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ACCOUNTABILITY FOR THE TROUBLED
ASSET RELIEF PROGRAM

THE SECOND REPORT OF THE
CONGRESSIONAL OVERSIGHT PANEL

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JANUARY 9, 2009.—Ordered to be printed

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ACCOUNTABILITY FOR THE TROUBLED
ASSET RELIEF PROGRAM

THE SECOND REPORT OF THE
CONGRESSIONAL OVERSIGHT PANEL

JANUARY 9, 2009.—Ordered to be printed

*COM008*For sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800
Fax (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

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46–500

CONGRESSIONAL OVERSIGHT PANEL
PANEL MEMBERS
ELIZABETH WARREN, Chair
REP. JEB HENSARLING 1
RICHARD H. NEIMAN
DAMON SILVERS
SEN. JOHN E. SUNUNU

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1 Rep.

Hensarling did not approve this report.

(II)

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CONTENTS
Page

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Executive Summary .................................................................................................
Introduction ..............................................................................................................
Treasury Department Updates Since Prior Report ..............................................
Questions About the $700 Billion: Discussion of Treasury’s Responses .............
1. What Is Treasury’s Strategy? ......................................................................
2. Is the Strategy Working to Stabilize Markets? .........................................
3. Is the Strategy Helping to Reduce Foreclosures? ......................................
4. What Have Financial Institutions Done with the Taxpayers’ Money
Received So Far? .......................................................................................
5. Is the Public Receiving a Fair Deal? ..........................................................
6. What Is Treasury Doing to Help the American Family? ..........................
7. Is Treasury Imposing Reforms on Financial Institutions that Are Taking Taxpayer Money? ................................................................................
8. How Is Treasury Deciding Which Institutions Receive the Money? ........
9. What Is the Scope of Treasury’s Statutory Authority? .............................
10. Is Treasury Looking Ahead? ......................................................................
Treasury Department Response Grid ....................................................................
Oversight Activities .................................................................................................
Future Oversight Activities ....................................................................................
About the Congressional Oversight Panel .............................................................
Alternative Views ....................................................................................................
Appendix I: Letter from Congressional Oversight Panel Chair Elizabeth Warren to Treasury Secretary Mr. Henry M. Paulson, Jr., dated December
17, 2008 .................................................................................................................
Appendix II: Treasury Department Responses to Questions of the First Report
of the Congressional Oversight Panel, dated December 30, 2008 ....................

(III)

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ACCOUNTABILITY FOR THE TROUBLED ASSET RELIEF
PROGRAM

JANUARY 9, 2009.—Ordered to be printed

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EXECUTIVE SUMMARY
In its first report to Congress on December 10, 2008, the Congressional Oversight Panel (COP or the Panel) posed ten basic
questions—in effect asking for an explanation of the U.S. Department of Treasury’s goals and methods for the Troubled Asset Relief
Program (TARP). The Panel’s questions, in turn, included a number of subsidiary questions, which sought additional details from
the Treasury. In total, the Panel sought responses to 45 separate
questions about the execution of the authority granted to Treasury
under the Emergency Economic Stabilization Act (EESA) and the
$350 billion in taxpayer funds that has been ‘‘effectively allocated’’
under that program. On December 30, 2008, Treasury responded to
the Panel with a 13-page letter. While the letter provided responses to some of the Panel’s questions and shed light on Treasury’s decision-making process, it did not provide complete answers
to several of the questions and failed to address a number of the
questions at all. To gain a more complete understanding of what
Treasury is doing and why, the Panel asks Treasury to provide additional information clarifying its earlier responses.
In order to exercise its legally-mandated oversight functions, the
Panel has initiated a number of fact-finding efforts and independent investigations that will be the subject of future reports.
But the Panel’s independent work does not eliminate the need for
Treasury to respond to the Panel’s questions. Some of these questions can be answered only by Treasury (e.g., Treasury’s strategic
plans) and others seek to clarify what appear to be significant gaps
in Treasury’s monitoring of the use of taxpayer money (e.g., asking

