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CONGRESSIONAL OVERSIGHT PANEL

SEPTEMBER OVERSIGHT REPORT *

ASSESSING THE TARP ON THE EVE OF
ITS EXPIRATION

SEPTEMBER 16, 2010.—Ordered to be printed

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* Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic
Stabilization Act of 2008, Pub. L. No. 110–343

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CONGRESSIONAL OVERSIGHT PANEL SEPTEMBER OVERSIGHT REPORT

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CONGRESSIONAL OVERSIGHT PANEL

SEPTEMBER OVERSIGHT REPORT *

ASSESSING THE TARP ON THE EVE OF
ITS EXPIRATION

SEPTEMBER 16, 2010.—Ordered to be printed

U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON

58–023

:

2010

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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* Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic
Stabilization Act of 2008, Pub. L. No. 110–343

CONGRESSIONAL OVERSIGHT PANEL
PANEL MEMBERS
ELIZABETH WARREN, Chair
PAUL S. ATKINS
RICHARD H. NEIMAN
DAMON SILVERS

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J. MARK MCWATTERS

(II)

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CONTENTS

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Page

Executive Summary .................................................................................................
Section One:
A. Introduction ..................................................................................................
B. Summary of the TARP in 2010 ..................................................................
1. Updates to the Panel’s Oversight of the TARP in 2010 .....................
2. Status of TARP Authorities in Light of Secretary’s December Extension Through October 3, 2010, and Changes Made in the DoddFrank Legislation ..................................................................................
C. TARP’s Financial Results ............................................................................
1. Capital Programs and Banking Sector Health ...................................
2. AIG Investment Program (Formerly the Systemically Significant
Failing Institutions Program) ...............................................................
3. Automotive Industry Financing Program ...........................................
4. Mortgage Foreclosure Relief Programs ...............................................
D. How Has Treasury Used Its Extended TARP Authority? ........................
1. Foreclosure Mitigation ..........................................................................
2. Small Business Lending and Small Banks .........................................
3. Support for Securitization Markets Through the TALF ....................
4. Summary of Treasury’s Use of TARP Authority Since December
2009 .........................................................................................................
E. How Is the American Economy Performing in the Wake of the TARP,
Particularly Those Sectors—Financial Markets, Housing, Autos—That
Have Been the Specific Target of TARP Assistance? .................................
1. Indicators of the TARP’s Impact ..........................................................
2. The TARP’s Effect on the Financial System .......................................
3. Costs of the TARP: Moral Hazard and Stigma ...................................
4. Other Potential Near and Long-Term Costs of the TARP .................
F. Conclusion ....................................................................................................
Annex I: Automotive Industry Financing Program Funds Committed ...............
Annex II: Views of Academic Experts
A. Alan Blinder, Gordon S. Rentschler Memorial Professor of Economics
and Public Affairs at Princeton University ................................................
B. Simon Johnson, Ronald A. Kurtz (1954) Professor of Entrepreneurship
at MIT Sloan School of Management ..........................................................
C. Anil Kashyap, Edward Eagle Brown Professor of Economics and Finance and Richard N. Rosett Faculty Fellow at the University of Chicago Booth School of Business .....................................................................
D. Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and
Professor of Economics at Harvard University ..........................................
Section Two: Additional Views ...............................................................................
A. J. Mark McWatters and Professor Kenneth R. Troske .............................
Section Three: TARP Updates Since Last Report .................................................
Section Four: Oversight Activities ..........................................................................
Section Five: About the Congressional Oversight Panel ......................................
(III)

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SEPTEMBER OVERSIGHT REPORT

SEPTEMBER 16, 2010.—Ordered to be printed

EXECUTIVE SUMMARY *

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In December 2009, in anticipation of the scheduled expiration of
Treasury’s authority under the Troubled Asset Relief Program
(TARP) on December 31, 2009, the Panel issued a report that attempted to gauge the program’s overall effectiveness. ‘‘There is
broad consensus that the TARP was an important part of a broader
government strategy that stabilized the U.S. financial system by
renewing the flow of credit and averting a more acute crisis,’’ the
Panel wrote. ‘‘Although the government’s response to the crisis was
at first haphazard and uncertain, it eventually proved decisive
enough to stop the panic and restore market confidence. Despite
significant improvement in the financial markets, however, the
broader economy is only beginning to recover from a deep recession, and the TARP’s impact on the underlying weaknesses in the
financial system that led to last fall’s crisis is less clear.’’
The TARP did not, however, expire on its original schedule.
Shortly after the release of the Panel’s report, the Secretary of the
Treasury exercised his legal authority to extend the program until
October 3, 2010—the latest date authorized by statute. This month,
in anticipation of this final expiration of the program’s most significant authorities, the Panel is revisiting and expanding upon its
earlier findings about the program’s effectiveness. The Panel will
continue to explore these broad issues, as well as to evaluate specific TARP programs, in further monthly reports until its statutory
authority expires on April 3, 2011.
When the Secretary extended the TARP, he stated that use of
TARP funds in the extension period would be limited to three
* The Panel adopted this report with a 4–0 vote on September 15, 2010.

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2
areas: providing mortgage foreclosure relief, extending capital to
small and community banks, and increasing support for the
securitization market through the TALF. He also noted that by extending the TARP, Treasury was preserving its authority to intervene swiftly in the event that the financial markets showed signs
of another meltdown. This second justification ultimately played a
much more important role during the extension period, as Treasury
did not add any new funding to any programs intended to address
foreclosures, small bank capitalization, or the securitization market. Treasury therefore used the TARP’s extension more to extend
the government’s implicit guarantee of the financial system than to
address the specific economic problems that the Secretary cited.
Over the last 10 months, Treasury’s policy choices have been increasingly constrained by public anger about the TARP. The program is now widely perceived as bailing out Wall Street banks and
domestic auto manufacturers while doing little for the 14.9 million
workers who are unemployed, the 11 million homeowners who are
underwater on their mortgages, or the countless other families
struggling to make ends meet. Treasury acknowledges that, as a
result of this perception, the TARP and its programs are now burdened by a public ‘‘stigma.’’
Some of this stigma has arisen due to valid concerns with Treasury’s implementation of TARP programs and with its transparency
and communications. For example, Treasury initially insisted that
only healthy banks would be eligible for capital infusions under the
Capital Purchase Program (CPP). When it became clear that some
of these banks were in fact on the brink of failure, all participating
banks—even those in comparatively strong condition—became
tainted in the public eye. Stigma may also have arisen due to deep
public frustration that, whatever the TARP’s successes, it has not
rescued many Americans from suffering enormous economic pain.
Treasury claims that the pain would have been far worse if the
TARP had never existed, but this hypothetical scenario is difficult
to evaluate—in part due to regrettable omissions in data collection
on Treasury’s part. For example, since the Panel’s second report in
January of 2009, it has called for Treasury to make banks accountable for their use of the funds they received. It has also urged
Treasury to be transparent with the public, in particular with respect to the health of the banks receiving the funds. The lack of
these data makes it more difficult to measure the TARP’s success
and thus contributes to the TARP’s stigmatization.
The program is today so widely unpopular that Treasury has expressed concern that banks avoided participating in the CPP due
to stigma, and the legislation proposing the Small Business Lending Fund, a program outside the TARP, specifically provided an assurance that it was not a TARP program. Popular anger remains
high about taxpayer support of America’s largest banks, and that
anger has only intensified in light of the continuing economic turmoil. The TARP’s unpopularity may mean that, unless the program’s effectiveness can be convincingly demonstrated, the government will not authorize similar policy responses in the future.
Thus, the greatest consequence of the TARP may be that the government has lost some of its ability to respond to financial crises.
In order to gain a full perspective on the TARP, the Panel consulted with several outside experts: Professors Alan Blinder, Simon

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Johnson, Anil Kashyap, and Kenneth Rogoff. While differing on numerous points, these economists generally agreed that the TARP
was both necessary to stabilize the financial system and that it had
been mismanaged and could pose significant costs far into the future. The early change in TARP strategy from asset purchases to
capital injections, followed by the rollout of numerous seemingly
unconnected programs, combined with largely ineffective communication of the reasoning behind these actions, spread confusion in
the public and undermined trust in the TARP. Further, the experts
consulted by the Panel unanimously felt that the program created
significant moral hazard. After all, the government had alternatives for the form of its intervention. As an alternative to subsidizing large, distressed banks, it had the option of putting them
into liquidation or receivership, removing failed managers, and
wiping out existing shareholders. The fact that the government
chose not to impose such stringent costs upon TARP recipients
meant that the program’s moral hazard costs were much greater
than necessary.
Ultimately, any evaluation of the TARP must be guided by the
program’s stated goals. Congress authorized Treasury to use the
TARP in a manner that ‘‘protects home values, college funds, retirement accounts, and life savings; preserves homeownership and
promotes jobs and economic growth; [and] maximizes overall returns to the taxpayers of the United States.’’ But economic weaknesses persist. Since the TARP was authorized in October 2008, 7.1
million homeowners have received foreclosure notices. Since their
pre-crisis peaks, home values have dropped 28 percent, and stock
indices—which indicate the health of many Americans’ most significant investments for college and retirement—have fallen 30 percent. In short, although the TARP provided critical government
support to the financial system when the financial system was in
a severe crisis, its effectiveness at pursuing its broader statutory
goals has been far more limited.

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SECTION ONE:
A. Introduction

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Next month marks the two-year anniversary of the inception of
the Troubled Asset Relief Program (TARP).1 It also coincides with
the termination of Treasury’s capacity to authorize new expenditures under the TARP. This milestone provides an opportunity to
evaluate the program’s performance from a variety of perspectives.
The TARP was enacted at the height of the severe financial collapse that shook the world in the latter half of 2008. Although initially conceived as a government initiative to rescue financial institutions by purchasing their worst assets, the Treasury Department
quickly shifted the program’s focus to providing hundreds of billions of dollars of capital support for hundreds of banks. Over the
initial months the program evolved to rescue a major insurance
company and two domestic automobile manufacturers. Additional
efforts were undertaken to support the restart of the securitization
markets, to bolster small business lending, and to address the
mortgage foreclosure crisis.
In December 2009, Treasury Secretary Timothy Geithner sent a
letter to congressional leaders exercising his authority to extend
the TARP through October 3, 2010. In his letter, the Secretary
made renewed commitments to use TARP resources to address remaining critical issues in the Administration’s efforts to promote financial recovery. Except in an emergency, the Secretary’s letter
promised to focus new commitments of TARP resources in three
areas: (1) mortgage foreclosure relief; (2) small business lending,
including by providing capital to small and community banks; and
(3) increasing support for securitization markets through the Term
Asset-Backed Securities Loan Facility (TALF).
At the time of its initial enactment, the TARP was limited to
making no more than $700 billion in financial commitments at any
time.2 The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), enacted in July 2010, reduced the ceiling on TARP expenditures from $698.7 billion to $475 billion, and
prohibited the Treasury Department from establishing any new
programs under EESA. Hence, Treasury has only a limited amount
of time remaining—until October 3, 2010—to undertake any further TARP spending, and its remaining funding has been sharply
reduced.
As with prior reports, this report can provide only an interim
evaluation of the TARP. The effects of the TARP will be debated
and analyzed for years to come. The impact of the financial crisis
that shook the world beginning in 2007 continues to be felt, and
much of the economic and financial data necessary to reach more
definitive conclusions about the effectiveness of the TARP are not
yet available.
1 The Troubled Asset Relief Program (TARP) was authorized and funded in the Emergency
Economic Stabilization Act of 2008 (Pub. L. 110–343) enacted October 3, 2008. See 12 U.S.C.
§ 5201.
2 Congress reduced the $700 billion ceiling, originally specified in EESA, by $1.3 billion to
$698.7 billion in the Helping Families Save Their Homes Act of 2009, enacted on May 20, 2009.
See Helping Families Save Their Homes Act of 2009, Pub. L. 111–22, 202(b) (May 22, 2009) (online
at
frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_public_laws&;docid=f:
publ022.111.pdf) (hereinafter ‘‘Helping Families Save Their Homes Act of 2009’’).

