less. we've got many more miles to go, but in our first month, we've cut our own budgets by 5% in the house. we have renewed our moratorium on eamarks, eliminating billions of dollars in pork barrel favors that have always been ud to buy members' votes on larger, more wasteful spending packages. we've implemented new house rules that make it easier for congress to cut spending and grow the economy. for example, all mandatory spending increases must be offset by spending cuts elsewhere in the budget. no more new taxes. we've moved to repeal the health

care bill, becae it threatens to bankrupt our country and serves as an impediment to job creation. we've already instructed our committees to start work on a replacement. and that starts with patient-centered care with an emphasis on lowering cost and affording more flexibility and choice for all americans. the coming weeks and months will not be easy. we need to wean america off its dependence on debt, loose monetary policy, and government programs. and we must blaze a new trail, rooted in lo-term investment, strong businesses, innovation, entrepreneurship, and exports. we must remember that the strength of our republic resides not in a vast government safety net, but in the innovative spirit of our people. not in our people's desire to take from the government, but in

their drive toward self-sufficiency and controlling their own destiny. my pledge to you today is that we will act to restore america as the freest, most prosperous nation on earth. and we in congress are going to count on groups like the heritage foundation to come forward with your best ideas to help us, to help our country do what it does best, to innovate, compete, and lead in this 21st century. no doubt about it, the stakes are very high. but we all must commit ourselves to do all we can to preserve and protect this country that we love and that starts by committing ourselves to protecting and expanding freedom. thank you very much. [ applause ] >> thank you very much. that was really great. that's got a nice ring to it, the cut and grow congress.

representative cantor has time for two or three questions. he h to go back to the hill to vote. who would like to go first? yes, the young lady right there. >> congressman, thank you for your leadership on spending cuts. i'm just wondering if you'll support congressman jim jordan's amendment for a true $100 billion worth of cuts in the cr debate? >> yes, we are -- that is in reference to the cr debate, which will come to the floor february 14th. we announced yesterday, well in advance. the purpose of my announcing earlier is to make sure that all of our members, onour side of the aisle, as well as others, have the ability to proffer their vision as to how we cut the deficit. and budget chairman to hold us all accountable for spending levels. and we said that we want to be at least 2008 levels as our

party committed to during the election and the pledge for america, and we said 2008 levels or less. as you know, we are in the situation we are in five months practically into the fiscal year, because the former democratic house failed to produce a budget. and so we have now found ourselves in a cntinuing resolution environment that has held constant 2010 levels. so, we are looking at the appropriators to come up with their version of how we cut this budget. again, they have the limit of ying 2008 or less, so let's see what they do, and the reason why i'm so insistent to say orless is because we all have to be very focused on making sure that we find new ways to cut spending and to do moreith less. in response to the question in that context, we are going to accomplish $100 billion cut on

an annualized basis. >> who else would like to ask a question? yes, right there. a hand in the back. >> good morning, congressman, james reid, a reporter for the campus radio for george washington university. >> good morning. >> the president briefly spoke last night about the education sector that he plans on making that a part of t initiative in the next year. as a university student, what republican initiatives can, will the majority of republicans in the house take? i know that meg whian, the california gubernatorial candidate said that education in our country is the innovation engine and i know you endorsed her, so i would hope you would speak about that. >> yes, the president spoke about education, and secondary education and spoke about the need to access to secondary education and most are goals

that americans would support. the reality is that we are spending billions and billion of dollars in this area. the first order priority is to figure out why if we are spending this kind of money, it is not working. the answer should not be to refleckir flexively say, more money. we need to know how the money is being spent and how the administration promulgating expenditures that is impeding the results that the american people expect. we are very focused on the role that the republican majority pls in the unchecked an unfut fettered result in the last two years and looking for a better future to strengthen the academic institutions in our country, because yes, we are the crucible of innovation here in the united states.

>> a thank you. yes, right there. last question. no, no, right there. >> thank you, mr. leader. eric potter with the american heritage foundation. we have seen a change from those of the left to tax rates and the president sees pro growth economic policy tied to lower tax rates and we have seen it with the extension of the bush era tax rates and in the rhetoric of corporate tax rates d, mr. leader, have conservatives won this battle? >> i would not rest on our laurels that we have won any battle. if you remember that the tax package that passed in the lame duck session was one that had things in it that all of us, we didn't embrace all of it. we did say priority one is to make sure that taxes didn't go up on anybody. we did accomplish that. we didn't accomplish any perment reduction of rates. we didn't accomplish any

permanent elimination of uncertainty. and what we want to focus on and where we have not yet won the battle is we want to focus on an environmenwhere risk takers are willing and confident to go and put capital to work and grow jobs. again, the reason why we have become the envy of the world is because here more than anywhere else, it is that innovation that has translated to people taking action and creating value, and creating jobs and a better life. we have not yet done, that because in the speech last night, you heard, again, some rhetoric that may hintt the left's continued insistence that washington should be about equal outcomes, and when we believe in equal opportunity. that is a battle that is yet to be won. thank you all

>> living standards are going down in america. we just created more entitlements. we owe the country to show them a different path. >> the new chair of the budget committee responded to the present state of the union address. find out more about him in his more than 3000 c-span appearances. it is washington your way. >> the special inspector for the troubled asset relief program, neil barofsky, testified today that the treasury department's program to help homeowners face foreclosure has failed. he was before the house oversight and government reform committee for about 2.5 hours.