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financial institutions to account for what they have done with taxpayer funds).
To ease the burden on Treasury and to make it clear precisely
which questions remain to be answered, the Panel has constructed
a grid with its original questions and Treasury’s responses. Although many questions remain outstanding, the Panel highlights
four specific areas that it believes deserve special attention:
(1) Bank Accountability. The Panel still does not know what the
banks are doing with taxpayer money. Treasury places substantial
emphasis in its December 30 letter on the importance of restoring
confidence in the marketplace. So long as investors and customers
are uncertain about how taxpayer funds are being used, they question both the health and the sound management of all financial institutions. The recent refusal of certain private financial institutions to provide any accounting of how they are using taxpayer
money undermines public confidence.2 For Treasury to advance
funds to these institutions without requiring more transparency
further erodes the very confidence Treasury seeks to restore. Finally, the recent loans extended by Treasury to the auto industry,
with their detailed conditions affecting every aspect of the management of those businesses, highlights the absence of any such conditions in the vast majority of TARP transactions. EESA does not require recipients of TARP funds to make reports on the use of funds.
However, it is within Treasury’s authority to make such reports a
condition of receiving funding, to establish benchmarks for TARP
recipient conduct, or to have formal procedures for voluntary reporting by TARP recipient institutions or formal guidelines on the
use of funds. The adoption of any one of these options would further the purposes of helping build and restore the confidence of
taxpayers, investors, and policy makers.
(2) Transparency and Asset Evaluation. The need for transparency is closely related to the issue of accountability. The confidence that Treasury seeks can be restored only when information
is completely transparent and reliable. Currently, Treasury’s strategy appears to involve allocating the majority of the $700 billion
to ‘‘healthy banks,’’ banks that have been assessed by their regulators as viable without federal assistance. Of course, whether a
bank is ‘‘healthy’’ depends critically on the valuation of the bank’s
assets. If the banks have not yet recognized losses associated with
over-valued assets, then their balance sheets—and Treasury’s assessment of their health—may be suspect.
Many understood the purpose of EESA to be providing assistance
to financial institutions that were ‘‘unhealthy’’ and at risk of failing. Such institutions were at risk, the public was told, due to socalled toxic assets that were impairing their balance sheets. EESA
was designed to provide a mechanism to remove or otherwise provide clear value to those assets. The case of Citigroup illustrates
this problem. Treasury provided Citigroup with a $25 billion cash
infusion as part of the ‘‘healthy banks’’ program whereby Treasury
made nine initial investments in major banks. About two months
later, Treasury provided Citigroup with $20 billion in additional
equity financing, apparently to avoid systemic failure, but it did
2 See, e.g., Matt Apuzzo, Where’d the Bailout Money Go? Shhhh, It’s a Secret, Associated Press
(Dec. 22, 2008) (online at apnews.myway.com/article/20081222/D957QL7O0.html).

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not classify that investment as part of the Systemically Significant
Failing Institution program (SSFI program). These events suggest
that the marketplace assesses the assets of some banks well below
Treasury’s assessment. To date no such mechanism to provide more
transparent asset valuation has been developed, meaning that the
danger posed by those toxic assets remains unaddressed. The bubble that caused the economic crisis has its foundations in toxic
mortgage assets. Until asset valuation is more transparent and
until the market is confident that the banks have written down bad
loans and accurately priced their assets, efforts to restore stability
and confidence in the financial system may fail.
(3) Foreclosures. The crisis in the housing sector continues to affect any efforts at recovery. In enacting EESA, Congress called
upon Treasury to
implement a plan that seeks to maximize assistance for
homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage
of the HOPE for Homeowners Program under section 257
of the National Housing Act or other available programs to
minimize foreclosures. In addition, the Secretary may use
loan guarantees and credit enhancements to facilitate loan
modifications to prevent avoidable foreclosures.3
When Congress authorized the Panel, it specifically requested
that the Panel evaluate ‘‘the effectiveness of foreclosure mitigation
efforts.’’ 4 While the statute contemplates that foreclosure mitigation would be accomplished through the purchase of mortgage-related assets, many believe that Treasury has clear authority to use
a portion of the $700 billion to address mortgage foreclosures in
other ways. For Treasury to take no steps to use any of this money
to alleviate the foreclosure crisis raises questions about whether
Treasury has complied with Congress’s intent that Treasury develop a ‘‘plan that seeks to maximize assistance for homeowners.’’ 5
(4) Strategy. The Panel’s initial concerns about the TARP have
only grown, exacerbated by the shifting explanations of its purposes and the tools used by Treasury. It is not enough to say that
the goal is the stabilization of the financial markets and the broader economy. That goal is widely accepted. The question is how the
infusion of billions of dollars to an insurance conglomerate or a
credit card company advances both the goal of financial stability
and the well-being of taxpayers, including homeowners threatened
by foreclosure, people losing their jobs, and families unable to pay
their credit cards. It would be constructive for Treasury to clearly
identify the types of institutions it believes fall under the purview
of EESA and which do not and the appropriate uses of TARP
funds. The need for Treasury to address these fundamental issues
of strategy has only intensified since our last report.
The issues related to strategy have wider implications as well. It
appears that Treasury in its post-American International Group,
Inc. (AIG) actions is using public dollars to support the value of eqsmartinez on PROD1PC64 with HEARING

3 Emergency
4 Id.,
5 Id.,

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Economic Stabilization Act of 2008, Pub. L. No. 110–343, at § 109(a).
at § 125(b)(1)(A)(iv).
at § 109(a).