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This month’s report first provides an update to the topics encompassed by the Panel’s reports since December 2009, the last time
that the Panel broadly evaluated the TARP. It then describes current estimates on the subsidy cost—likely losses or gains—of the
various programs that Treasury established under the TARP. The
report then describes the actions taken since Treasury extended its
authority, in December 2009, and concludes with an evaluation of
the TARP in the context of the health of the U.S. economy, aided
by the views of several prominent economists. This report builds on
all of the Panel’s previous work, but in particular, it is intended as
a follow-up to the Panel’s April 2009 and December 2009 reports,
which also provided evaluations of the TARP as a whole.
B. Summary of the TARP in 2010

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1. Updates to the Panel’s Oversight of the TARP in 2010
To assess the overall effect of the TARP, it is necessary to consider the performance of the programs that underlie it. This section
provides updates on the major TARP investments either since the
Panel’s December report or the most recent report on each topic,
focusing on actions by the Administration, Congress, or Treasury.3
The Panel concluded in its December 2009 report, when TARP
had been in existence for slightly more than a year, that the
‘‘TARP was an important part of a broader set of government actions that stabilized the U.S. financial system by renewing the flow
of credit and averting a more acute crisis’’ but that ‘‘the TARP’s impact on the underlying weaknesses in the financial system that led
to [the] crisis is less clear.’’ Nine months later, few comprehensive
empirical studies on the government’s concerted response to the
crisis have been published that would supplement that finding.4
Research attempting to isolate only the TARP’s impact is even
more sparse. The obstacles to analysis are many: not only is the
program still in process, but numerous financial rescue programs
were also implemented by different agencies, including Treasury,
the FDIC, and the Federal Reserve. These programs interact with
each other by design, and it is therefore difficult to isolate the
TARP’s effect. Second, ‘‘markets were dynamically reacting and adjusting’’ to rapid changes in financial conditions around the time of
the government’s interventions, which makes it almost impossible
to sort out causal effects and difficult to develop a compelling hypothetical alternative scenario against which to test theories.5 Such
research requires large amounts of data, particularly firm-level
data, some of which is not publicly available and much of which
3 With the release of this report, the Panel has published 22 monthly reports and two supplementary reports since December 2008. To view these reports, see cop.senate.gov/reports/. See
Section C for a description of the projected costs of the TARP, and Sections D and E for a fuller
analysis of the TARP’s effect.
4 Although some government agencies have released commentary assessing TARP’s impact, including Treasury and the Federal Reserve, these lack either empirical evidence or peer-review
or both, thereby limiting some of their analytic value. See Alan Blinder and Mark Zandi, How
the Great Recession Was Brought to an End (July 27, 2010) (online at www.economy.com/markzandi/documents/End-of-Great-Recession.pdf) (hereinafter ‘‘How the Great Recession Was
Brought to an End’’); John B. Taylor, An Exit Rule for Monetary Policy (Feb. 10, 2010) (online
at www.stanford.edu/∼johntayl/House%20FSC%20Feb%2010%202010.pdf) (hereinafter ‘‘An Exit
Rule for Monetary Policy’’).
5 An Exit Rule for Monetary Policy, supra note 4, at 2.

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was not required to be kept or collected by Treasury.6 This task is
further complicated by a lack of similar prior crises to use in comparisons. Finally, such an analysis would need to look at both institutions that received TARP assistance and those that did not.
Two studies that review the performance of the government’s
concerted rescue efforts, including the TARP, conclude that the
government’s intervention had a dramatic impact in preventing a
much more severe economic downturn and promoting economic recovery. Economists Alan Blinder and Mark Zandi find that the
‘‘TARP has been a substantial success, helping to restore stability
to the financial system and to end the freefall in housing and auto
6 The Panel has been consistent in its calls for additional data collection and disclosure. See
Congressional Oversight Panel, January Oversight Report: Accountability for the Troubled Asset
Relief Program, at 10 (Jan. 9, 2009) (online at cop.senate.gov/documents/cop–010909–report.pdf)
(‘‘Treasury should monitor lending at the individual TARP recipient level’’); Congressional Oversight Panel, March Oversight Report: Foreclosure Crisis: Working Toward a Solution, at 15, 26,
48 (Mar. 6, 2009) (online at cop.senate.gov/documents/cop–030609–report.pdf) (hereinafter
‘‘March 2009 Oversight Report’’) (recommending that Congress ‘‘create a national mortgage loan
performance reporting requirement,’’ and that federal banking and housing regulators make
these data publicly available); Congressional Oversight Panel, May Oversight Report: Reviving
Lending to Small Businesses and Families and the Impact of the TALF, at 56 (May 7, 2009)
(online at cop.senate.gov/documents/cop–050709–report.pdf) (hereinafter ‘‘May 2009 Oversight
Report’’) (‘‘Treasury, the Federal Reserve Board, the SBA, or some other agency must strive to
compile comprehensive, timely information on small business lending across the country.’’); Congressional Oversight Panel, August Oversight Report: The Continued Risk of Troubled Assets, at
50 (Aug. 11, 2009) (online at cop.senate.gov/documents/cop–081109–report.pdf) (hereinafter ‘‘August 2009 Oversight Report’’) (‘‘Treasury and relevant government agencies should work together to move financial institutions toward sufficient disclosure of the terms and volume of
troubled assets on banks’ books.’’); Congressional Oversight Panel, September Oversight Report:
The Use of TARP Funds in Support and Reorganization of the Domestic Automotive Industry,
at 92 (Sept. 9, 2009) (online at cop.senate.gov/documents/cop–090909–report.pdf) (hereinafter
‘‘September 2009 Oversight Report’’) (‘‘New Chrysler and New GM should provide the taxpayer
investors with a set of metrics by which the companies’ success can be measured.’’); Congressional Oversight Panel, October Oversight Report: An Assessment of Foreclosure Mitigation Efforts After Six Months, at 93, 111, 112 (Oct. 9, 2009) (online at cop.senate.gov/documents/cop–
100909–report.pdf) (hereinafter ‘‘October 2009 Oversight Report’’) (recommending Treasury: (1)
release redefault assumptions to the public, (2) collect data on a broader universe of borrowers
facing foreclosure, beyond those eligible for HAMP, and (3) apply appropriate sanctions so that
all participants follow program guidelines); Congressional Oversight Panel, November Oversight
Report: Guarantees and Contingent Payments in TARP and Related Programs, at 4 (Nov. 6,
2009) (online at cop.senate.gov/documents/cop–110609–report.pdf) (hereinafter ‘‘November 2009
Oversight Report’’) (recommending Treasury provide regular detailed disclosures relating to
Citigroup’s asset guarantee, and disclose a cost-benefit analysis of all options considered before
implementing the asset guarantee protection); Congressional Oversight Panel, December Oversight Report: Taking Stock: What Has the Troubled Asset Relief Program Achieved, at 108–111
(Dec. 9, 2009) (online at cop.senate.gov/documents/cop–120909–report.pdf) (hereinafter ‘‘December 2009 Oversight Report’’); Congressional Oversight Panel, January Oversight Report: Exiting
TARP and Unwinding its Impact on the Financial Markets, at 141 (Jan. 13, 2010) (online at
cop.senate.gov/documents/cop–011410–report.pdf) (hereinafter ‘‘January 2010 Oversight Report’’)
(‘‘Any future recipient of TARP funds . . . must be obligated to give a complete accounting of
what they did with the money . . .’’); Congressional Oversight Panel, March Oversight Report:
The Unique Treatment of GMAC under the TARP, at 121 (Mar. 10, 2010) (online at
cop.senate.gov/documents/cop–031110–report.pdf) (hereinafter ‘‘March 2010 Oversight Report’’)
(‘‘Treasury should periodically disclose its estimate of the overall subsidy or loss rate’’ for each
company in the AIFP.); Congressional Oversight Panel, April Oversight Report: Evaluating
Progress of TARP Foreclosure Mitigation Programs, at 91, 96, 94 (Apr. 14, 2010) (online at
cop.senate.gov/documents/cop–041410–report.pdf) (hereinafter ‘‘April 2010 Oversight Report’’)
(recommending Treasury release: (1) more specific loan-level data, (2) greater information on
compliance results and sanctions, (3) regular publicly available data on the performance of all
HAMP permanent modifications through 2017); Congressional Oversight Panel, May Oversight
Report: The Small Business Credit Crunch and the Impact of the TARP, at 83 (May 13, 2010)
(online at cop.senate.gov/documents/cop–051310–report.pdf) (hereinafter ‘‘May 2010 Oversight
Report’’) (recommending Treasury ‘‘establish a rigorous data collection system or survey that examines small business finance in the aftermath of the credit crunch and going forward.’’); Congressional Oversight Panel, August Oversight Report: The Global Context and International Effects of the TARP, at 4 (Aug. 12, 2010) (online at cop.senate.gov/documents/cop–081210–report.pdf) (hereinafter ‘‘August 2010 Oversight Report’’) (‘‘the Panel strongly urges Treasury to
start now to report more data about how TARP and other rescue funds flowed internationally
. . .’’).