>> this is the first hearing for both chairman i sat and ranking member cummings, so i asked all of your indulgences as we go through a number of first-time mistakes i will undoubtedly make. the chair notes that pursuant to the rules, there will not be opening statements, but members

may have seven days to submit opening statements an extraneous material for the record. we will now recognize our panel. >> mr. chairman. a parliamentary inquiry. i know this is our first meeting and i want to make sure we're clear. we have a lengthy discussion. we had a lengthy discussion yesterday with regard to opening statements. the chairman and i thought we had reached a wonderful agreement or the chairman had said that he would provide us knows this -- notice to regard that opening statements, whether giving them or not, and this is our first tearing and some of the members and of course i was wondering exactly why we are not having opening statements, and we were -- until we were given notice about half an hour that there would not be opening statements.

i was wondering. >> i thank the gentleman. the chair is awaiting the opening statements including my own. all members will have seven days in order to place their opening statements into the record. on a very personal note, i felt that it was most important on this first hearing to start off by listening to the witnesses -- and i know the special ig, this is his 20th visit. but for the purposes of all of us including the freshmen, a one of the start off by listening first. i recognize that tradition is that we hold the members of the witnesses here for some time hours through opening statements. that is a tradition i intend to break. that does not mean there will not be opening statements in the future. for this first one, if i wanted to make it perfectly clear that we are listening to our witnesses first. i appreciate the gentleman. >> of parliamentary inquiry.

pursuant to what you said yesterday, and i have the transcript, would you be giving us more notice with regard to that? i thought we were very -- we had a gentleman's wonderful discussion yesterday were you said it would work with us and it was proper notice. i was wondering what can we expect in the future. >> as i said, we intend to give notice to all things. in this case, we only organized yesterday, less than 24 hours ago. in the future i would expect there would be greater notice and i appreciate the john monds -- i appreciate the gentleman. at this time when they introduced the witnesses. >> mr. chairman. >> for what purpose does the gentleman seek recognition? >> a parliamentary inquiry. >> i have been in the congress for 14 years. i have -- it is just an

president that the ranking member not be permitted to give the opening chairman. >> does the gentleman have a parliamentary inquiry? >> i cannot make a parliamentary inquiry. >> to the gentleman is no longer recognize. we will now introduce -- >> of point of order. i certainly understand if the chairman has decided he has nothing to say. but can you cite one example, and the example in the history of the congress, if you would, where a minority ranking member has not been given, has not been given the respect or an opportunity to make a brief opening statement? >> the chair will respond for the record with an appropriate list of that time that opening statements have been waived. >> you cannot think of one right now. >> the gentleman is blogger recognize. we turn to our witnesses said.

timothy message is the acting assistant secretary and the chief troubled asset relief program. mr. masse said assumed the title of assistant secretary on december 2010. after herbert allison step down from the position. before that, mr. massad served as the chief counsel and the chief reporting office for the office of financial stability. if part to starting this government work, he worked at the office -- let's say -- worked at the onset of the 2008 financial crisis, he was a partner at a financial institution where he had a perverse international corporate practice with the emphasis on corporate offerings. underwriting and security

issues. he received an a b degree from harvard in 1978 and another from harvard law school in 1984. mr. neil barofsky, no stranger to this committee, was sworn into the office on december 2008 as the special treasury department inspector general to oversee the troubled asset relief program. prior to that, mr. barofsky was a federal prosecutor in the united states attorney's office for the southern district of your for more than eight years. in that office, barofsky was the senior trial counsel who headed the mortgage fraud group. mr. barofsky also was -- has extensive experience as a prosecutor, leading white-collar prosecutions during his tenure as a member of the securities and commodities fraud unit.

mr. barofsky also led the investigation that resulted in the indictment of the revolutionary armed forces of colombia, on narcotics charges. a case described by then- attorney general as the largest narcotics indictment filed in u.s. history. mr. barofsky wrote it -- received his b.a. from the working school of business in is a magna cum laude graduate of the new york university of law. pursuant to the committee rules, all witnesses will be sworn in before testifying. please rise, raise your right hand. before testifying. please rise. raise your right hand. this is my first time. do you solemnly swear that the

testimony you will give about -- you are about to give this committee will be the truth and the whole truth and nothing but the truth? thank you. you may please be seated. >> as is accustom to this committee, we would ask that your full written statements be placed in the record and that you limit your opening statements as close as possible to five minutes. as was the custom of my predecessor, you will see three lights. green means continue to go. yellow is the warning that you should not runhrough our intersection and red in all 50 states means stop. thank you, mr. chairman. the normal rule of committee is thate go in order of rank. mr. massed, i believe you would,

by protocol, be first. >> thank you, mr. chairman. chairman issa, ranking member cummings, members of the committee, thank you for the opportunity to testify today about the troubled asset relief program or t.a.r.p., as it is commonly nope. i am the acting assistant secretary for financial stability at the treasury, which means i am responsible for overseeing the program on a day-to-day basis. recognize that t.a.r.p. has not been popular. there is good reason for that. no one likes yood using taxpayer dollars to rescue fincial institutions. flun the less, sitting here today, more than two yea after a bipartisan congress passed the legislation that created t.a.r.p., it is clear that the prram has been remarkably effective by any oective measured. first and foremost, t.a.r.p. helped prevent a catastrophic collapse of our financial system and our economy. in the fall of 2008, we were

staring into the abyss, lending by banks had practically stopped. our credit markets had shut down. and countless financial institutions were under severe stress. this the was a crisis not only for wall street,ut also for main street. simply put, we were at the risk of going into a second great depression. today, people no longer fear that our major financial institutions or our financial system is going to fail. banks are much better capitalized and the weakest parts of our financial system no longer exist. the credit markets on which small businesses and consumers depend, auto loans, credit cards, student loans and oth finances have reopened. businesses are able to raise capital and mortgage rates are at historic lows. of course, the economy is not yet fully recovered and there is still much work to be done. unemployment is unacceptably high and the housing market remains weak. but the worst of the storm has passed. second, we will not use all the

money congress made available for t.a.r.p. and we are exiting ouinvestments and the private sector far faster than anyone thought possible. let me briefly summarize a few key facts. congress originally authorized $700 billion for this program. we will spend no more than $475 billion. and of the money spend to date, much of it has been repaid. approximately $270 billion. we still have about $166 billion invested in various institutions and i am hopeful that we will recover much of that over the next two years, depending on market conditions. finally, the ultimate cost of t.a.r.p. will be far less than anyone expected. the total cost was initially projected to be $350 billion. that number, however, will steadily decline over the next few years according to the most recent estimates, the overall cost of t.a.r.p. will be in the range of $25 to $50 billion.