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uity in financial institutions. What strategy lies behind that decision? What about other alternatives? Would it be better and more
cost effective to encourage private capital investors to assume control of such banks? Should those banks be required to maintain
higher capital or liquidity positions or to pay higher Federal Deposit Insurance Corporation (FDIC) insurance premiums? Should
we focus on ensuring that systemically significant institutions meet
their fixed obligations and let the equity in such institutions be
fully at risk, as we did in AIG? Should we simply let market forces
work—letting sick banks fail and the healthy banks take the business? The Panel does not embrace any of these suggestions. Instead, it asks whether Treasury is involved in that re-thinking
process.
The Panel recognizes that Treasury has many pressing obligations, and the Panel appreciates Treasury’s efforts to give timely
responses. Ultimately, the Panel hopes that by posing these questions and offering these comments that it can be helpful to Treasury as it attempts to find more effective tools to deal with the current financial crisis.

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INTRODUCTION
Under Section 125(b) of EESA, the Congressional Oversight
Panel is charged with making regular reports on:
• the use by the Secretary of the Treasury of authority
under EESA, including his contracting authority and administration of the program;
• the impact of purchases made under EESA on the financial markets and financial institutions;
• the extent to which the information made available on
transaction under the program has contributed to market
transparency; and
• the effectiveness of foreclosure mitigation efforts, and the
effectiveness of the program from the standpoint of minimizing
long-term costs to the taxpayers and maximizing the benefits
for taxpayers.
In its first report to Congress, the Panel posed ten basic questions and many subsidiary questions about Treasury’s exercise of
its authority under EESA. These questions set the framework for
the related areas of inquiry that the Panel intends to pursue. The
Panel is seeking information and advice from noted financial experts, academics, and the public. COP also invites public contributions through field hearings or through our website
(cop.senate.gov).
The highlighted area of this January Oversight report is an evaluation of Treasury’s response to our December report. That section
is titled, ‘‘Questions About the $700 Billion: Discussion of Treasury’s Responses.’’
In addition to monthly reporting, the Panel is charged with
issuing a Special Report later this month on the topic of regulatory
reform. The Panel also intends to issue other supplementary updates to Congress on a rolling basis, as recommendations or other
findings are identified.

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The Panel pledges to do its best to keep Congress and the public
informed on the impact of Treasury’s use of public funds and the
effectiveness of the program in achieving the Congressional purposes, as stated in EESA, of (1) helping to ‘‘restore liquidity and
stability to the financial system of the United States,’’ and (2) ensuring that taxpayer funds are used ‘‘in a manner that protects
home values, college funds, retirement accounts and life savings;
preserves homeownership and promotes jobs and economic growth;
maximizes overall returns to the taxpayers of the United States;
and provides public accountability.’’ 6
TREASURY DEPARTMENT UPDATES SINCE PRIOR
REPORT

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In the past weeks, Treasury has created new programs and expanded the scope of institutions eligible for TARP funding. The
Panel will continue to evaluate the terms and conditions of the new
programs and will provide updates on the effectiveness of these efforts.
• Automotive Industry Financing Program (AIFP). On December
19, 2008, Treasury announced a plan to make emergency TARP
loans to General Motors Corporation and Chrysler LLC, to avoid
bankruptcy and prevent further financial harm to the economy. In
addition, on December 29, Treasury purchased $5 billion in senior
preferred equity with an 8% dividend from GMAC LLC. Under the
agreement, GMAC issued warrants in the form of additional preferred equity in an amount equal to 5% of the preferred stock purchase. These warrants were exercised at the close of the transaction and pay a 9% dividend. Treasury has also agreed to lend up
to $1 billion to General Motors to facilitate their participation in
a rights offering by GMAC, to support GMAC’s reorganization as
a bank holding company. These steps are part of the AIFP. The
AIFP provides support both to automobile manufacturers and automobile finance companies and is a recognition by the administration of the critical importance of this key industry to economic stability. The Panel will be comparing and evaluating the appropriateness of the terms and conditions connected with the receipt of
TARP funds across industries.
• Asset Guarantee Program (AGP). On December 31, 2008,
Treasury submitted a report to Congress that outlined the AGP,
which was established pursuant to Section 102 of EESA. The program will provide guarantees for assets held by systemically significant financial institutions. The previous guarantees made to
Citigroup that were announced on November 23 may come under
the umbrella of the AGP. The December 31 report contains an
overview of Treasury’s thought process in structuring guarantees,
including the relative merits of various loss positions and eligibility
standards for participating institutions. An evaluation of the AGP,
including additional conversations with Treasury to consider specifics of the program, will be undertaken by the Panel.
• Targeted Investment Program (TIP). On January 2, 2009,
Treasury formalized the TIP, a new program for financial institutions at risk of a loss of market confidence due to market volatility.
6 Id.,

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Eligibility considerations include whether destabilization of the institution would cause systemic disruptions to the nation’s financial
markets, credit, payments and settlements systems, or would
threaten asset prices or the broader economy. The terms and conditions of the TIP, a program that Treasury expects would only be
used in exceptional cases, are still under development. The Panel
intends to dialog with the Treasury to determine more specifically
the conditions under which TIP, as opposed to the SSFI program,
would be used. The Panel also intends to offer the new administration its input in the administration’s effort to design the parameters of the TIP.