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markets.’’ 7 Similarly, the International Monetary Fund (IMF) in its
Financial Sector Assessment Program for the United States finds
that ‘‘[a]n aggressive policy response helped avert the collapse of
the U.S. financial system’’ and that ‘‘[t]he TARP played a critical
role in this success.’’ 8
Other studies by economist John Taylor draw a different conclusion, assessing the government’s response during three periods:
‘‘pre-panic, panic, and post panic, where the period of the panic is
from September to November 2008.’’ One study finds that the government’s ‘‘unpredictable and confusing’’ intervention before the
panic failed to stem, and even contributed to, the financial crisis.9
During the panic, Taylor argues, Treasury’s clarification that the
TARP would be used to make capital injections, rather than purchase troubled assets, was chiefly responsible for halting the market panic.10 After the panic, another Taylor study contends, at
least one part of the government’s rescue, the Federal Reserve’s extraordinary measures, have had very little effect. The study concludes that ‘‘whether one believes that these programs worked or
not, there are reasons to believe that their consequences going forward are negative.’’ 11
The overall recovery of the U.S. economy, as marked by economic
expansion, began in the third quarter of 2009, but the recovery,
thus far, has been slow and certain economic sectors, particularly
housing, continue to struggle, while others, such as the automobile
industry, appear just to be beginning to return to pre–2008 levels.12 The Panel continues to focus on the TARP’s role not only in
the broad recovery of the macroeconomy, but also in restoring the
health of the sectors that have been the subject of special efforts
of the TARP and related federal programs. While the TARP was effective in initially calming the market panic and provided critical
liquidity to the financial system, it has not so far succeeded in fa7 How the Great Recession Was Brought to an End, supra note 4, at 2. The Blinder and Zandi
paper is interesting because it looks also at the relative impact of the financial rescue efforts,
of which the TARP was a major component, and compares them to the separate economic stimulus measure enacted by Congress in the American Recovery and Reinvestment Act (ARRA).
Blinder and Zandi estimate that without the financial rescue programs, but assuming enactment of ARRA, the American economy would not have come out of the recession and begun
growing again until about July 2010, whereas if only the financial rescue measures had been
taken without the stimulus measure, the economy would have begun its recovery in late 2009.
Id. at 7. Some market commentators have criticized this study for its failure to incorporate the
‘‘financial system’’ into its models in a rigorous fashion. Treasury conversations with Panel staff
(Aug.13, 2010).
8 International Monetary Fund, United States: Publication of Financial Sector Assessment Program Documentation—Financial System Stability Assessment, at 12 (July 2010) (online at
www.imf.org/external/pubs/ft/scr/2010/cr10247.pdf).
9 An Exit Rule for Monetary Policy, supra note 4, at 3, 6. See also John B. Taylor, The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong, at 18 (Nov.
2008) (online at www.stanford.edu/∼johntayl/FCPR.pdf) (hereinafter ‘‘The Financial Crisis and
the Policy Responses’’). (‘‘In this paper I have provided empirical evidence that government actions and interventions . . . prolonged, and worsened the financial crisis . . . . They prolonged
it by misdiagnosing the problems in the bank credit markets and thereby responding inappropriately by focusing on liquidity rather than risk. They made it worse by providing support for certain financial institutions and their creditors but not others in an ad hoc way without a clear
and understandable framework.’’).
10 See The Financial Crisis and the Policy Responses, supra note 9, at 16; An Exit Rule for
Monetary Policy, supra note 4, at 3 (‘‘This clarification was a major reason for the halt in the
panic in my view.’’).
11 See An Exit Rule for Monetary Policy, supra note 4, at 3. For a list of the extraordinary
Federal Reserve measures discussed in this paper, see id. at 7.
12 The National Bureau of Economic Research, which is widely viewed as the organization that
determines when economic recessions begin and end in the United States, has yet to say when
the recession that began in the fourth quarter of 2008 came to an end (or if it has indeed done
so yet). See Section E.1, infra, for a discussion of current economic conditions.

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cilitating credit access to small businesses or mitigating the tide of
foreclosures.13
a. Financial Institutions
i. Treasury’s Exit Strategy and the Implicit Guarantee
The Panel’s January 2010 report examined Treasury’s exit strategy from the TARP and detailed the dual legacy that the program
will likely leave behind after its formal expiration: Treasury’s holding billions of dollars worth of private-company securities,14 and an
implicit government guarantee that certain private financial institutions are too systemically important to be allowed to fail. Congress attempted to address the problem of ‘‘too big to fail’’ in the
recently enacted Dodd-Frank Act. The Act takes a variety of approaches in its attempt to address ‘‘too big to fail.’’ It empowers the
Federal Deposit Insurance Corporation (FDIC) to resolve financial
companies whose failure poses a systemic risk to the nation’s financial stability.15 The Act provides that systemic considerations will
be evaluated jointly by the FDIC, the Federal Reserve Board, and
the Treasury Secretary (in consultation with the President).16 The
legislation further requires systemic institutions with more than
$50 billion in assets to submit a plan for their ‘‘orderly resolution’’
in the event of severe financial distress, commonly referred to as
a ‘‘living will.’’ 17 The FDIC is in the process of implementing its
new resolution and supervisory authorities. Additionally, the legis13 See

Sections D and E.2, infra.
report discussed the process of managing assets purchased under the TARP, or arranging their sale to investors, noting that it may extend over a number of years. The Panel also
addressed the various theories on how to eliminate the implicit guarantee for institutions
deemed ‘‘too big to fail’’ and described how moral hazard can distort market prices and endanger
the long-term health of the nation’s economy. See January 2010 Oversight Report, supra note
6. In the Panel’s June hearing, Secretary Geithner elaborated on Treasury’s investment management strategy, stating that moving forward Treasury will ‘‘dispose of investments as soon as
practicable . . . encourage private capital formation to replace government investments . . . not
intervene in the day-to-day management of private companies in which we have invested, and,
as we implement this strategy, we will seek out the best advice available.’’ Congressional Oversight Panel, Written Testimony of Timothy F. Geithner, secretary, U.S. Department of the
Treasury, COP Hearing with Treasury Secretary Timothy Geithner, at 5 (June 22, 2010) (online
at cop.senate.gov/documents/testimony–062210–geithner.pdf).
15 The FDIC’s new resolution authority includes both Bank Holding Companies (BHCs) and
nonbank financial companies such as securities broker-dealers and hedge funds. To resolve registered broker-dealers, the FDIC will coordinate its efforts with the Securities Investor Protection Corporation (SIPC). Where an insurance company is concerned, the company will be resolved by the state regulator under state law. The FDIC would step in to complete the resolution
if the state regulator had not taken action within 60 days. See Dodd-Frank Wall Street Reform
and Consumer Protection Act, Pub. L. No. 111–203 (2010) (hereinafter ‘‘Dodd-Frank Wall Street
Reform and Consumer Protection Act’’). Some commentators have raised concerns that final decisions and duties are left to the same federal and state banking and other regulatory agencies
that failed to detect or prevent the last financial crisis. See Cato Institute, Dodd’s Do-Nothing
Financial ‘Reform’ (May 21, 2010) (online at www.cato.org/pub_display.php?pub_id=11832)
(hereinafter ‘‘Dodd’s Do-Nothing Financial ‘Reform’ ’’).
16 Two exceptions apply. If the failing financial company is a broker-dealer or its largest subsidiary is a broker-dealer, the Securities and Exchange Commission (SEC), rather than the
FDIC, would help make the systemic determination. If the company is an insurance company
or its largest subsidiary is an insurance company, the Director of the new Federal Insurance
Office would help make the systemic determination, instead of the FDIC. See Dodd-Frank Wall
Street Reform and Consumer Protection Act, supra note 15.
17 Some market participants question the validity of ‘‘living wills,’’ suggesting that the plans
would not be updated frequently enough to keep pace with the ever-shifting portfolios of large
complex financial institutions. Market participants’ conversations with Panel staff (July 30,
2010). Others explain that because many of these firms are interconnected in nontransparent
ways, government agencies’ resolution authority could not overcome the ‘‘enormous operational
challenges in unreasonably short periods of time.’’ John F. Bovenzi, Another View: Why Banks
Need Living Wills, New York Times DealBook Blog (July 8, 2010) (online at
dealbook.blogs.nytimes.com/2010/07/08/another-view-why-banks-need-living-wills/).

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14 The

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lation creates a Financial Stability Oversight Council charged with
identifying and responding to systemic risks in the U.S. economy.18
The Council will identify nonbank financial companies to be supervised by the Federal Reserve and offer recommendations concerning prudential standards for institutions supervised by the
Federal Reserve, including rules for risk-based capital, leverage, liquidity, contingent capital, resolution plans, credit exposure reports, concentration limits, short-term debt limits, enhanced public
disclosures, and overall risk management.19 Despite substantial
government activity in this area, however, the implicit guarantee
of the TARP is proving difficult to unwind.20
ii. AIG
In its June report, the Panel examined Treasury’s role in the taxpayer-backed rescue of American International Group (AIG) and its
creditors, stating that the Federal Reserve and Treasury failed to
exhaust all other options before committing $85 billion in taxpayer
funds. Total government assistance to AIG, much of it from the
Federal Reserve Bank of New York (FRBNY), ultimately reached
$182 billion.21
AIG intends to repay the government predominantly through
asset sales. At present, however, and as described further in Section C.2, AIG’s ability to repay FRBNY and Treasury remains unclear.22

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iii. Small Banks
The Panel’s July 2010 report noted that the 690 small and medium-sized banks that participated in the Capital Purchase Program (CPP) are likely to remain in the program for an extended
period, and that some may experience difficulty exiting.23 Since the
18 The Council is made up of 10 voting members and 5 nonvoting members. Voting members
are: the Secretary of the Treasury (also Council Chair), the Chairman of the Board of Governors
of the Federal Reserve, the Comptroller of the Currency, Chairperson of the FDIC, Chairman
of the National Credit Union Administration, Director of the Consumer Financial Protection Bureau, Chairman of the SEC, Chairperson of the Commodity Futures Trading Commission, the
Director of the Federal Housing Finance Agency, and an independent insurance expert. Nonvoting members are the Director of the Office of Financial Research, the Director of the Federal
Insurance Office, a State insurance commissioner, a State banking supervisor, and a State securities commissioner. Dodd-Frank Wall Street Reform and Consumer Protection Act, supra note
15, § 18.
19 Dodd-Frank Wall Street Reform and Consumer Protection Act, supra note 15. Some commentators argue that by allowing the Financial Stability Oversight Council to designate firms
as systemically risky, these firms receive an unfair marketplace advantage and an implicit governmental stamp of approval, allowing them to obtain lower costs of funds. See, e.g., Dodd’s DoNothing Financial ‘Reform’, supra note 15.
20 For a discussion of various effects of the implicit guarantee, such as a ratings increase associated with ‘‘too big to fail,’’ see Sections E.2, E.3.b, and F.1, infra.
21 The Panel also stated that the government failed to address perceived conflicts of interest.
By not exercising the government’s negotiating leverage to protect taxpayers or to maintain
market discipline, AIG’s rescue created an implicit guarantee of an institution that was ‘‘too big
to fail.’’ This resulted in risk to taxpayers and distortion of the marketplace by transforming
highly risky derivative bets into fully-guaranteed payment obligations. See Congressional Oversight Panel, June Oversight Report: The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy, at 15 (June 10, 2010) (online at cop.senate.gov/documents/cop–061010–report.pdf) (hereinafter ‘‘June 2010 Oversight Report’’).
22 As of July 2010, CBO, OMB, and Treasury are projecting losses in the amount of $36 billion, $50 billion, and $45 billion, respectively, from the assistance provided to AIG; however, the
estimated losses have steadily decreased since the initial phases of the AIG rescue. See Sections
C and C.2 for an assessment of the costs of TARP assistance to AIG.
23 Further, the report noted the disparity between these smaller institutions and the 17 large
banks that participated in the CPP. Smaller banks operate without a ‘‘too big to fail’’ guarantee,
limiting their flexibility relative to their larger competitors. Smaller banks are also disproporContinued