and the direct fiscal cost of t.a.r.p. as well as all the other interventions to address this crisis is far less as a percentage of gdp than the cost of resolving the snl crisis in the 1980s. in addition, t.a.r.p. cost will be primarily attributable to what we spend on our housing programs and our efforts to help responsible american families keep their homes. we expect that all the other t.a.r.p. programs and investments, when considered as a whole, will result in very little or no cost to the american taxpayers and possibly a profit. in all of these efforts, t.a.r.p. has been subjected to unprecedented oversight. when congress created t.a.r.p., it also directed four different oversight bodies, including the special inspector general for t.a.r.p., mr. barofsky, cho is sitting with me today to carefully review all of our programs. in addition, t.a.r.p. has been suect to vigorous congressional oversight by this

committee and several others. we welcome this oversight. individually and collectively. it has helped us to develop, implement and constantly improve our t.a.r.p. program. and we have strived to be transparent by providing a wealth of information about the program to the public. in particular, i look forward today to discussing mr. barofsky's most recent quarterly report. i am pleased that the record concludes that t.a.r.p. helps, as he put the it, head off a catastrophic financial collapse. and that the program financial prospects are today far better, he says, than anyone could have dared to hope just two years ago. the other oversight agencies have reached similar conclusions. the report raises a number of concerns about the h.a.m.p. program and the so-called too big to fail issue and i'm happy to discuss thos as well. t.a.r.p. succeeded in what it was meant to do.

it was not designed to solve all our problems and we recognize that many americans are still suffering. nonetheless, thanks to a comprehensive strategy and decisive action, our economy is far stronger today than it was two years ago. both political parties deserve credit for these achievements. congress enacted the program at a time when the financial system was falling apart. in that moment, leaders from both parties stood up, stood together and did what was best for this country. thank you again for providing me the opportunity to testify here and i welcome your questions. >> thank you, mr. barofsky. >> chairman issa, ranking member cummings, it is an honor to present here once again and to present to you our most recent report to congress. for sig t.a.r.p., we've made great progress in striving to meet our goals of transparency, oversight and enforcement. with this, our niepth quarterly

report along with 13 separate audits, it helped shine a light some of the darkest areas of government's response. it's included some of the important recommendations which when implemented and adopted have resulted in great savings for the taxpayer which resulted in great fraud and abuse. our investigation unit has been similarly busy. we've been able to secure fraud charges against 45 individuals, 12 different companies and to date, 13 criminal convictions. we've also been able to either recover or prevent from loss of fraud more than $700 million. thereby assuring that sig t.a.r.p. as an agency will more than pay for itself. and with 142 ongone criminal investigations, including those into executive at 64 different banks that either applied for or received t.a.r.p. funds, we still have a lot mre work to do. for treasury and t.a.r.p., the results have been more med. while it's certainly good news as mr. m assed noted, the

estimates of t.a.r.p. costs have declined and significantly it's nothe whole story. and too often, wi treasury in its statements and in its testimony has too much of tunnel vision focus on the financial c decline of those, obscuring the very significant and very real nonfinancial costs that will arise out of the troubled asset relief program. first, it ignores the very significant, wholesale damage to government credibility that has arisen from treasy's mismanagement of parts of the t.a.r.p. program. too often these programs have been marked by loose compliance, failures in tnsparency and questionable decision making. it's those avoidable failures, ago anything else that account for some of the deep unpopularity of t.a.r.p. the second cost is perhaps the most significant of t.a.r.p.'s legacy, the continued existence

and the moral hazard associated with institutions that are still deemed too big to fail. when secretary paulson and secretary geithner spoke to the financial markets and assured that they would not allow the financial institutions to fail, they did more than reassure troubled markets. they sent a powerful message that these banks would not be left to suffer the consequences of their own folly. as a result, not withstanding the passage of dodd frank last summer,hese still envoy an advantage with enhanced credit ratings as a result of that implicit government guarantee. t.a.r.p. has mixed the cocktail of implicit guarantees that led to the disasters at fannie mae

and freddie mac. i agree with treasury that they have met the wall street goals, they did help prevent a collapse of the financial markets and that undoubtedly had a benefit not just for wall street but for main street. t.a.r.p. has not met the gals set forth for congress for main street. the most significant main street goal of preserving home ownership, its failures there have had some of the most devastating consequences. the home modification program has to date been a failure with estimates that over the life of this program, we're going to see probably well in excess of 10 million foreclosure filings on 10 million families, when compared with the congressional oversight of panel's recent estimate that no more than 7 or 800,000 permanent sustained modifications, hope is slipping

away. treasury's administration of this program gives little cause for optimism. they continue to refuse to adopt even the most baitic metrics and goals and benchmarks to measure success. they appear to be afraid to rein in penalties who everyone agrees has been nothing short of abysmal. as a result, we continue to see spiralling downward participation quarterfter quarter after quarter. mr. chairman, ranking member, members of the committee. i thank you for this kpubt r opportunity and i do look forward to answering any questions you have. >> i thank the gentleman and i thank him for the accuracy of five minutes. i now recognize myself for five minutes. mr. massad, since you're here on behalf of treasury as the person most knowledgeable, can you explain to us the secretary's statement on december 2010 on the subject of t.a.r.p. and related bailouts when he said "in the future, we may have to

do exceptiol things again if we face the shock that large. you just don't know what's systemic. i repeat, you just don't know what's systemic and what's not until you know the nature of the shock." does that mean that the secretary expects that if a housing crisis occurs again or some other shock, we're not talking about an external for, but some other shock to the community, that we still have systemic risk, too big to fail and the government will come in and bail out the large and allow the small to fail? >> mr. chairman, what the statement means, in my view, what i believe the secretary was saying was that we cannot predict what the future issues will be in terms of risks to our system. >> isn't that exactly what dodd frank and all these other legislation have done? we were supposed to eliminate too big to fail, systemic risk