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QUESTIONS ABOUT THE $700 BILLION: DISCUSSION OF
TREASURY’S RESPONSES
On December 17, the Panel asked Treasury to respond to the ten
questions set forth in the Panel’s first report. On December 30,
Treasury responded to the Panel’s December 17 request. This section sets forth a summary and analysis of the Treasury’s response,
and the next section includes a grid with Treasury’s answers and
COP’s response to those answers. (The full text of the Panel’s letter
and Treasury’s response are included as Appendix I and II to this
report.)
While Treasury’s letter provided responses to some of the Panel’s
questions and shed some light on Treasury’s decision-making process, it did not provide complete answers to several of the questions
and failed to address some of the questions at all. The Panel is
committed to making independent determinations of the answers to
our questions. That work must begin, however, with an understanding of Treasury’s thinking. The Panel is concerned that Treasury’s initial response to our questions is not comprehensive and
seems largely derived from earlier Treasury public statements.
• Treasury should provide an analysis of the origins of the
credit crisis and the factors that exacerbated it. Only then will
Congress be able to determine the appropriate legislative responses.
• Treasury should set forth the metrics by which success of
the TARP in meeting the Congressional goals will be judged.
• The Panel believes that, to date, Treasury’s actions to minimize avoidable foreclosures have not met Congress’ expectations. An upcoming Panel report will make recommendations
on the best ways to stem such foreclosures.
• Treasury should explain its basis for determining that all
healthy banks are eligible to receive TARP funds, irrespective
of whether they are in the lending business or are otherwise
systemically significant.
1. What Is Treasury’s Strategy? The Panel’s first set of questions
asked about Treasury’s strategy in administering the TARP. There
has been much public confusion over the purpose of the TARP, and
whether it has had any effect on the credit markets, helped in price
discovery for frozen assets, or increased lending. The name ‘‘Troubled Asset Relief Program’’ indicated that original purpose of buying troubled assets, but Treasury abruptly switched course and
began making direct investments in banks.

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Treasury’s response regarding its strategy was not limited to its
use of TARP funds:
Treasury’s strategy is to work in coordination with all government agencies to use all the tools available to the government to achieve the following critical objectives:
• Stabilize financial markets and reduce systemic risk;
• Support the housing market by avoiding preventable
foreclosures and supporting mortgage finance; and
• Protect taxpayers.
Treasury’s response to our questions lists numerous initiatives
that do not involve the use of TARP funds. While the Panel agrees
with Treasury’s goals, our Congressional mandate is to oversee the
use of the TARP funds to determine if these goals are met. In particular, the Panel sees no evidence that Treasury has used TARP
funds to support the housing market by avoiding preventable foreclosures. For Treasury to meet the stated intentions of EESA,
Treasury must strengthen its efforts in this regard.
The Panel also asked Treasury for its conclusions about the nature and origins of the problem it is trying to address through
TARP. Treasury did not provide any such analysis of the cause of
the problem. The Panel believes, however, that it is important for
Treasury and our financial services regulators to have an analysis
of the causes and nature of the financial crisis to be able to craft
a strategy for addressing the sources, and not solely the symptoms,
of the problem or problems.
2. Is the Strategy Working to Stabilize Markets? The Panel’s second set of questions dealt with whether Treasury’s strategy was
working to stabilize financial markets and our overall economy and
to fulfill the other Congressional goals. The Panel continues to believe that Treasury needs to set forth the metrics by which these
goals will be judged. Treasury’s response designates an assertion
and two metrics that purport to show that—in combination with
other actions—Treasury’s strategy has worked. Treasury claims
that the TARP capital investments stemmed a series of financial
institution failures and made the financial system fundamentally
more stable than it was when Congress passed the legislation. It
cites the ‘‘average credit default swap spread’’ for the eight largest
U.S. banks, which Treasury notes has declined by about 240 basis
points since before Congress passed EESA. Treasury does not state
the dates of their measurements or note that credit spreads have
been extremely volatile over the fourth quarter. The metric Treasury cites is the spread between the London Interbank Offered Rate
(LIBOR) and the Overnight Index Swap rates (OIS). Treasury
notes that 1-month and 3-month LIBOR–OIS spreads have declined about 220 and 145 basis points, respectively since the law
was signed, and about 310 and 240 basis points, respectively, from
their peak levels before the Capital Purchase Program (CPP) was
announced. While it is true that the short-term spreads have contracted, they remain far above historic averages. Moreover, the
long-term bank spreads remain extremely elevated. And, bank
spreads represent a single indicator on the broader financial crisis.
There is a need to have metrics that gauge the markets more
broadly, as well as other economic measures, in order to form any
firm view of the effectiveness of Treasury’s strategy.