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Panel’s report, Treasury released the results of its 2009 ‘‘use of capital’’ survey for banks that participated in the CPP. According to
the survey, 85 percent of respondents stated that they used their
CPP capital to either increase lending or decrease it less than they
would have otherwise, although the degree to which lending levels
‘‘improved’’ are not specified. Nearly half of the respondents also
stated that they used their capital to increase loan-loss reserves or
as a non-leveraged increase to total capital.24 Treasury did not
monitor lending at the individual TARP recipient level, however,
nor require CPP recipients to report on their use of funds,25 so
these results can not be independently verified.
In July 2010, Treasury began allowing Community Development
Financial Institutions (CDFIs) to exchange their CPP investments
for equivalent securities under Treasury’s Community Development
Capital Initiative (CDCI); currently, 11 CDFIs have exchanged
$110 million.26 These transactions lower the dividend rate these institutions pay from 5 percent to 2 percent, and lengthens the period
before they are required to pay a 9 percent dividend rate from five
years to eight years.27

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b. Small Business Lending
In its May 2010 report, the Panel examined the contraction in
small business lending and noted that Treasury has launched several programs aimed, in whole or in part, to improve small business credit availability, but that these programs have not had a noticeable effect.28 In focusing on measures to increase the supply of
tionately exposed to commercial real estate, where future losses are likely, and are often privately held or thinly traded, limiting their access to funding from the capital markets. Given
the current distressed nature of the small bank sector, it is likely many of these smaller institutions will remain in the CPP for an extended period, while smaller banks that cannot generate
sufficient earnings or raise capital to repay may become trapped, with no way either to escape
the CPP or to pay their required dividends, forcing some otherwise well-run institutions to default on their obligations, consolidate, or collapse completely. The Panel also found that CPP
institutions, despite being deemed ‘‘healthy’’ by their respective primary regulator, appeared to
be no healthier than other small banks. In addition, the Panel found little evidence that the
CPP helped improve credit access for small businesses or strengthened the small bank sector
in general. See Congressional Oversight Panel, July Oversight Report: Small Banks in the Capital Purchase Program (July 14, 2010) (online at cop.senate.gov/documents/cop-071410-report.pdf) (hereinafter ‘‘July 2010 Oversight Report’’).
24 U.S. Department of the Treasury, Annual Use of Capital Survey, 2009—Capital Purchase
Program, at 2 (July 13, 2010) (online at www.financialstability.gov/useofcapital/Annual
%20Use%20of%20Capital%20Survey%20Results,%202009%20%20Capital%20Purchase%20Program.pdf).
25 Treasury did require the top 22 CPP recipient banks to submit lending data and released
monthly summaries to the public. When banks repaid their CPP funds, however, Treasury did
not require them to continue to submit lending data. Consequently, Treasury ceased publishing
this report, as aggregate month to month changes no longer allowed for meaningful comparisons. The most recent report, issued on January 15, 2010, includes data through the end of November 2009, although Treasury continues to publish the individual bank submissions and compile that data into an abridged ‘‘snapshot.’’ See U.S. Department of the Treasury, Monthly Lending and Intermediation Snapshot (updated Aug. 16, 2010) (online at www.financialstability.gov/
impact/monthlyLendingandIntermediationSnapshot.htm).
26 U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for
the Period Ending September 1, 2010 (Sept. 3, 2010) (online at www.financialstability.gov/docs/
transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf)
(hereinafter
‘‘Sept. 3 TARP Transactions Report’’).
27 Treasury made an additional investment of $10.2 million in one institution at the time of
the exchange. U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a)
Report—July
2010
(Aug.
10,
2010)
(online
at
www.financialstability.gov/docs/
105CongressionalReports/July%202010%20105(a)%20Report_Final.pdf)
(hereinafter
‘‘TARP
Monthly 105(a) Report—July 2010’’).
28 See May 2010 Oversight Report, supra note 6. The Panel’s February 2010 report also raised
concerns that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly smaller community banks, and trigger severe
economic damage. The Panel noted that smaller banks, despite being disproportionately exposed

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small business loans, the Panel’s report noted, Treasury’s actions
may ultimately be ineffective if the demand for small business
loans fails to keep pace.29 The Panel also evaluated the proposed
Small Business Lending Fund (SBLF), which the Administration
sent to Congress shortly before publication of the report. On June
17, 2010 the House of Representatives passed a different version
of the SBLF for banks with less than $10 billion in assets.30 The
Senate’s version of this legislation is pending as of September 14,
2010.
Since the publication of the May 2010 report, Treasury also revised its commitment to purchase SBA-guaranteed secondary market securities. After initially committing $15 billion to the program,
Treasury’s recently revised commitment significantly lowers its potential investment to $400 million.31

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c. Auto Industry
The Panel’s March 2010 report examined GMAC’s unique treatment under the TARP and concluded that Treasury’s early decisions in its rescue of GMAC resulted in missed opportunities to increase accountability and better protect taxpayers.32 On May 10,
to commercial real estate loans compared to their larger counterparts, did not undergo the same
stress tests to assess institutional soundness as the 19 large bank holding companies. Because
small banks play a critical role in financing small businesses the widespread failure of a number
of small banks could disrupt local communities and undermine the economic recovery. The Panel
highlighted the need for Treasury and bank supervisors to address quickly and transparently
the threats facing the commercial real estate markets. See Congressional Oversight Panel, February Oversight Report: Commercial Real Estate Losses and the Risk to Financial Stability (Feb.
10, 2010) (online at cop.senate.gov/documents/cop-021110-report.pdf) (hereinafter ‘‘February
2010 Oversight Report’’). While capital is returning to commercial real estate in liquid sectors
like real estate investment trusts (REITs) and commercial mortgage-backed securities (CMBS),
and Moody’s Commercial Property Price Index indicates recovery in commercial real estate asset
price levels, these indicators may be misleading due to the current lack of liquidity in commercial real estate markets. Transaction volume fell nearly 90 percent from 2007 to 2009, and vacancy rates in the first quarter of 2010 were almost 20 percent nationally. See PIMCO, U.S.
Commercial Real Estate Project, at 2–4, 9 (June 2010) (online at www.pimco.com/Documents/
PIMCO_Commercial_%20 Real_Estate% 20June2010_US.pdf). The largest commercial real estate loan losses are projected for 2011 and beyond, and losses at banks alone could range as
high as $200 billion–$300 billion. See PIMCO, U.S. Commercial Real Estate Project, at 9 (June
2010)
(online
at
www.pimco.com/Documents/PIMCO_Commercial_%20Real_Estate%20
June2010_US.pdf). Representative Walt Minnick (D-Idaho), is proposing a temporary creditguarantee program within Treasury for new loans under $10 million that finance commercial
properties. The program would be overseen by a new board housed at Treasury made up of the
Treasury Secretary, other federal regulators, and industry experts, who would set criteria for
loans receiving the federal backing. Treasury would collect fees from banks in exchange for
issuing the guarantees. See Commercial Real Estate Stabilization Act of 2010, H.R. 5816, 111th
Congress.
29 In the second quarter of 2010, respondents to the Federal Reserve Board’s Survey of Senior
Loan Officers were more likely to report weaker demand for small business loans than to report
increased demand. See Board of Governors of the Federal Reserve System, July 2010 Senior
Loan Officer Opinion Survey on Bank Lending Practices (Aug. 16, 2010) (online at
www.federalreserve.gov/boarddocs/snloansurvey/201008/fullreport.pdf) (hereinafter ‘‘July 2010
Senior Loan Officer Opinion Survey’’); May 2010 Oversight Report, supra note 6, at 74.
30 After two years, the dividend or interest rate for participating institutions under the program varies from as low as 1 percent to 7 percent depending on the institution’s lending levels.
CPP participants that have missed more than one dividend payment may not refinance their
CPP investments to the terms of the SBLF. See Small Business Jobs Act of 2010, H.R. 5297,
111th Congress.
31 See Section D, infra; U.S. Department of the Treasury, Troubled Assets Relief Program
Monthly 105(a) Report—June 2010 (July 12, 2010) (online at www.financialstability.gov/docs/
105CongressionalReports/June%202010%20105(a)%20Report_Final.pdf)
(hereinafter
‘‘TARP
Monthly 105(a) Report—June 2010’’).
32 See March 2010 Oversight Report, supra note 6. Treasury initially provided GMAC with $5
billion in emergency funding in December 2008. GMAC, which participated in the Federal Revere Board’s stress tests, was the only stress-tested institution that could not raise sufficient
capital to meet its requirement and received additional government capital. As of June 30, 2010,
Treasury’s investment in GMAC totaled $17.2 billion—56.3 percent of Ally’s (formerly GMAC’s)
Continued

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2010, GMAC changed its name to Ally Financial Inc.33 and on May
26, 2010, Treasury appointed the first of two board members to
Ally’s board of directors.34
General Motors Co. proposed to acquire AmeriCredit Corp., a
subprime auto-finance company, to give GM greater opportunity to
make vehicle loans and leases.35
On August 18, 2010, GM filed a Form S–1 with the Securities
and Exchange Commission (SEC) for a proposed initial public offering. Treasury has agreed to be named as a selling shareholder of
common stock in GM’s registration statement. Treasury will retain
the right, at all times, to decide whether and at what level to participate in the offering. Treasury owns 60.8 percent of the common
stock of GM as well as $2.1 billion of Series A preferred stock. The
proposed initial public offering will not include Treasury’s Series A
preferred stock.36