was supposed to be managed by an analysis, if you will, of vetting of whether entities were robust enough now and in the future, and it's the reason that some companies are still around and some were folded. isn't that true? >> you are correct, mr. chairman, that that is dodd frank's purpose and that's what we're pleimplementing. it gives us the tools. >> ight, but the secretary said this well after dodd frank. for example, we've had bank of america here before us on multiple occasions. we've rolled country wide into b of a, i'm not for breaking up compans or taking a heavy hand, but if bank of america is too big to fail, shouldn't we be suggesting that, i'm not suggesting this, but shouldn't we be suggesting that they find a way to not be too big to fail

in whatever kind of dw divestitures. rather than putting them in the category of those who enjoy less expensive costs of assets. >> i think dodd frank gives us the tools to regulate any financial institution, regardless of its size, imposes systemic risks and gives us the tools to shut down such financial institutions. it gives us precisely the tools you're talking about. if i can respond more broadly. i think the concerns that mr. barofsky raised are tho that animated the congress in passing dd frank. those are the issues congress debated in passing dodd frank. >> as somebody on the conference for dodd frank and somebody who has been there all along, dodd frank was not altogether that bipartisan as you can imagine. i appreciate it can shut down entities after the fact. it has a heavy hand to determine who is a financial entity.

perhaps the next time general motors gets in tuble, we can shut them down rather than save them as a bank. moving on to ham, as the ig reports pretty thoroughly, we cannot get money back from loans to insolvent companies. we have to look at the money we won't get back an the suffering of people who won't get a loan modification if they can't afford a home or an elganltsz exit tt won't destroy the neighborhoods as we seek somebody who can afford it. i have december 31st, 2010 results and i would like you to comment on them. the goal of hamp 3-4 million loans. modifications cancelled, almost 800,000. can you give me your view of hamp based on those figures?

>> it's remarkably disspiriting. this was the program that was supposed to be to help main street. when t.a.r.p. was originally enacted, when you gave the treasury $00 billion, the idea was the treasury was going to buy toxic assets. the idea of including a goal was to address the fact that treasury was going to own so many of these mortgages that they be able to do these modifications themselves, being able to have that impact on main street. instead we have a program, the numbers youust indited, it's just not working. out of the $50 billion originally allocated, only a billion dollars have been spent. i hesitate to use the wo only a billion, but the numbers are -- we're running out of hope. there's no way we're going to ever get close to the 3 or 4 million that was the original expectations. even mor frustrating is

treasury will not give us their expectations. they must know what the run rate of what they expect the total number to be. they must have a goal. if they don't have a goal, they need to have one. we can't fix this program until we have specific benchmarks as to what the program is trying to accomplish of keeping people in their homes. not people who get trial modifications who fail, which was one of the benchmarks, not the number of people who get offers for trial modifications. how many people are going to get modifications who truly keep them in their homes. >> i recognize a member of this panel who has a deep interest in the modifications becoming permanent. >> thank you. the title of today's hearing is bailouts on the financial crisis. weave encouraging news. sig t.a.r.p. has increasingly favorable assesent of

t.a.r.p.'s financial successes. is that right, mr. barofsky? absolutely correct. >> heris what it says, i quote "on the financial side, t.a.r.p.'s outlook as never been better. not only did t.a.r.p. funds head off a financialcollapse, but t.a.r.p.'s direct financial cost to the taxpayer have fallen substantially while treasury's ultimate return on its investment depends on a host of variables that are largely unknowingly at this time. t.a.r.p.'s financial prospects today are far better than anyone could have dared hope two years ago." this is great news for the american taxpayer, but the report correctly warns that there is still hard work ahead. it's important that we continue strong oversight. i've long demanded stringent oversight of the t.a.r.p. program, a program proposed by president bush in 2008 and enact the after improvements by congress. i previously requested,

gentlemen, that sig t.a.r.p. audit the hundreds of millions of dollars aig expended on bonuses. i led 26 of my colleagues audit the counterparties. that said, i'm very concerned about the serious allegations of abuse by the mortgage service industry. today's sig t.a.r.p. report calls their performance abysmal and describes daily accounts of errors and more serious misconduct. the sig t.a.r.p. report also says this, "anecdotal evidence of their failures has been well chronicled, from the repeated loss of borrowed paperwork to the plate apt failure to follow program standards to unnecessary delays that severely harm borrowers while benefiting themselves." mr. chairman, we cannot do a comprehensive examination of the foreclosure crisis without hearing from the industry.

that is why i sent a letter on december 21st asking you to hold the committee's first hearing on the widespread utilization of fraudulent practices throughout the mortgage industry. this has been my number one priority, as you said. i assume we would move forward. it's the same reason i sent you another letter on monday asking you that you add an industry witness. i understand that you were not prepared to do that at this time and i understand that. mr. chairman, and to our witnesses, let me go to you, mr. barofsky, the servicers, what are you all doing about them? i mean, government has a role, the servicers have roles. i'm wondering what's happening with that? i ask you t same thing, mr. massad? >> be brief. >> we have, at sig t.a.r.p., we exercise our jurisdiction as we can. our one area of jurisdiction is one to investigate them if there's any criminal conduct. we do hve ongoing

investigations in that area. the second thing we can do is use our dit function to do reviews of the servicers, we have that ongoing as well. we're doing a review of their performance under the net present value tests and other aspects of their performance. what we cannot do is what treasury can do. you yield a big stick as well as the can carrots it oers and yield significant, tough penalties. we have to keep this program from being voluntary, not just in participation for the servicers but in compliance as well. >> mr. massad, what are we doing with regard to the servicers, because there have been horrendous stories about what servicers have been doing and what impact do they have on these numbers? >> congressman cummings, i agree it'seen abysmal. this is a voluntary program. congress didn't give us the tools to impose fines as mr. barofsky is suggesting. what we have is the ability to