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Although Treasury notes that it is also monitoring the effects of
capital infusions on lending, it does not state what metrics it plans
to use. While both tightened credit standards and the economic
slowdown undoubtedly have depressed lending, these events do not
justify the failure to measure whether the TARP capital investments are having a positive effect on lending. The Panel therefore
hopes to learn how Treasury plans to measure this important variable. The Panel stated in its first report that it believed Treasury
should monitor lending at the individual TARP recipient level, and
here the Panel again restates that recommendation.
3. Is the Strategy Helping to Reduce Foreclosures? One of Congress’ stated goals was ‘‘foreclosure mitigation efforts.’’ The Panel’s
third question was whether Treasury’s strategy with respect to the
TARP was reducing foreclosures. Treasury responded with a resounding yes, although none of the actions they credit with reducing foreclosures have a direct connection to TARP funding. This includes (1) preventing the failure of Fannie Mae and Freddie Mac,
(2) Treasury and Fed programs to purchase Government Sponsored
Enterprise (GSE) mortgage-backed securities, (3) attempts by the
HOPE NOW Alliance, a coalition of mortgage servicers, investors
and counselors, to help struggling homeowners by negotiating loan
work-outs, (4) the development by HOPE NOW and the American
Securitization Forum of a fast-track loan modification program to
modify loans of subprime ARM borrowers facing unaffordable rate
resets, and (5) the November 2008 industry announcement, along
with HOPE NOW, the Federal Housing Finance Agency (FHFA)
and the GSEs, of a streamlined loan modification program that
builds on the mortgage modification protocol developed by the
FDIC for IndyMac. A group of state attorneys general and banking
departments have criticized many existing loan modification efforts, since many do nothing to reduce mortgage rates to affordable
amounts. 7 More importantly, Treasury does not cite recent statistics on re-default rates. Only if homeowners have a realistic chance
to remain current on their mortgages can a modification be deemed
effective.
4. What Have Financial Institutions Done With the Taxpayers’
Money Received So Far? The Panel’s fourth area of inquiry focused
on what financial institutions have done with the taxpayer money
they received. As indicated in question 1 above, Treasury appears
to believe the question is beside the point because their goal for the
CPP is to stabilize the financial system and to restore confidence
in financial institutions. This, they believe, will eventually increase
the flow of credit. Treasury argues that there are several reasons
why the TARP investments will be slow to produce increased lending: (1) The CPP began only in October 2008, and the money must
work its way into the system before it can have the desired effect.
(2) Because confidence is low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious
about taking on new loans. (3) Credit quality at banks is deteriorating, which leads banks to build up their loan loss reserves. For
example, Treasury notes that the level of loan loss provisioning by
7 Conference of State Bank Supervisors State Foreclosure Prevention Working Group, Analysis
of Subprime Mortgage Service Performance: Data Report No. 3 9–10 (Sept. 2008) (online at
www.csbs.org/Content/NavigationMenu/Home/SFPWGReport3.pdf).

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9
banks doubled in the third quarter from one year ago. Treasury
seems to be suggesting these larger trends may be obscuring the
effect of TARP funds. The Panel understands the reasons why
measurement of banks’ use of TARP funds may be difficult. Nevertheless, the Panel believes such direct measurements at the level
of individual TARP recipient firms are important for determining
the extent to which the funds are having a direct benefit to businesses and consumers.
5. Is the Public Receiving a Fair Deal? The Panel’s fifth question
dealt with whether the public is receiving a fair deal from the CPP
and other investments. Treasury states that its investments are a
good deal for the public for two reasons. First, the government will
own shares which Treasury expects to yield a reasonable return
and, second, the government will also receive warrants for common
shares in participating institutions, which will allow the taxpayer
to benefit from any appreciation in the market value of the institution. The Panel asked Treasury to compare the terms Treasury obtained for its investments and terms obtained by private parties investing in the same firms during the same period. Treasury did not
believe this comparison was relevant and made no comparison.
Treasury claims that, when measured on an accrual basis, the
value of the preferred stock is at or near par. Treasury does not
explain whether by ‘‘accrual basis’’ it means historical cost accounting, in which case its statement is a tautology, or whether it means
some other method of accrual accounting. Treasury states that
when measured on a mark-to-market basis, the value of some preferred stock may be judged lower than par, particularly if the valuation date is the purchase date rather than the announcement
date, as equity markets have dropped since the program was first
announced.
Finally, Treasury argues that it is not making the CPP investments for short-term gains. Rather, Treasury claims that, over
time, the taxpayers will be protected by ensuring the stability of
the financial system and by earning a return on these investments
when they are eventually liquidated.
6. What Is Treasury Doing to Help the American Family? The
Panel’s sixth question was whether Treasury was using its ownership position in banks to encourage them to take actions to help
American families. In particular, the Panel asked whether Treasury’s actions preserved access to consumer credit, including student
loans and auto loans at reasonable rates, and whether Treasury
was taking action to ensure that public money could not be used
to subsidize lending practices that are exploitive, predatory, or otherwise harmful to customers.
Treasury answered that its TARP programs to preserve access to
consumer credit do not involve encouraging or mandating banks to
take consumer-friendly actions with respect to credit cards or other
consumer loans.
7. Is Treasury Imposing Reforms on Financial Institutions that
Are Taking Taxpayer Money? The Panel’s seventh group of questions concerned whether Treasury was requiring recipients to undertake any particular reforms, including (1) the presentation of a
viable business plan, (2) the replacement of failed executives and/
or directors, (3) reforms designed to prevent future crises, to in-