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d. Foreclosure Relief
In assessing Treasury’s continued foreclosure mitigation efforts,
the Panel’s April 2010 report acknowledged several positive developments, but it concluded that the size and scope of the crisis continued to outpace Treasury’s efforts, the permanence of keeping
families in their homes under these programs was doubtful, and
that Treasury’s goals remained opaque.37
common stock, $2.5 billion of trust-preferred securities, and $11.4 billion in mandatorily convertible preferred shares. Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress, at 116 (Apr. 20, 2010) (online at www.sigtarp.gov/reports/
congress/2010/April2010_Quarterly_Report_to_Congress.pdf).
33 GMAC, Inc., Form 8–K for the Period Ended May 3, 2010 (May 3, 2010) (online at
www.sec.gov/Archives/edgar/data/40729/000114420410025354/v183596_8-k.htm).
34 U.S. Department of the Treasury, Treasury Names Appointee to Ally Board of Directors
(May 26, 2010) (online at financialstability.gov/latest/pr_05262010.html).
35 See Section C.3.a, infra. Both GM and Chrysler have steadily improved since emerging from
bankruptcy. After reporting a net loss of $3.8 billion dollars for the six months after it emerged
from bankruptcy, GM has reported profits of $865 million and $1.3 billion for the first two quarters of 2010, respectively. General Motors Co., Form 10–K for the Fiscal Year Ended December
31, 2009, at 122 (Apr. 7, 2010) (online at www.sec.gov/Archives/edgar/data/1467858/
000119312510078119/d10k.htm); General Motors Co., Form 10–Q for the Quarterly Period Ended
March 31, 2010 (May 17, 2010) (online at www.sec.gov/Archives/edgar/data/1467858/
000119312510121463/d10q.htm); General Motors Co., Form 10–Q for the Quarterly Period Ended
June 30, 2010 (Aug. 16, 2010) (online at www.sec.gov/Archives/edgar/data/1467858/
000119312510189968/d10q.htm). Chrysler reported operating losses of $628 million in the quarter after it emerged from bankruptcy. In the three quarters since then, Chrysler had operating
losses of $267 million, followed by operating profits of $143 million and $183 million. Chrysler
Group, LLC, Chrysler Group LLC Reports Audited Financial Results for the Period from June
10, 2009 to December 31, 2009 (Apr. 21, 2010) (online at www.chryslergroupllc.com/news/archive/
2010/04/21/2009q4_year_end_press_release); Chrysler Group, LLC, Chrysler Group LLC Reports
Financial Results for the Period Ended March 31, 2010 (Apr. 21, 2010) (online at
www.chryslergroupllc.com/news/archive/2010/04/21/2010_q1_press_release); Chrysler Group,
LLC, Chrysler Group LLC Reports Financial Results for the Period Ended June 30, 2010 (Aug.
9,
2010)
(online
at
www.chryslergroupllc.com/news/archive/2010/08/09/
q2_press_release_financial_statement_08092010) (hereinafter ‘‘Chrysler 2Q10 Financial Results’’). GM and Chrysler have lost considerable market share since 2000, although GM still
holds the largest share of the total U.S. market. GM’s market share decreased 0.9 percent from
19.5 percent in August 2009 to August 2010. Chrysler holds the lowest share of the top five,
but its piece of the market has increased from 7.4 percent to 10 percent year-over-year since
August 2009. Standard & Poor’s, August U.S. Sales Down Slightly from July, Down Sharply
from August 2009; SAAR in Line with our Expectations for 2010 (Sept. 2, 2010) (online at
www.standardandpoors.com/products-services/articles/en/us/?assetID=1245220642688).
36 See U.S. Department of the Treasury, Treasury Department Agrees to Be Named as a Selling Shareholder in General Motors’ Registration Statement for Its Initial Public Offering (Aug.
18, 2010) (online at www.financialstability.gov/latest/pr_08182010.html).
37 Positive steps included: requiring loan servicers to give an explanation to homeowners being
declined for a loan modification, launching a push to convert temporary modifications into longterm, five-year modifications (which Treasury refers to as permanent modifications), and taking
steps to help unemployed and ‘‘underwater’’ borrowers regain equity through principal writedowns. The report noted, however, that despite Treasury’s efforts, foreclosures were continuing

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Treasury has made progress on two initiatives that were announced, but not implemented, prior to the publication of the Panel’s April 2010 report—the Hardest Hit Fund, which provides
TARP money to particular states, and a joint program with the
Federal Housing Administration (FHA) that uses TARP funds to
support refinanced mortgages with reduced principals.38 On June
23, as part of the Hardest Hit Fund, Treasury approved state proposals in Arizona, California, Florida, Michigan, and Nevada to use
$1.5 billion of TARP funds to provide foreclosure relief to struggling homeowners. On August 3, 2010, Treasury approved Hardest
Hit Fund proposals from North Carolina, Ohio, Oregon, Rhode Island, and South Carolina for $600 million in foreclosure prevention
funding.39 The Treasury/FHA Refinance Program has yet to
launch, but Treasury has been developing its mechanics and preparing for its roll-out.40
To comply with provisions in the Dodd-Frank Act, Treasury reduced its TARP commitment for foreclosure mitigation programs to
$46 billion, a reduction of $3 billion.41

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e. Other TARP Program Updates
Over the last two years, Treasury has created a wide range of
programs under the TARP to help stabilize the financial system.
Since the Panel’s December report, Treasury has closed some of
these programs, including the Capital Purchase Program and the
Targeted Investment Program (TIP), and will no longer make additional commitments under them. According to Treasury, these programs met their goals of stabilizing both the financial system and
the participating institutions.42 As noted in the Panel’s July report,
however, some CPP participant banks, particularly some of the
smaller ones, continue to experience capital pressures and may
have difficulty repaying Treasury’s investment.43
The Public-Private Investment Program (PPIP), which provided
funding for the purchase of troubled assets, and the Term AssetBacked Securities Loan Facility, which provided support to
securitization markets, are also now closed to new commitments.
Treasury states that it and FRBNY closed these programs because
of notable improvement in the securitization markets and the staat a rapid pace, imposing costs directly on borrowers and lenders, and indirectly on neighboring
homeowners, cities and towns, and the broader economy. After evaluating Treasury’s foreclosure
programs, the Panel raised specific concerns about the timeliness of Treasury’s response to the
foreclosure crisis, the sustainability of its mortgage modifications, and the accountability of
Treasury’s foreclosure programs. See April 2010 Oversight Report, supra note 6.
38 The Treasury/FHA refinance program is distinct from other refinancing programs run by
the Federal Housing Administration. See Section D, infra, for further discussion of the current
state of Treasury’s foreclosure programs.
39 U.S. Department of the Treasury, Making Home Affordable: Hardest Hit Fund (Aug. 19,
2010) (online at www.financialstability.gov/roadtostability/hardesthitfund.html) (hereinafter
‘‘Making Home Affordable: Hardest Hit Fund’’).
40 Treasury conversations with Panel staff (July 28, 2010).
41 See TARP Monthly 105(a) Report—July 2010, supra note 27.
42 See U.S. Government Accountability Office, Continued Attention Needed to Ensure the
Transparency and Accountability of Ongoing Programs, at 6 (July 21, 2010) (GAO–10–933T) (online at www.gao.gov/new.items/d10933t.pdf) (hereinafter ‘‘GAO Testimony: Transparency and
Accountability of Ongoing Programs’’).
43 For a discussion of the largest, ‘‘too-big-to-fail’’ banks, see Section E.1, infra. For smaller
institutions, the CPP may not have provided long-term stability, and banks that are unable to
repay the investment and struggle to pay the increased dividend rate after five years have no
clear options for repayment, making Treasury’s timeline for the investment uncertain.

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bilization of asset prices for certain legacy securities.44 Commentators agree, however, that the PPIP has not been effective at removing legacy assets from banks’ balance sheets on a significant
scale.45 While some commentators argue that the TALF did revitalize the securitization markets overall, others note that some
asset classes, such as commercial mortgage-backed securities
(CMBS), remain weak, and their securitizations markets remain
fragile.46

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2. Status of TARP Authorities in Light of Secretary’s December Extension Through October 3, 2010, and Changes
Made in the Dodd-Frank Legislation
On December 9, 2009, Secretary Geithner notified Congress of
his intention to extend the TARP to October 3, 2010 pursuant to
Section 120(b) of the Emergency Economic Stabilization Act
(EESA).47 The TARP had been originally scheduled to expire on
December 31, 2009, but the law provided for the possibility of such
an extension. In his written certification to Congress, the Secretary
justified the extension as necessary to maintain Treasury’s ‘‘capacity to respond if financial conditions worsen and threaten our economy.’’ 48 The Secretary further noted Treasury would limit new
TARP commitments in 2010 to three areas: (1) mortgage foreclosure mitigation; (2) providing capital to small and community
banks ‘‘to facilitate small business lending’’; and (3) increasing
Treasury’s commitment to the TALF.
While the Secretary promised to limit new TARP commitments
in 2010 to these areas, nothing in the statute at the time prevented
him from doing more than that. By extending the TARP, the Secretary maintained his ability to use the full extent of the program’s
authority until its expiration on October 3, 2010. That authority
changed, however, following the enactment of the Dodd-Frank Act
on July 21, 2010.49 The law included an amendment, inserted during the bill’s conference proceedings, limiting the scope and nature
of the TARP for the remainder of the program’s duration. Specifically, the legislation lowered the TARP’s spending authority from
$700 billion to $475 billion and prohibited the Secretary from using
TARP funds ‘‘to incur any obligation for a program or initiative
that was not initiated prior to June 25, 2010.’’ 50
44 See GAO Testimony: Transparency and Accountability of Ongoing Programs, supra note 42,
at 16. See also Section D.3, infra.
45 See December 2009 Oversight Report, supra note 6. Professor Simon Johnson, in responses
to questions asked by the Panel, also noted that PPIP did not raise bid prices high enough to
induce banks to sell their assets. Written Responses to Panel Questions by Simon Johnson
(Sept. 2010).
46 See U.S. Government Accountability Office, Troubled Asset Relief Program: Treasury Needs
to Strengthen its Decision-Making Process on the Term Asset-Backed Securities Loan Facility, at
36–37 (Feb. 2010) (GAO–10–25) (online at www.gao.gov/new.items/d1025.pdf).
47 Consumer Product Safety Improvement Act of 2008, Pub. L. No. 110–314 (2008).
48 See U.S. Department of the Treasury, Treasury Department Releases Text of Letter from Secretary Geithner to Hill Leadership on Administration’s Exit Strategy for TARP (Dec. 9, 2009)
(online at www.financialstability.gov/latest/pr_12092009.html) (hereinafter ‘‘Letter from Secretary Geithner to Hill Leadership’’).
49 Section 1302 of the Dodd-Frank Act, entitled ‘‘Amendment to Reduce TARP Authorization’’
was inserted during the legislation’s conference proceedings on June 29, 2010. According to the
Congressional Budget Office, the amendment reduces the deficit by $11 billion in 2010 and by
$3.2 billion over ten years. See Dodd-Frank Wall Street Reform and Consumer Protection Act,
supra note 15.
50 The Dodd-Frank Act also strikes in Section 115(a)(3) of EESA the clause ‘‘outstanding at
any one time’’ which pertains to the Treasury Secretary’s ability to reuse TARP funds. In place
of the clause, the Dodd-Frank Act adds the following: ‘‘For purposes of this subsection, the

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The Dodd-Frank Act’s downward revision of Treasury’s spending
authority has forced Treasury to reassess its plans for allocating
TARP funds. Prior to the law’s enactment, the Panel estimated
that Treasury had made a total of $535.5 billion in commitments
under the TARP—$60.5 billion above the new $475 billion cap.51
To meet the new cap, Treasury reduced the level of its commitments in several programs.52 Treasury has reduced the amount of
credit protection it provides the Term Asset-Backed Securities Loan
Facility by $15.7 billion, from $20 billion to $4.3 billion. Treasury
also reduced its TARP commitment for the Public Private Investment Program (PPIP) by $8 billion, from $30.4 billion to $22.4 billion, and its commitment to the Auto Supplier Support Program
(ASSP) by $3.1 billion, from $3.5 billion to $400 million. Finally,
Treasury reduced its commitment to foreclosure mitigation programs by $3.2 billion, from $48.8 billion to $45.6 billion. The revised total of $45.6 billion is comprised of $11 billion for the Treasury/FHA refinance program, $4.1 billion for the Hardest Hit Fund
and $30.5 billion for the Home Affordable Modification Program
(HAMP).
While the Dodd-Frank Act prohibits Treasury from creating any
new programs under the TARP not initiated before June 25, 2010,
it does not affect the TARP’s forthcoming expiration as defined in
EESA. EESA, which was signed into law on October 3, 2008, is
clear that the Secretary cannot extend his authority under the
TARP beyond October 3, 2010. Section 120(b) of EESA reads: ‘‘The
Secretary, upon certification to Congress, may extend the authority
under this Act to expire not later than 2 years from the date of enactment of this Act.’’ 53 The phrase ‘‘the authority under this Act’’
would seem to capture all authority provided under EESA; however, the statute allows for one exception. Section 106(e) of EESA
stipulates: ‘‘The authority of the Secretary to hold any troubled assets purchased under this Act before the termination date in Section 120, or to purchase or fund the purchase of a troubled asset
under a commitment entered into before the termination in Section
120, is not subject to the provisions of Section 120.’’ 54
Section 106(e) provides Treasury with two specific authorities.
First, it allows Treasury to hold its investments made through the
TARP after October 3, 2010. Second, it allows Treasury to continue
to use the TARP to fund TARP commitments, provided Treasury
had made those commitments prior to October 3. Treasury has
committed TARP funding to a variety of programs that it has not
amount of authority considered to be exercised by the Secretary shall not be reduced by—(A)
any amounts received by the Secretary before, on, or after the date of enactment of the Pay
It Back Act from repayment of the principal of financial assistance by an entity that has received financial assistance under the TARP or any other program enacted by the Secretary
under the authorities granted to the Secretary under this Act; (B) any amounts committed for
any guarantees pursuant to the TARP that became or become uncommitted; or (C) any losses
realized by the Secretary.’’ See Dodd-Frank Wall Street Reform and Consumer Protection Act,
supra note 15.
51 August 2010 Oversight Report, supra note 6, at 142.
52 The Small Business Lending Fund (SBLF), a proposed $30 billion lending program, was earlier eliminated as a commitment under the TARP. Instead, the Administration had asked Congress to pursue the matter as a separate legislative initiative. TARP Monthly 105(a) Report—
July 2010, supra note 27.
53 Consumer Product Safety Improvement Act of 2008, Pub. L. No. 110–314 (2008).
54 Consumer Product Safety Improvement Act of 2008, Pub. L. No. 110–314 (2008).