withhold payment when they enter a permanent modification. a t of the problem was, we couldn't get them to get the permanent modifications done. we worked with them to change their performance. now, there are a number of other things that are going on i terms of the performance of the servicers. interagency task force that is oking at all the wrong things they've done in foreclosures, there is talk about having standards. we can't through hamp change the entire industry's behavior. this is a model, it's an industry that's broken. it didn't work. >> can you tell me this? is the justice department involved in anything you're doing? >> yes, they are. they are involved in the interagency task force, as are all the federal bank regulators and there's a lot of work being done on what types of reforms are needed. there's also work being done by the fhfa in terms of the

business structure. they simply weren't prepared for this crisis and aren't able to deal with people. nevertheless, i think we've got to remember that hamp has achieved over half a million modifications. these are people that make $50,000 a year. to write it off and say it's a failure i think is not really appropriate. now, the reason we haven't reached 3-4 million is basically, we have eligibility standards. the pool today of the people that are eligible is about 1.5 million. what are those eligibility standards? we don't help people who make enough money that they don't need government help. weon't help people who have million dollar mansions. we don't help people who have vacation homes. when you go through that and realize that's the eligible population, we've actually reached a lot of them, we're continuing to reach a lot of them. we had a thousand people turn out for an event in las vegas. while we've tried to incorporate

mrbarofsky's suggestions, other than the one where he said people should thumb print people, we didn't feel that was appropriate, i think the program is helping a lot of people. >> thank you, mr. chairman, i think my time has expired. >> the gentleman, from ohio is recognized for five minutes. >> thank you, mr. chairman. gentlemen, thank you for being here and addressing these important issues we have. both of you get a sense of the anger of the american people but also the sadness of the issues we're dealing with. when we look at your the "new york times" issued a quote and it says "the greatest tragedy would be to accept the refrain that no one could have seen this coming and that nothing could have been done. if we accept this notion, it will happen again.

" "what's sad is we approached this as it was unfolding. these things were knowable. i know i and many members of the congress were sounding the alarm of the mortgage foreclosure crisis and capital had to be lost as families were losing their economic future and their homes. when you look at t.a.r.p. and what is happening and how it's progressing, i do really -- i can't understand how treasury can claim its successes when it's had so many undefined executions. i voted against t.a.r.p. i voted against t.a.r.p. because i'm from ohio. ground zero from the mortgage foreclosure crisis. when they came and said they were going to buy toxic assets and they were going to he value, i knew they did not. i walked the neighborhoods and talked to the family who lost their homes. the short t.a.r.p. bill was not defined, as justify said, mr. barofsky i greatly appreciate that you not only look at what you're

trying to unwind but what they started with. this was an undefined bill and process. i think there are billions that have been lost. i'm very concerned about the hamp program because if we look to what the commissn said at this was avoidable, that means families were taken advantage of. that means families were taken advantage of and lost their financial future. hamp came forward as supposedly a government answer that's going to help them. we recognize there was a federal issue here. as the banks, all of the people, due to their greed, had perpetrated this, we were going to step in and help them. but it's not helping them. mr. barofsky, i want to thank you for the detail you provide us. when you get these final numbers and do the division, we're going to have spent an unbelievable amount for each of the loan modifications that occurred while doing nothing to stop the record foreclosures that are still occurring. first off, mr. barofsky, i

think, when we look at the ultimate numbers, we want to figure out what percentage of these people who did ultimately get loan modifications could have gotten them in the market meaning there was no subsidy that would have been needed. two, how many of these are going to fail anyway, because those are lost dollars also. what are the per unit costs in the end? could you speak to that for a moment as to how we're going to actually assess what was spent and -- we can always tell its a failure. thank you for your words on that. how are we going assess the waste. >> one of the good news aspects of the hamp program, to the extent there is good news, it's reflected in cbos loss estimate is that the program won't spend even closeo the amount of money that's allocated for it. money only gets spent when there's actual success. the remarkably low numbers of modifications means that a remarkably small amount of money will be spent. that's why we've only had --

it's only been a billion dollars out of the 45 that's actually been spent so far. to the extent there is good news, it is that it will not cost 9 taxpayer anywhere close to the allocated amounts. that distinction really bears any type of claim of success for the remarkably modest numbers of modifications that are coming from the program don't match up with what was originally intended. the advantage of not having real goals or benchmarks is you can claim success wherever you want and say that's a success. i do not mean in any way to demeanor say that this program isn't very important to those people who are enjoying it and have the benefit of these important sustainable permanent modifications in had any way, but i think the idea the reason there aren't more is because there are millionaires living in mansions and that's why. there are a lot of people out there who are struggling very hard who could benefit from these modifications.

>> mr. massad, i believe that the mortgage foreclosure crisis when it's ultimately analyzed will turn out to be the largest theft ofhistory. now we have t.a.r.p. and treasury is involved with this, and we have sig t.a.r.p. looking at it saying you're still managing this without measurable outcomes and are not being very forth coming in how the program is being evolved? >> i'm happy to respond to that. first of all -- >> puck do so briefly. >> as mr. barofsky noted, we only pay money if there's a permanent modification entered into, if we actually help someone enter into a permanent modification. we only pay for as long as that modification continues. there's a built-in taxpayer protection element to this. your question about unit costs, very good question, sir. in fact, it's structured so it is a uit cost program here.

we won't spend all the money if we don't enter into enough modifications. that moneyon'te spent for anything else. it will go back to repay the debt. that's number one. number two, as we said, the eligibility criteria here are another way to protect taxpayers. we only pay r people that we think are greatly in need. as to your overall question here on the mortgage crisis, viously there's a lot of study of this, fcic released its report today, and i think it noted that there's blame to go around in a lot of places. we must remember, t.a.r.p. was just set up to provide the resources to stabilize the system didn't change the regulatory structure. we now have dodd frank, which gives us new tools to regulate the financial industry so as to prevent this type of problem in the future. >> the chair now recognizes the former chairman of the committee, long-standing member

of the committee, mr. towns of brooklyn, new york. >> thank you very much, mr. chairman. let me first thank both of you for being here. i get the feeling that we sort of blaming each other. that bothers me because people are losing their homes. i wish you could just come and spend one day in my office. and just listen to people who are coming in and the stories that they're telling. some of the things they're saying, they made an application, all of a sudden, the application is lost. they call and they say no, we never received the papers when they actually presented the papers. the other one, which is really going becoming a problem is when they call back the third or fourth time, the person no longer works here so you need to find out who you were dealing with and of course, if the person is no longer there, how can you find anything?