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crease oversight, and to ensure better accounting and transparency, and (4) other appropriate operational reforms.
Treasury responded that it has required recipients of CPP funds
to adhere to the executive compensation restrictions required by
EESA. In addition, Treasury barred any increase in dividends for
three years and restricted share repurchases. Both the dividend increase and share buyback restrictions are designed to prevent
banks from taking capital out of the financial system. Under the
SSFI program, Treasury imposed additional terms and conditions
on AIG. AIG must meet additional executive compensation, corporate expenses, and lobbying restrictions.
While some executives at some financial institutions have voluntarily reduced their compensation, there is no uniform program in
place. Treasury has the power to set the ‘‘terms and conditions’’ of
any purchase it makes using the TARP funds. The Panel continues
to ask Treasury to explain why it has not required more of financial institutions, particularly in light of both the steps taken by the
United Kingdom in similar circumstances and the extensive conditions imposed on auto companies, as a condition for receiving TARP
funds.
8. How Is Treasury Deciding Which Institutions Receive the
Money? The Panel’s eighth question concerned Treasury’s decisions
about which institutions would receive TARP money. In response,
Treasury referred the Panel to Treasury’s website, which showed
the application form for TARP funds. The Panel was not seeking
the information about the technical process for applying to participate in the progress, but rather whether Treasury’s approach to advance taxpayer money to all healthy banks, regardless of the
bank’s business profile, constitutes an effective use of funds. If the
goal of the program was to stabilize financial markets, then Treasury should have standards for determining which banks are significant participants in the capital markets. If the goal of the program
was to increase consumer and small business lending, then Treasury should have standards for determining which banks are active
small business and consumer lenders or have committed to lend to
small businesses and consumers.
The Panel was also interested in Treasury’s approach to the effect TARP transactions were having on the structure of the banking industry, and whether any such effects were the result of a deliberate strategy on Treasury’s part. Treasury did not address this
aspect of the Panel’s question.
9. What Is the Scope of Treasury’s Statutory Authority? The Panel’s ninth area of inquiry sought Treasury’s opinion of the scope of
its statutory authority. It also sought information about guarantees, credit insurance, joint stabilization efforts, and transparency
of prices under the Term Asset-Backed Securities Loan Facility
(TALF) program. In response, Treasury quoted the language of
EESA and said it was working on the guaranty and credit insurance programs.
The Panel posed this question in order to understand Treasury’s
interpretation of the statute in relation both to the actions Treasury has taken so far under EESA and to actions Treasury might
take in the future. The pending arrangements with the automobile
industry suggest that more thinking must go into this question

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than a mere rote recitation of the statute. COP is particularly interested in what limits, if any, Treasury sees to the definition of
‘‘financial institution’’ and ‘‘troubled asset’’ and hopes Treasury will
provide its assessment of whether those terms cover other businesses, such as commercial real estate, manufacturers of consumer
products, and other businesses not directly involved in financial
services.
10. Is Treasury Looking Ahead? Finally, the Panel asked whether Treasury was looking ahead. In particular, it asked about likely
challenges in implementing EESA and whether Treasury believed
it had adequate contingency plans if the economy suffered further
disruptions. Treasury responded that it is actively engaged in developing additional programs to strengthen our financial system so
that credit flows to our communities, and that it is confident that
it is pursuing the right strategy to stabilize the financial system
and support the flow of credit to our economy. But it did not share
any future plans or explain if any strategic planning for other financial reversals is in place.

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38

39
OVERSIGHT ACTIVITIES
COP was established as part of EESA. It was formed on November 26, 2008, and it issued its first report on December 10, 2008.
That report posed ten questions that identified central issues regarding the use of taxpayers’ funds through the TARP.
Since the first report, the following developments pertaining to
COP’s oversight of the TARP took place:
• On December 16, 2008, COP held a Field Hearing in Clark
County, Nevada to examine the roots of the financial crisis and
its impact on everyday Americans. At the hearing, scores of
local residents turned out to personally voice their skepticism
and concern over the TARP’s lack of transparency.
• On December 17, 2008, Elizabeth Warren, Chair of the
Panel, sent a letter to Treasury Secretary Henry Paulson on
behalf of the Panel requesting that Treasury answer the questions posed in the first report.
• On December 30, Treasury responded to the Panel’s December 17 request. Both the full text of Professor Warren’s letter and Treasury’s response are included in the Appendices to
this report.
• COP has engaged consultants to help us determine if
Treasury’s investments in preferred stock of various banking
organizations under its Capital Purchase Program were made
on terms that minimize long-term costs and maximize benefits
to the taxpayers.
• COP has received and reviewed more than 2,500 messages
with stories, comments, or suggestions through cop.senate.gov.