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16
yet fully funded to their allocated amounts.55 Many of these programs will continue to receive TARP funding well beyond October
3, 2010. HAMP represents the largest commitment of TARP dollars
yet to be expended.56 Treasury considers its HAMP contracts to be
‘‘financial instruments’’ or ‘‘commitments to purchase troubled assets’’ and, therefore, captured under Section 106(e). According to
Treasury, the modification payments ‘‘made to servicers are the
purchase prices for the financial instruments’’ or troubled assets.57
As a result, Treasury plans to continue to fund HAMP and make
modification payments to mortgage servicers in the years ahead.
Treasury has noted to the Panel that it will lose some of its flexibility to alter operational aspects of HAMP after October 3. First,
it will not be able to enlist new servicers to HAMP.58 Treasury has
explained to the Panel that in its view the authority under Section
106(e) ‘‘to purchase or fund the purchase of a troubled asset under
a commitment entered into before the termination’’ of TARP requires Treasury to have entered into a HAMP contract with a
mortgage servicer on or prior to October 3, 2010. Treasury has also
explained to the Panel that it will lose its ability to use committed
dollars under HAMP if a servicer were to drop from the program
after TARP’s expiration. To provide it with more flexibility and
maximize HAMP committed dollars, Treasury has informed the
Panel that it is exploring changes to the way in which purchase
prices are calculated for HAMP contracts.
Currently, the purchase price in a HAMP contract is a set dollar
amount. Under Treasury’s proposed plan, purchase prices will instead be based on a formula. This change will enable Treasury to
preserve HAMP funding after TARP’s expiration date. According to
Treasury, under the new arrangement, if a servicer were to discontinue participation in HAMP, the funds that had been committed to that servicer would not lapse, or become unavailable for
further use, but instead would be spread among the remaining
servicers. The change would be made by issuance of a supplemental directive. The Panel expects to explore these issues further
in future oversight of foreclosure mitigation.
C. TARP’s Financial Results

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In addition to the goals of restoring liquidity and stability to the
U.S. financial system, EESA directs Treasury to maximize overall
returns and minimize overall costs to U.S. taxpayers 59 and to consider the impact on the national debt.60 Section 202 of EESA requires the Office of Management and Budget (OMB) to submit
semiannual reports estimating the cost of the TARP’s trans55 PPIP, SBA 7(a) Securities Purchase, HAMP, Hardest Hit Fund, FHA Refinance, and the
Community Development Capital Initiative, and the AIG Investment Program. U.S. Department
of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—August 2010 (Sept. 10,
2010)
(online
at
www.financialstability.gov/docs/105CongressionalReports/
August%202010%20105(a)%20Report_final_9%2010%2010.pdf) (hereinafter ‘‘TARP Monthly
105(a) Report—August 2010’’).
56 The Panel’s April report on foreclosure mitigation discussed Treasury’s view of the legality
of HAMP in the context of its general authority under EESA. April 2010 Oversight Report,
supra note 6, at 152.
57 Letter from George Madison, general counsel, U.S. Department of the Treasury, to Paul Atkins, member, Congressional Oversight Panel (Jan. 12, 2010) (citing 12 U.S.C. § 5202(9)).
58 Treasury conversations with Panel staff (Aug. 26 and Sept. 10, 2010).
59 See 12 U.S.C. § 5201; 12 U.S.C. § 5223.
60 See 12 U.S.C. § 5213.

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17
actions.61 Within 45 days of each report, the Congressional Budget
Office (CBO) is required to submit an assessment of OMB’s analysis, including a discussion of the TARP’s impact on the federal
budget deficit and debt. To value the TARP investments, the budget agencies use procedures similar to those specified in the Federal
Credit Reform Act of 1990 62 but adjust for market risk as directed
by EESA.63 Under that methodology, the agencies calculate the
subsidy cost of the TARP as the difference between Treasury’s investments and the estimated net present value of the transactions.
The total estimated cost of the TARP is a combination of realized
and prospective costs.
The most recent OMB and CBO projections of the total cost of
the TARP constitute significant reductions from earlier estimates,64
although taxpayers could still lose significant portions of their investments in several programs. In the FY 2011 Budget, OMB projected the TARP’s total impact on the budget deficit to be $116.8
billion.65 In May, Treasury released a revised estimate that lowered the projected deficit impact to $105.4 billion.66 CBO estimated
in March that the total cost of the TARP’s transactions would be
$109 billion.67 That estimate was adjusted to $66 billion in August.68 CBO attributes the majority of the difference between its
March estimate and OMB’s FY 2011 Budget estimate to four factors: (1) differing assumptions of homeowner participation in
HAMP; 69 (2) differing assessments of the cost of assistance to
61 See

12 U.S.C. § 5252.
2 U.S.C. § 661 et seq.
12 U.S.C. § 5232.
64 In June 2009, CBO estimated that the TARP would cost a total of $159 billion. Congressional Budget Office, The Troubled Asset Relief Program: Reports on Transactions Through June
17, 2009 (June 2009) (online at cbo.gov/ftpdocs/100xx/doc10056/MainText.4.1.shtml). In August
2009, as part of FY 2010 Mid-Session Review, OMB estimated that the TARP would cost a total
of $341 billion. Office of Management and Budget, Mid-Session Review, Budget of the U.S. Government—Fiscal Year 2010 (Aug. 25, 2009) (online at www.gpoaccess.gov/usbudget/fy10/pdf/
10msr.pdf).
65 OMB projected the total subsidy cost of TARP to be $126.7 billion, reflecting the estimated
lifetime TARP obligations and costs through 2020. OMB adjusted the estimate to $116.8 billion
by including downward interest on re-estimates of $9.9 billion. Office of Management and Budget, Budget of the U.S. Government—Fiscal Year 2011, Analytical Perspectives, at 40 (Feb. 1,
2010) (online at www.whitehouse.gov/omb/budget/fy2011/assets/econ_analyses.pdf) (estimate
based on valuations through November 30, 2009).
66 U.S. Department of the Treasury, Summary Tables of Troubled Asset Relief Program
(TARP) Investments as of March 31, 2010, at 1 (May 21, 2010) (online at
www.financialstability.gov/docs/TARP%20Cost%20Estimates%20-%20March%2031%202010.pdf)
(hereinafter ‘‘Treasury Summary Tables of TARP Investments’’) (estimate based on valuations
through March 31, 2010).
67 Congressional Budget Office, Report on the Troubled Asset Relief Program—March 2010, at
1 (Mar. 2010) (online at www.cbo.gov/ftpdocs/112xx/doc11227/03-17-TARP.pdf) (hereinafter ‘‘CBO
Report on the TARP—March 2010’’).
68 Congressional Budget Office, Budget and Economic Outlook: An Update (Aug. 2010) (online
at cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf) (hereinafter ‘‘CBO Budget and Economic
Outlook’’); Douglas Elmendorf, CBO’s Latest Projections for the TARP, Congressional Budget Office Director’s Blog (Aug. 20, 2010) (online at cboblog.cbo.gov/?p=1322) (hereinafter ‘‘CBO’s Latest Projections for the TARP’’). The CBO Director’s Blog cites three factors for the reduction:
further repurchases of preferred stock and sales of warrants from banks, a lower estimated cost
for assistance to the automobile industry, and the elimination (due to the passage of time and
provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111–203)
of the opportunity to create new programs. CBO plans to publish a full update on the TARP
sometime this fall.
69 In the FY 2011 Budget, OMB estimated that $48.8 billion would be disbursed under HAMP;
CBO estimated that only $22 billion would be spent. According to CBO, ‘‘[t]he difference between those two estimates stems primarily from disparate outlooks on the number of eligible
households and the participation rate among those households.’’ CBO Report on the TARP—
March 2010, supra note 67, at 6.
62 See

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63 See

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18

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AIG; 70 (3) differing estimates of the subsidy cost attributed to future commitments to new programs; 71 and (4) valuation disparity
due to the dates the estimates were performed.72
The latest OMB and CBO estimates were released prior to enactment of the Dodd-Frank Act, and Treasury has since revised its
planned investments as a result of the new $475 billion cap on
TARP expenditures imposed by the bill.73 A substantial portion
($163.2 billion) of the $223.7 billion in reductions required under
the Dodd-Frank Act was achieved by forfeiting previously uncommitted funds.74 As discussed above in Section B.2, Treasury offset
the remaining $60.5 billion with reductions to the $535.5 billion
committed as of June 30, 2010.75 In prior reports, the Panel has
classified TARP expenditures into four different categories: (1) capital programs and banking sector health; (2) credit for consumers
and small businesses; (3) mortgage foreclosure relief; and (4) auto
industry assistance.76 Figure 1 shows the changes in funding commitments enacted as result of the passage of the Dodd-Frank Act
and the projected final cost of each TARP subprogram according to
estimates from CBO, OMB, and Treasury. These assessments of
cost are a way for the government to project the ultimate losses or
gains on its TARP investments for budgeting purposes, but there
are ways in which their value may be limited. On the one hand,
they may not completely capture the many variables that could
still impair taxpayer repayment. For instance, the fact that approximately one-seventh, or 15 percent, of CPP recipients have already missed a dividend payment, and fewer than 10 percent of
CPP-recipient banks have repaid taxpayers, suggests full repayment of CPP funds is not assured (see Figure 37).77 Likewise, continued economic weakness could inhibit consumer demand for automobiles, impairing Treasury’s ability to recoup its investments in
GM, Chrysler, and Ally Financial. Therefore, the projected final
costs in Figure 1 should not be taken to indicate maximum possible
losses, as repayment is dependent upon a number of factors that
may not have been incorporated in the models used by the three
entities. In addition to the possibility that these measures may not
capture all the variables that affect the likelihood that Treasury
will be repaid, however, these assessments have an additional limitation. Although EESA, as described above, directs Treasury to
take into account the taxpayers’ overall returns, the pure return on
70 OMB’s estimated subsidy cost of assistance to AIG was $49.9 billion versus $36 billion for
CBO. The difference reflects differing assumptions used to value the subsidy provided to the
company and the cash flows involved in those transactions. CBO Report on the TARP—March
2010, supra note 67, at 7.
71 OMB projected that the TARP would disburse another $40 billion at a subsidy cost of $3
billion; CBO included a similar $45 billion placeholder with an estimated subsidy of $23 billion.
CBO Report on the TARP—March 2010, supra note 67, at 7. The subsequent enactment of the
Dodd-Frank Act on July 21, 2010, ensured that the Secretary of the Treasury would be prohibited from using TARP funds ‘‘to incur any obligation for a program or initiative that was not
initiated prior to June 25, 2010.’’ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, supra note 15.
72 Treasury Summary Tables of TARP Investments, supra note 66, at 1.
73 TARP Monthly 105(a) Report—July 2010, supra note 27, at 4–5.
74 The ceiling prior to passage of the Dodd-Frank Act was $698.7 billion. The original ceiling
of $700 billion was reduced $1.2 billion with the passage of the Helping Families Save Their
Homes Act in 2009. See Helping Families Save Their Homes Act of 2009, supra note 2, § 40.
75 TARP Monthly 105(a) Report—June 2010, supra note 31, at 5–6.
76 See December 2009 Oversight Report, supra note 6, at 17–74.
77 For a full discussion of outstanding CPP funds, particularly those invested in institutions
with less than $500 million in assets, see July 2010 Oversight Report, supra note 23.