i noticed youindicated, mr. massad, that the congress didn't give you the power. i understand that as well. but what cane do now to fix the situation that we're in? i mean, this is a crisis. i'm hoping that -- i want to join you, ranking member, in asking for a foreclosure hearing, where we can bring people in and let them tell their stories. for some reason, i don't think that the message is getting out in terms of the seriousness of this situation. >> congressman, i agree with your concern. i think you're absolutely right. we've tried to do what we can through hamp to put in a lot of borrower protections. we've required the servicers, if you're evaluating someo for hamp, you can't foreclose on them. we put in callaa lot of calls we get are from people who aren't eligible for hamp.

in terms of the overall industry, a lot of attention needs to be paid to this. more work will be needed. this congress needs to consider it. a lot of people have talked about whether we should have national servicing standards. people have noted that the basic econic model of servicing doesn't work. servicing works when you've got performing mortgages. the servicers collect the payments and pass them on to the investors. when it comes to dealing with a crisis like this for foreclosures, they're not equipped to do it. we've got to look at things like servicing standards, interagency task force is looking at a number of problems, regulators are as well. there's a lot of activity here. we'll see it in the coming months. >> mr. barofsky, what are the penalties you're talking about? can we sort of look again at that? something needs to be done. >> absolutely. i think as mr. massad said,

there's discussions of national servicing standards. i think chairman bahr of the fdic have put out great ideas for all servicers. they cou be adopted and put into the hamp program, but financial penalties based on withholding payments to the servicers. treasury negotiated a deal when it obligated about $30 billion for payments and that includes the ability to withhold payment and impose financial penalties. to the extent those penalties are not strong enough or good enough, that falls on treasury for not negotiating a better deal. this is not the most unpredictable possibility, when you have a program of this size and scope, there's going to be problems. treasury has repeatedly cited their ability to impose financial penalties is a sti that they have. we would encourage them to take the stick out. >> if i can reply to that. we are certainly conscious of that.

we may withhold amounts in the future. let's remember, we can only withhold the amount that we owe them for permanent modifications. if they haven't entered into very many permanent modifications, there's not that much to withhold. there weren't many permanent modifications, as this committee knows. people testifiedere in march. there were only 170,000 modifications. a lot of people said then the program was a failure. what we did sce that time is we have had a number of remedial actions that servicers took. fr that date, from late last march, we have increased the number of permanent modifications substantially no as i say, we're over 500,000. the refault rate on those is very, very low. >> mr. chairman, if there's something that we needto do, i think you need to say it, because we just can't continue to let people lose their homes.

thank you very much, chairman. >> the chair recognizes the gentleman from north carolina and the sub committee chairman of jurisdiction for this, mr. mchenry. >> thank you, mr. chairman. in consultion with the chairman, it's the intents of my sub committee to have field hearings and to hear from those that have been affected. we would welcome the treasury to invite individuals that have been helped. however, in my constituency and the constituents i've talked with, it's easier to find those hurt by hamp rather than helped. my questio is, do you have adequate provision under current law to make sure hamp is successful. yes or no? >> congressman, it depends -- >> yes or no. >> if i can -- >> i've got five minutes, mr. massad. yes or no. let me begin by asking, do you

ink hamp is successful. >> i do. >> do you believe under current provision of law, you have adequate authority to ensure that hamp is successful. >> i cannot solve the housing crisis with hamp alone if that is the meaning of your question. i think helping over 500,00 people enter into permanent mod modify indications, people who would otherwise be thrown out of their homes,eople who make $50,000 and their neighborhoods would be hurt because they're now living next to a home that could be vandalized, it depresses their property values, it's a trag on the economy, i think yes, those are dollars well spent. >> thank you. mr. barofsky, in your written testimony today, you outlined that there are 2.9 million homes received foreclosure filings in 2010, up from 2.8 million in 2009 and 3.8 million in 2008. can you discuss your findings on the hamp program?

>> yes, again, not to diminish the positive impact it has on those families and those that are able to sustain the program, but you have to look at what the program was expected to do and the context of the entire foreclosure crisis. the advantage of never actually putting out meaningful goals, means you can declare success, even when you have looking at a total for this entire program of 7 to 800,000, when you originally expected to help 3 to 4 million. this program, it helps five people, that's great for those five people. what about all those millions of people who are not getting helped? the millions of people that treasury and the administration identified the very beginning of this program who they were going to try help keep in their homes by modifying their mortgages to a sustainable level. the numbers don't lie. when i hear them declarg success with these incredibly

modest numbers, numbers that are so modest that they can't have enough money to pay to impose financial penalties, it's heartbreaking, it means they won't recognize and make the changes necessary to make this a better program, because i hear from those people as well. >> thank you, mr. barofsky. moving on to the small business lending fund, well, in one of your -- in your report, you requested treasury remove t.a.r.p. assets and uity from the entity's balance sheet for purposes of evaluating its application for the small business lending fund, the intent of the small business lending fund is to increase lending. has treasury been open to your proposal? >> treasury has rejected that recommendation. >> mr. massad, why did you reject that? >> because we wanted to make

sure we complied with congress's directives and the law. congress provided in the law that existing t.a.r.p. recipients could refinance their loans into this small business lending fund. we believe we're acting in accordance with that. >> sure, but it's not a provision of law how you measure the removal from t.a.r.p. in this small business lending fund, is there? >> we did not believe that congress was instructing us to basically penalize those institutions that had already received t.a.r.p. funds. quite the contrary. >> mr. barofsky, under your reading of the law, do they have provision to do this? >> absolutely. congress specifically made a provision in the law that gave the secretary of treasury the ability to fashion certain regulations for t.a.r.p. banks to enter into sblf. there's nothing in the statute that gives you a matter of right