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REPORT ON FIELD HEARING IN CLARK COUNTY, NEVADA

On December 16, 2008, COP held its first field hearing, in Clark
County, Nevada. Clark County suffered from over 30,000 foreclosures in 2008, an increase of nearly 300% from 2007. Overall,
Nevada has had the highest foreclosure rate in the nation for 23
months.
The hearing took place at the Thomas and Mack Moot Court at
the University of Nevada-Las Vegas Law School. Three Panel
members attended the hearing: Elizabeth Warren, Richard H.
Neiman, and Damon Silvers.
At the hearing, the Panel sought information from a broad spectrum of sources about the nature and cause of the current financial
situation, the impact of federal government actions to date to address the economic crisis, and local initiatives to address the crisis.
The Panel heard testimony from the following witnesses:
• George Burns, Commissioner, Nevada Financial Institutions Division
• R. Keith Schwer, Director, Center for Business and Economic Research, UNLV
• Bill Uffelman, President and Chief Executive Officer, Nevada Bankers Association
• Gail Burks, President and Chief Executive Officer, Nevada
Fair Housing Center
• Julie Murray, Chief Executive Officer, Three Square Food
Bank

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• Danny Thompson, Executive Secretary-Treasurer, Nevada
State AFL–CIO
• Alfred Estrada, Resident of Clark County
The Panel also heard from the following elected officials:
• Harry Reid, United States Senate Majority Leader (D–NV)
• Shelley Berkley, Congresswoman (D–NV)
• Dina Titus, Congresswoman-elect (D–NV)
Senator Harry Reid, Representative Shelley Berkley and Representative-elect Dina Titus emphasized the importance of ensuring that the use of TARP funds benefit American working families.
George Burns, Keith Schwer, and Bill Uffelman discussed the collapse of the housing bubble and the current state of the Nevadan
economy. The witnesses on the second panel—Gail Burks, Julie
Murray, Danny Thompson, and Alfred Estrada—testified about the
human consequences of the economic downturn.
Video, a transcript and testimony from the Clark County Field
Hearing are available at cop.senate.gov.
The Panel owes a special thanks to UNLV President David Ashley, UNLV Law School Dean John White and the Boyd School of
Law staff for their hospitality in hosting this event. The Panel also
owes thanks to Kenneth LoBene, the local Field Office Director for
the U.S. Department of Housing and Urban Development, for providing them with a tour of local neighborhoods severely impacted
by foreclosures following the hearing.
FUTURE OVERSIGHT ACTIVITIES
PUBLIC HEARINGS

Given its successful public hearing in Clark County, Nevada,
COP will continue to hold field hearings to shine light on the
causes of the financial crisis, the administration of TARP, and the
anxieties and challenges of ordinary Americans. The next hearing
will be on January 14, 2009 in Washington, DC.
UPCOMING REPORTS

In January 2009, COP will release a report providing recommendations for reforms to the financial regulatory structure.
The report will provide a roadmap for a regulatory system that will
revitalize Wall Street, protect consumers, and ensure future stability in the financial markets. In early February, COP will release
its third oversight report.
PUBLIC PARTICIPATION AND COMMENT PROCESS

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The Panel encourages members of the public to visit its website
at cop.senate.gov. The website provides information about COP and
the text of COP’s reports. In addition, concerned citizens can share
their stories, concerns, and suggestions with the Panel through the
website’s comment feature. To date, COP has received more than
2,500 comments, and COP looks forward to hearing more from the
American people. By engaging in this dialogue, COP aims to enhance the quality of its ideas and advocacy.

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41
ABOUT THE CONGRESSIONAL OVERSIGHT PANEL
In response to the escalating crisis, on October 3, 2008, Congress
provided the U.S. Department of the Treasury with the authority
to spend $700 billion to stabilize the U.S. economy, preserve home
ownership, and promote economic growth. Congress created the Office of Financial Stabilization (OFS) within Treasury to implement
a Troubled Asset Relief Program (TARP). At the same time, Congress created COP to ‘‘review the current state of financial markets
and the regulatory system.’’ The Panel is empowered to hold hearings, review official data, and write reports on actions taken by
Treasury and financial institutions and their effect on the economy.
Through regular reports, COP must oversee Treasury’s actions, assess the impact of spending to stabilize the economy, evaluate market transparency, ensure effective foreclosure mitigation efforts,
and guarantee that Treasury’s actions are in the best interests of
the American people. In addition, Congress has instructed COP to
produce a special report on regulatory reform that will analyze ‘‘the
current state of the regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers.’’
On November 14, 2008, Senate Majority Leader Harry Reid and
the Speaker of the House Nancy Pelosi appointed Richard H.
Neiman, Superintendent of Banks for the State of New York,
Damon Silvers, Associate General Counsel of the American Federation of Labor and Congress of Industrial Organizations (AFL–CIO),
and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard
Law School to the Panel. With the appointment on November 19
of Congressman Jeb Hensarling to the Panel by House Minority
Leader John Boehner, the Panel had a quorum and met for the
first time on November 26, 2008, electing Professor Warren as its
chair. On December 16, 2008, Senate Minority Leader Mitch
McConnell named Senator John E. Sununu to the Panel, completing the Panel’s membership.
In the production of this report, COP owes special thanks to
Adam Blumenthal for his help in interpreting financial statistics
and to Professor Adam Levitin for his assistance in working
through the foreclosure data. Ganesh Sitaraman provided important drafting help and also deserves COP’s special thanks.
ALTERNATIVE VIEWS