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investment from the TARP is not the only way to evaluate the effectiveness of the program. As discussed further in Section E.2 of
this report, using returns as the only or primary measure of success may not adequately capture the possible consequences to
which the taxpayers might have been subject through TARP.

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TARP Programs
Dodd-Frank
Act Changes ii

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350.1

(8.0)

0
0
0
(8.0)
0

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51.8

Subtotal ............................................................................................................................

(46.3)

(15.7)
(30.0)
(0.6)
0

E:\HR\OC\A023.XXX

2.1
NA
48.8

Subtotal ............................................................................................................................

xiv 46.7

HAMP ..........................................................................................................................................
HHFxv .........................................................................................................................................
FHA Refinance Programxvi ........................................................................................................

A023

(3.1)

(16.1)
2.0
11.0

Mortgage Foreclosure Relief

20.0
30.0
1.0
xii 0.8

TALF ...........................................................................................................................................
SBLF ix .......................................................................................................................................
Unlocking SBA Lendingx ............................................................................................................
CDCI xi .......................................................................................................................................

Credit for Consumers and Small Businesses

Subtotal ............................................................................................................................

204.9
40.0
69.8
30.4
5.0

45.6

30.5
4.1
11

5.5

4.3
0
0.4
0.8

342.1

204.9
40.0
69.8
22.4
5.0

As of August
31, 2010 iii

Capital Programs and Banking Sector Health

As of June
30, 2010 i

Funding Allocated

[Dollars in billions]

CBO

22.0

22.0
NA
NA

1.2

1.0
NA
NA
0.2

29.0

(2.0)
(3.0)
36.0
1.0
(3.0)

March 2010
TARP Report
(as of
2/17/10) iv

FIGURE 1: TARP EXPENDITURES AND PROJECTED GAINS AND LOSSES

CPP ............................................................................................................................................
TIP ..............................................................................................................................................
AIGIP ..........................................................................................................................................
PPIP ............................................................................................................................................
AGP ............................................................................................................................................

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NA

NA
NA
NA

NA

NA
NA
NA
NA

NA

NA
NA
NA
NA
NA

August 2010
Budget and
Economic
Outlook (as
of 8/20/10) v

48.8

48.8
NA
NA

(0.5)

(0.5)
NA
NA
NA

37.6

48.8

48.8
NA
NA

(0.5)

(0.5)
NA
NA
NA

44.9

1.4
(3.7)
49.9
0.3
(3.0)

FY 2011
Budget, Subsidy Cost (as
of
11/30/09) vii

OMB

(3.7)
(4.1)
48.1
0.3
(3.0)

FY 2011
Budget, Deficit Impact
(as of
11/30/09) vi

Projected Final Cost

48.8

48.8
NA
NA

xiii 3.0

NA
NA
NA
NA

29.0

(9.8)
(3.8)
45.2
0.5
(3.1)

TARP
Summary
Tables
(as of
3/31/10) viii

Treasury

20

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3.5

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xix 698.7

NA
535.5
163.2
(223.7)

NA
(60.5)
(163.2)

(3.1)

475

NA
475
0

81.8

81.3
0.4

109.2

23

34.0

34.0
NA

2.7

28.2

28.2
NA

ixx 66

116.8

Total Projected Cost

0

NA

NA
NA

126.7

2.7

30.8

30.8
NA

105.4

NA

24.6

24.6
NA

Department of the Treasury, Troubled Asset Relief Report, Monthly 105(a) Report—June 2010 (July 12, 2010) (online at www.financialstability.gov/docs/105CongressionalReports/June%202010%20105(a)%20ReportlFinal.pdf).
ii U.S. Department of the Treasury, Troubled Asset Relief Report, Monthly 105(a) Report—July 2010 (Aug. 10, 2010) (online at www.financialstability.gov/docs/105CongressionalReports/July%202010%20105(a)%20ReportlFinal.pdf); Treasury
conversations with Panel staff (July 21, 2010) (HAMP de-obligations).
iii U.S.
Department
of
the
Treasury,
Troubled
Asset
Relief
Report,
Monthly
105(a)
Report—August
2010
(Sept.
10,
2010)
(online
at
www.financialstability.gov/docs/105CongressionalReports/August%202010%20105(a)%20Reportlfinall9%2010%2010.pdf).
iv Congressional Budget Office, Report on the Troubled Asset Relief Program (Mar. 2010) (online at www.cbo.gov/ftpdocs/112xx/doc11227/03–17–TARP.pdf).
v Congressional Budget Office, Budget and Economic Outlook: An Update (Aug. 2010) (online at cbo.gov/ftpdocs/117xx/doc11705/08–18–Update.pdf).
vi Office of Management and Budget, Budget of the U.S. Government—Fiscal Year 2011 (Feb. 1, 2010) (online at www.whitehouse.gov/omb/budget/fy2011/assets/econlanalyses.pdf). The FY 2011 Budget total deficit impact includes downward interest on re-estimates of $9.9 billion.
vii Office of Management and Budget, Analytical Perspectives: Budget of the U.S. Government—Fiscal Year 2011 (Feb. 1, 2010) (online at www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/econlanalyses.pdf).
viii U.S.
Department
of
the
Treasury,
Summary
Tables
of
Troubled
Asset
Relief
Program
(TARP)
Investments
as
of
March
31,
2010
(May
21,
2010)
(online
at
www.financialstability.gov/docs/TARP%20Cost%20Estimates%20-%20March%2031%202010.pdf).
ix Prior to passage of the Dodd-Frank Act, Treasury kept a $30 billion placeholder for the SBLF, but the program was never initiated under the TARP. CBO, OMB, and Treasury did not assign a subsidy rate or estimated cost to the SBLF.
x CBO, OMB, and Treasury have not assigned a subsidy rate or estimated cost to the program to purchase securities backed by loans from SBA’s 7(a) Program.
xi OMB and Treasury have not assigned a subsidy rate or estimated cost to the CDCI.
xii In response to a Panel request, Treasury stated that it projects the CDCI program to utilize $780 million.
xiii Treasury assigned one subsidy rate and estimated cost to all programs falling under the Consumer and Business Lending Initiative, which includes the four subprograms listed here under ‘‘Credit for Consumers and Small Businesses.’’
xiv The original funding amount allotted for HAMP was $50 billion. In May 2009, the $1.2 billion reduction in TARP due to the passage of the Helping Families Save Their Homes Act of 2009, Pub. L. No. 111–22 § 402(f) (2009) was officially allocated to HAMP.
xv CBO, OMB, and Treasury have not assigned a subsidy rate or estimated cost to the HHF.
xvi CBO, OMB, and Treasury have not assigned a subsidy rate or estimated cost to the FHA Refinance Program.
xvii In total, $81.3 billion was initially invested in the AIFP: $50.7 billion to GM; $16.3 billion to GMAC; $12.8 billion to Chrysler; and $1.5 billion to Chrysler FinCo. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8, 2010, at 18–19 (Sept.10, 2010) (online at www.financialstability.gov/docs/transaction-reports/9–10–10%20Transactions%20Report%20as%20of%209–8–10.pdf). CBO, OMB, and Treasury have
not assigned individual subsidy rates to each individual company receiving TARP funds under the AIFP.
xviii CBO, OMB, and Treasury have not assigned an individual subsidy rate or estimated cost to the ASSP. For budget projection purposes, the program is considered part of the AIFP.
xix The ceiling prior to passage of the Dodd-Frank Act was $698.7 billion. The original ceiling of $700 billion was reduced by $1.3 billion with the passage of the Helping Families Save Their Homes Act of 2009, Pub. L. No. 111–22
§ 402(f) (2009).
xx Douglas Elmendorf, CBO’s Latest Projections for the TARP, Congressional Budget Office Director’s Blog (Aug. 20, 2010) (online at cboblog.cbo.gov/?p=1322) (‘‘In the baseline budget projections that CBO released yesterday, the lifetime
cost of the program has been reduced to $66 billion. Three factors account for the reduction: further repurchases of preferred stock and sales of warrants from banks, a lower estimated cost for assistance to the automobile industry, and the
elimination (due to the passage of time and provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111–203) of the opportunity to create new programs.’’).

i U.S.

Statutory Spending Limit ..........................................................................................................

Estimates for Uncommitted Funds ..........................................................................................
Total Committed .......................................................................................................................
Total Uncommitted ...................................................................................................................

84.8

Subtotal ............................................................................................................................

0
(3.1)

Auto Industry Assistance

AIFPxvii ......................................................................................................................................
ASSPxviii ....................................................................................................................................