by being a t.a.r.p. recipient that you automatally get to apply -- you automatically get converted into sblf. it offers tremendous advantages to t.a.r.p. recipients to convert. the taxpayer loses out on a lot of those. our recommendation is a simple one. let's make sure the banks you take out of t.a.r.p. and put into sblf are adequately capitalized to meet the goals of this program. we're not saying penalize blanks, but we do think it's important for treasury to be very responsible and make sure that those that are going to get the benefits of being an sblf are well suited to be able to do the new lending, new incentivized lending from government capital and we believe those banks should be treated as other ap kabtss who comento the program. for example, when a bank applied for the cpp, it didn't get to take into account government capital. that should be the same standard here. the fact that these banks have

the benefit of government capital, we dot believthat that necessarily -- that that capital shouldount when making that evaluation. if they can fulfill the goals of this program, great, they should be brought into the program, if they meet the other conditions. >> mr. chairman, i know my time has expired. i would ask mr. massad to respond in writing to this very subject. we were interested in this committee and if you have concern that you don't have adequate provision of law, we would like to change that. >> i thank the gentleman. the chair recognizes the chr from new york. >> first i would like to thank the panelist for their public service and report some good news in that the dow just crossed 12,000 for the first time since june of 2008. that shows capital is flowing again and is a very good sign of economic recovery in our great country. from your testimony today,

t.a.r.p. played a role in moving us in this good direction. you pointed out that it not only averted a meltdown, but laid the groundwork for economic recovery which we're seeing today. i must say that during the dark days, i was getting phone calls in the middle of the night and all day long from constituents who were afraid of a collapse there was a n on the money market on some banks and i personally believe that my vote in support of t.a.r.p. will historically be regarded as the right thing to do and good public policy, although all of us who were on the campaign trail, many of us were attacked relentlessly for having supported this important program. i would like permission to put in the record one of the best report that is i've seen on the successes. it's bipartisan from blinder, a

democratic economist and zandy, a republican one, on how the great recession was brought to an end. also an article in the american banker which talks about the home foreclosures and a foundation that is working with hamp and others to help people stay in their homes. >> so ordered. >> i specifically would like to respond to the two problems that mr. paragra mr. barofsky mentioned in his opening. first the confidence in our government, transparency and other management mistakes and i would like to mention that i authored a bill in response to your first criticisms on this that would have computerized t.a.r.p. in realtime so we would know where the finances are. it passed the house, backed by the chamber of commerce and bor, and i truly believe we should do it for the entire system. if we should be able to track our packages in two seconds, we should be able to track our

exposure in finances. i think it's an important bill. you also mentioned the too big to fail, the fact that there were concerns that we may not have done enough. i would like mr. massad to respond to this, specifically in the dodd frank bill and likewise on the conference committee with the chairman, we created a financial stability oversight council to monitor the systemic risk and to set criteria to identify institutions that may be heightened risk. i would like you to comment on the status o where that is. we also, very importantly, established an orderly winddo, similar to what we had in the fdic. we had two choice, boil out an institution or let them fail. neither was a good solution. we want to be able to wind them down as we were able to do with fdic banks so successfully. i want to know, are the rules in shape and where does that stand?

they'rely, we imposed capital requirements and leverage ratios to ensure that large institutions aren't taking excessive risk. i believe those rules are coming out in july, correct me if i am wrong and where does that stand? where do you think the leverage ancapital requirements will come out in your best judgment? and lastly, we called upon the sec to come up and we gave them actually new powers and authority and resources to go afr bad actors so we could find the next bernie madoff and help protect our system. i would like you to respond to where these initiatives stand? what do you recommend, if anything else, we need to do to protect us from too big to fail as pointed out in his testimony, and if you have enough time, could you respond to t.a.r.p. as it relates to the taxpayer? we know it was a great deal for our economy. it was a great deal for averting

economic risk. i'm the daughter of two parents who suffered in the depression. their ories were terrible. we averted that in our economy, but was it a good deal for the t taxpayer? thank you very much for your service. >> certainly, congresswoman, i would be happy to respond to all of those things. let me start with the last point. i appreciate that people that are still suffering from this crisis, and there are many, may not feel that t.a.r.p. did anything for them. mr. barofsky also has asked what did it do for main street. i think the stu you pointed out, the zandy study -- >> i would ask unanimous condition sent for an additional one minute for the witness to respond. >> it makes it very clear, we would have entered into a second great depression. we could have entered into unemployment of above 16%. the fact that we averted that is a benefit to main street. the fact that people cannow

borrow again and they couldn't as a result of this crisis is a benefit to main street. the fact that we have an auto industry in this country and we saved a million jobs, t just at the auto companies but their suppliers is a benefitto main street. there are a number of benits to main street. i don't think one has to look very far to realize that. as to the progress in implementing dodd frank, a lot of work is going on. i'm not responsible for that, but i'm happy to tell you what i know and make sure the proper officials of treasury give you additional information. the financial stability oversight council has been meeting actively in developing a number of rule makings to address these issues. they he the powers to regulate system risk and to look at what are the emerging trends in our financial system that nee to be addressed, so i think you will see a lot of work going on there. as to capital ratios, they are

working on that also. those will be higher. they are already higher. in other words, our financial system today is much better capitalized than it was in the fall of 2008, and many of the instutions are much better capitalized than their foreign competitors. the other thing i want to note -- >> if you can summarize briefly. >> on small banks, we funded over 400 small banks under t.a.r.p. that's another benefit to main street, because those banks help local communities, small businesses and families and as to congressman mchenry's point onhe sblf, obviously treasury suorted this new fund. the only issue is a minor one that mr. barofsky is raising beuse treasury does make a new credit decision on whether a t.a.r.p. recipient is eligible. if a t.a.r.p. recipient hasn't paid its dividends it'sot allowed to refinance, there is a new credit decision made. he's just raising a particular point which we felt the statute

did not allow us to do. >> i thank the gentleman. the chair recognizes the gentleman from ohio, mr. jordan. >> i want to thank the gentleman for being with us today. mr. barofsky, you and your staff in particular for the integrity and professionism you bring to your job. we certainly appreciate that. your comments earlier were that the hamp and the making home affordable programs, their performance remarkably disspirits. in today's journal, the foreclosure efforts have been with problems and continues to fail -- fall dramatically short of any meaningful standard of success. it goesn to mention about the fha short refinance program which started last fall and has helped 15 people. i guess my questi is at what point do we say this just isn't working?