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SEN. JOHN E. SUNUNU

The central portion of this report presents Treasury’s response to
questions posed in the Panel’s first report, released on December
10, 2009, as well as an evaluation of those responses. In many
cases, the report highlights areas where additional information
may or should be provided to better understand Treasury’s motives
in choosing specific features of the TARP, measuring its performance, and monitoring compliance. In these and other areas, the
public is better served by a process that is as clear and transparent
as possible.
Compiling this evaluation, and creating a panel report, is a consensus process. As a result, its tone and emphasis cannot perfectly
reflect the priorities and language of every member. Taken as a

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42
whole, I believe that the material presented in the January Report
will help increase the public’s understanding of the process to date,
and, as such, I have supported its release. In two areas, however,
the approach taken is of particular concern and deserves additional
clarification.
First, in several places within the report text, language is used
which can easily be interpreted as suggesting that the purpose of
the TARP is to increase lending to the levels that existed before the
current financial crisis. (See, e.g., page 8: ‘‘. . . or increased lending’’; page 10: ‘‘. . . why the TARP investments will be slow to
produce increased lending’’; page 13: ‘‘. . . the goal of the program
was to increase consumer or small business lending . . .’’). But the
current crisis was caused, in large part, by the extension of too
much credit to institutions and individuals that were not creditworthy. This, in turn, has resulted in a broad and dramatic deleveraging of the global economy. When, and as, the economy begins to recover, it will do so in an environment of lower leverage,
and, thus, lower levels of aggregate borrowing than existed in 2007.
This fact should not be ignored.
With regard to lending, the TARP is intended to help ensure the
availability of credit to individuals and businesses that are creditworthy and that credit is made available at sustainable levels over
time. Language to this effect is used on page 11 (‘‘. . . the Panel
asked whether Treasury’s action preserved access to consumer
credit . . .’’), but by omitting it elsewhere, readers might easily,
and incorrectly, conclude that the TARP is intended to bring total
borrowing back to pre-crisis levels.
Second, while Treasury can and should provide additional information to the public regarding the TARP’s design, its performance,
and the compliance of firms receiving capital, there are several
questions posed in the Panel’s December 10 report that are enormously difficult, if not impossible, to answer with any certainty.
Moreover, there are a few that are best left unanswered.
Questions such as: ‘‘3.8 Will lower rates lead to a large enough
pool of buyers to lead to a general increase in home prices?’’ and
‘‘3.10 Will lower interest rates induce demand for home ownership
in the face of falling housing prices, consumer uncertainty about
the future of the economy and unemployment, and the reasonable
expectation that an even better deal might be available in the future?’’ require gross assumptions about multiple economic indicators and human behavior. In the current environment it is not
practical to attempt to accurately forecast such behavior.
Questions such as ‘‘4.5 Is Treasury seeking to use TARP to shape
the future of the American financial system?’’ and ‘‘6.1 Does Treasury believe American families need to borrow more money?’’ contain vague and sweeping generalizations. No Treasury Secretary
should be asked to assert that ‘‘American families should borrow
more’’ or ‘‘should borrow less’’ as part of the TARP oversight process. Families and consumers face situations and circumstances that
are unique, and those situations and circumstances should be recognized as such.
The work of the Panel is important, and it should help provide
the public and Congress with useful information regarding the design, operation, and performance of the TARP. Thus, it is essential
that every effort be made to use unambiguous language and to ask

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direct and practical questions. We must redouble efforts to do so in
future reports.

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APPENDIX I: LETTER FROM CONGRESSIONAL OVERSIGHT PANEL CHAIR ELIZABETH WARREN TO TREASURY SECRETARY MR. HENRY M. PAULSON, JR., DATED
DECEMBER 17, 2008

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47

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APPENDIX II: TREASURY DEPARTMENT RESPONSES TO
QUESTIONS OF THE FIRST REPORT OF THE CONGRESSIONAL OVERSIGHT PANEL, DATED DECEMBER 30,
2008

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