this just isn't getting the job done? would we be better off discontinuing the whole program? after three years, 3-4 million goal, a few 100,000 have had help. the congress talks about the metric that they're using is offering people help. at what point do we say this is not working? let's just end this program. >> i continue to be a glass half full type of person. >> based on your comments, mr. barofsky, you wouldn't be a glass half full, you would be a glass 2% full or 1% full. i'm an optimistic guy too, we live in america. that's stretching it. >> i think hope is slipping away. if treasury couldn't respond to some of these things in quick manner, your suggestion of ending the program and others''s suggestions is going to be a louder and louder chorus.

we can't keep clinging for these noncredible declarations of succs and be straightforward and honest and say this is where we think the program wi be at the end of 2012 or the end of 2017 when the program is done. this is the number of peoe we intend to have sustainable permanent modifications. this is how we're going to get to that number. then you and this committee and the congress and the american people can make the evaluation. is it worth it? is it worth it to continue? i think if they fail to do so, you're probably dead on right. >> you got more patience than i have. yesterday, introduced with the co-sponsorship of the chairman and the ranking member of the committee, we introduced legislation to end the hamp program, we think any objective look at this, it doesn't warrant continued spending of taxpayer dollars. i want to be clear. you have jurisdiction over the 45 billion in the t.a.r.p. program that affects the

foreclosure programs, hamp being the biggest one. there's 25 billion that's available to treasury in the housing and economic development -- recovery act. is that accurate? >> that money is money that goes to fannie and freddie. >> is any of that money, i understand it's not your jurisdiction, has any of that money been applied or used in any way for foreclosure prevention type programs, if so, are the results similar to what we've seen in hamp? >> yes, when we're talking about hamp, we're talking about both components, the gsc and the t.a.r.p. the gse part of the program is better than the t.a.r.p. part of the program. of this 520,000, approximately or 540,000 of ongoing permanent modifications, more than half of those are attributable to fannie and freddie and the gse. it's about 230,000 modifications that are actually t.a.r.p. permanent modifications. there is activity over there.

we detail in our report, we break these numbers down, from gse to nongse, including the money they've reported that they've spent on the modifications. >> the bottom line is, there is approximately $70 billion that has been appropriated for this type of program, the hamp program, 70 billion, not 45, 70 billion, and 1 billion is all that went out the door for a program that's hurt people it's supposed to hel and in your definition, remarkably disspiriting program, what i would call a colossal failure. is that accurate? >> yes, i understand your frustration and share your frustration. i hope the treasury can hear what you're saying and come up and be honest about where this program is going, if it's going anywhere. >> i got 15 seconds. to put it all in context, $70 billion appropriated for this at a time, not helping the people

it's designed to help, total failure, the guy who is charged with inspecting it, understands total failure, at a time we have a $14 trillion national debt. at some point we have to say enough is enough and end this program. >> the chair now yields to the gentleman from ohio, mr. kucinich. >> isn't it true that hamp's performance is dependent upon the voluntary willingness of mortgage servicers to give loan modifications? >> yes. >> isn't it true that private mortgage servicers have found creative ways to frustrate attempts by distressed borrowers to save their homes? >> there certainly have been problems. >> is that a yes or no? >> i don't know if it's created but it's happened. >> since it's apparent that consumers don't get a fair shake, i can't understand why we don't have representative from the servicing industry to

explain that industry today. the minority requested that j.p. morgan chase, a major servicer appear today but the chairman refused. i don't know how we can have effective oversight for congress or the american public, how can they can really understand the federal response to the foreclosure crisis, which depends on the private sector without asking the private industry to explain their actions that are impeding this program. >> would the gtleman yield? >> if the chair will let me have my time afterwards. >> of course. the chair made a decision that today would be ful involved with the government side and the special ig's report. we do intend on having, among other, servicers and a review of the hamp program. this is the first of our discovery and the gentleman's yield back. >> sig t.a.r.p.'s report and other reports of abuses by loan

services raises serious concerns that these mortgage providers may be engaged in a pattern of abuse. mr. barofsky, i would like to request that your office conduct a specific audit on this issue and i would like to, estimate, ask the chair if you would join with me on this request since you're saying you're wling to go forward with looking at the mortgage servicers. >> i'll certainly consider it. would you give me the request in writing in. >> i'll do that, because i want to point out, thank you, mr. chairman, is while the chair has the unilateral privilege to issue subpoenas, the chair has the privilege not to call certain witnesses. it's comforting to know you'll consider calling witnesses in mortgage service industry, especially since it's so relevant to the matter at hand. the chair also, as we know, has the privilege to deny documents, the production of documents to other members. for example, in this case, i'm not saying this happened,ut my concern would be about the policy is that if there's any communication with the committee

and j.p. morgan chase, that the minority may not know about it. perhaps myself i wanted to address that in my opening statement. i didn't have that privilege. that's one of the problems in not having opening statements. i hope that as we continue down the road, this committee will understand the importance of tradition and procedure that respects the rights of all members because i think what it really does is it enables us to function more effectively. mr. massad, what is treasury doing to retool hamp to require service or performance? >> thank you, congressman for the question, it's a very important question. let me talk about some of the things we have done. we've requ