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22
The TARP’s current balance sheet shows that Treasury has disbursed $394.6 billion under the $475 billion ceiling and $204.1 billion in TARP funds have been repaid. There have also been $3.9
billion in losses, leaving $184.8 billion in TARP funds currently
outstanding.78 The majority of the funds currently outstanding are
concentrated in four programs: (1) CPP ($55.1 billion); (2) PPIP
($12.7 billion); (3) AIGIP ($49.1 billion); and (4) AIFP ($67.1 billion). As shown above in Figure 1, CPP is expected to be a net gain
for Treasury, and PPIP is expected to lose no more than $500 million. Conversely, while less than $5 billion has been disbursed on
housing programs, Treasury could disburse as much as $45.6 billion in funds that are not intended to be recovered by the federal
government in HAMP, the Hardest Hit Fund, and the FHA Refinance Program.79 Therefore, the bulk of Treasury’s likely net costs
are expected to come from three sources: (1) losses on investments
in AIG; (2) losses on investments in Chrysler, GM, and Ally Financial; and (3) expenditures on foreclosure relief. The discussion
below provides more detail on the current estimates of gain or loss
on outstanding TARP funds.
1. Capital Programs and Banking Sector Health
As of September 1, 2010, 614 banks still held their CPP funds,
with a total of $55.1 billion outstanding. As a result, it is not yet
possible to calculate precisely the amount of money that the CPP
will earn or lose, although any losses can be capped at $57.4 billion.80 The direct financial cost to the federal government, however,
will probably be a fraction of that exposure, and the program may
even produce a net gain.
For CPP investments in financial institutions that have been
fully repaid, including warrants repurchased or sold, the overall
annual rate of return currently stands at 9.9 percent.81 It is important to note, however, that this rate of return reflects returns from
CPP banks that have been able to repay their TARP funds to date
or have been able to pay their dividends. As noted above, one in
seven banks in the CPP has missed a dividend payment, and the
prospects for full recovery remain uncertain. As the Panel dis78 See

Sept. 3 TARP Transactions Report, supra note 26.
could have chosen to include equity sharing provisions in the TARP foreclosure
relief programs. Equity sharing is a financing method by which a nonresident investor provides
capital and receives a portion of any equity in the home. Had Treasury chosen to include equity
sharing, the subsidy rate for the foreclosure relief programs would likely have been less than
100 percent. The Department of Housing and Urban Development’s (HUD) HOPE for Homeowners program, 12 U.S.C. § 1715z–23, included equity sharing provisions but suffered from a
very low participation rate. For a discussion of HOPE for Homeowners, see October 2009 Oversight Report, supra note 6, at 79–82.
80 Treasury closed the CPP on December 29, 2009, having disbursed $204.9 billion to 707 financial institutions. As of September 1, 2010, a total of 91 institutions had completely repurchased their CPP preferred shares and nine had made partial repayments. In total, CPP banks
have repurchased $147.5 billion in preferred stock and $55.1 billion remains outstanding. Losses
can be capped by adding the total amount outstanding ($55.1 billion) to the amount allocated
to CIT Group ($2.3 billion), which declared bankruptcy, and Pacific National Bancorp ($4.1 million), which was taken into receivership by the FDIC. Three additional CPP-recipient banks are
likely to result in losses: UCBH Holdings received $299 million and is currently in bankruptcy
proceedings; Midwest Banc Holdings, Inc. and Sonoma Valley Bancorp, which received $89.4
million and $8.7 million, respectively, are in receivership.
81 The calculation of the overall annual rate of return is based on Treasury’s most recent
transactions report. See Sept. 3 TARP Transactions Report, supra note 26; data provided by
Bloomberg, and the Panel’s own methodology for valuing warrants; Congressional Oversight
Panel, July Oversight Report: TARP Repayments, Including the Repurchase of TARP Warrants,
at 46–53 (July 10, 2009) (online at cop.senate.gov/documents/cop-071009-report.pdf).

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cussed in its July report, banks that have strong capital positions
face pressure to exit the program as quickly as possible.82 By contrast, banks that have not repaid their TARP funds may be under
or could come under greater stress. Some banks that remain in the
CPP may find it difficult or impossible to raise the capital necessary to meet their obligations to the taxpayers, and Treasury’s
rate of return may therefore decline over the life of the program.
Taking into account both losses and gains, CBO’s most recent published estimate is that the government will ultimately earn a net
$2 billion from the CPP.83 Treasury expects a gain of $9.8 billion.84
TARP funds also remain outstanding under the PPIP and the
TALF. In order to remove troubled assets from bank balance
sheets, Treasury initially allocated $30 billion to the PPIP. Following the enactment of the Dodd-Frank Act, Treasury reduced the
amount committed to the PPIP by nearly $8 billion to a ceiling of
$22.4 billion in TARP funds. Treasury’s current exposure consists
of $7.4 billion of equity capital and $14.7 billion of debt capital.85
In the FY 2011 budget, Treasury placed the cost of the PPIP at
$300 million based on a 1 percent subsidy rate. In March 2010,
Treasury and OMB released a revised cost estimate based on a 2
percent subsidy, placing the cost of the PPIP at less than $500 million in TARP funds over the life of the program.86 On June 30,
2010, Treasury reported that the rate of return among the eight investment funds ranged from 9 to 26 percent since each fund made
its initial capital draw.87 Performance among the investment funds
over the life of the program will be largely dependent on market
conditions. Because the PPIP investment funds are in the early
stages of their three-year investment periods, it is not possible to
assess the long-term performance of the program based on current
rates of return.
Treasury committed up to $20 billion in TARP funds to restart
securitization markets through a loan to TALF LLC, a special purpose vehicle created by the Federal Reserve Bank of New York
(FRBNY). On July 19, 2010, Treasury amended its credit agreement with FRBNY and TALF LLC to reduce the maximum loan
amount to $4.3 billion.88 Although the TALF has closed, meaning
that the program will not fund the creation of any new securities,
Treasury will continue to provide credit protection to FRBNY until
the full $4.3 billion commitment has been funded or the loan commitment term expires.89 The latest CBO report estimated the subsidy rate for Treasury protection for the TALF to be 6 percent, re82 See

July 2010 Oversight Report, supra note 23, at 30.
CBO Report on the TARP—March 2010, supra note 67.
Summary Tables of TARP Investments, supra note 66.
85 TARP Monthly 105(a) Report—July 2010, supra note 27, at 6.
86 Treasury Summary Tables of TARP Investments, supra note 66, at 1.
87 These returns were calculated based on monthly performance reports submitted by PPIF
managers and include a deduction for management fees and expenses attributable to Treasury.
U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program, at 7
(July 19, 2010) (online at www.financialstability.gov/docs/111.pdf).
88 TARP Monthly 105(a) Report—July 2010, supra note 27, at 5.
89 Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Terms and
Conditions (July 21, 2010) (online at www.newyorkfed.org/markets/talf_terms.html) (hereinafter
‘‘TALF Terms and Conditions’’). See Section D.3, infra, for further discussion of TALF.
83 See

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sulting in a $1 billion loss in TARP funds over the life of the program.90
2. AIG Investment Program (Formerly the Systemically Significant Failing Institutions Program)
Most observers expect that the AIG Investment Program will
generate significant losses to U.S. taxpayers.91 The latest estimates
by CBO, OMB, and Treasury project losses in the amount of $36
billion,92 $50 billion,93 and $45 billion,94 respectively, although the
estimated losses have steadily decreased since the inception of the
credit facility. Whether Treasury will be able to exit its investments in AIG without substantial losses turns on AIG’s ability to
produce strong operating results and demonstrate that it is capable
of functioning as a standalone investment-grade company without
government support. While Treasury and AIG officials have expressed confidence that AIG is making great strides towards
achieving such financial independence,95 AIG still relies largely on
government funding for capital and liquidity, although there are recent indications that AIG is planning to issue bonds.96 Treasury’s
ability to recoup its investment depends on the value of AIG’s common stock at the time Treasury sells its interests.97 Therefore, the
value of Treasury’s substantial investment in AIG and the size of
any gain or loss are dependent on many external variables, and the

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90 CBO

Report on the TARP—March 2010, supra note 67.
91 The panel has written extensively on the government investment in AIG and its prospects.
See June 2010 Oversight Report, supra note 21.
92 CBO Report on the TARP—March 2010, supra note 67, at 3.
93 Office of Management and Budget, The President’s Budget for Fiscal Year 2011, Analytical
Perspectives, Economic and Budget Analyses, at 40 (Feb. 1, 2010) (online at
www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/econ_analyses.pdf) (hereinafter
‘‘The President’s Budget for Fiscal Year 2011’’).
94 Treasury Summary Tables of TARP Investments, supra note 66, at 2.
95 See Congressional Oversight Panel, Written Testimony of Robert Benmosche, president and
chief executive officer, American International Group, Inc., COP Hearing on TARP and Other
Assistance to AIG, at 8 (May 26, 2010) (online at cop.senate.gov/documents/testimony-052610benmosche.pdf) (e.g. ‘‘AIG is now on a clear path to repaying taxpayers. In recent months, we
have become less reliant on government aid and have been able to tap instead the capital markets. We are working hard to complete the sales of AIA and ALICO by the end of the year,
to increase profits at our remaining businesses and to improve operating returns. Then we can
begin to examine the alternatives we have to address the Treasury’s TARP investment and equity holdings.’’). The current status of the AIA and ALICO sales are discussed in footnote 108,
infra. See also Congressional Oversight Panel, Testimony of Jim Millstein, chief restructuring
officer, U.S. Department of the Treasury, Transcript: COP Hearing on TARP and Other Assistance to AIG (May 26, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/
hearing-052610-aig.cfm) (hereinafter ‘‘Jim Millstein AIG Testimony’’ (stating that Mr.
Benmosche is an ‘‘experienced insurance executive . . . h[e] is confiden[t] that he can get
Chartis and SunAmerica Financial to an $8 billion dollar net after tax earnings. If he can do
that, we’re going to be paid in full’’).
96 American International Group, Inc., Form 10–Q for the Quarterly Period Ended June 30,
2010,
at
12
(Aug.
6,
2010)
(online
at
www.sec.gov/Archives/edgar/data/5272/
000104746910007097/a2199624z10-q.htm) (hereinafter ‘‘AIG Form 10–Q for the Second Quarter
2010’’). AIG amended its existing SEC registration on August 9, 2010 to permit the sale of debt
instruments. American International Group, Inc., Form S–3 (Aug. 9, 2010) (online at
services.corporate-ir.net/SEC.Enhanced/SecCapsule.aspx?c=76115&fid=7076507). The AIG aircraft leasing subsidiary ILFC was recently able to raise approximately $4 billion in the capital
markets, which AIG has used to reduce the balance on the FRBNY revolving credit facility.
American International Group, Inc., AIG Reduces Principal Balance on Federal Reserve Bank
of New York Revolving Credit Facility by Nearly $4 Billion (Aug. 23, 2010) (online at
ir.aigcorporate.com/External.File?t=2&item=g7rqBLVLuv81UAmrh20Mp2D/
jbuMQX0JWf4oGazjlIxeJq2b5l2D3jdQlccQVaAZCaOmzP8Hukewe3TB4pawgQ==)
(hereinafter
‘‘AIG Press Release’’).
97 See Jim Millstein AIG Testimony, supra note 95 (‘‘Whether Treasury ultimately recovers all
of its investment or makes a profit, will in large part depend on the company’s operating performance and market multiples for insurance companies at the time the government sells its
interest’’).

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protracted investment in AIG continues to create significant risks
to taxpayers.
Treasury has invested approximately $47.5 billion in TARP funds
in AIG. This investment is comprised of non-cumulative preferred
stock in the amount of $40 billion and an equity capital facility
under which AIG has drawn down $7.5 billion.98 Including the $1.6
billion in unpaid dividends, AIG’s outstanding TARP assistance
equals $49.1 billion.99 In addition, AIG must repay $79.1 billion in
outstanding debt to FRBNY.100 Figure 2 shows a breakdown of
AIG’s outstanding obligations to the government.
FIGURE 2: GOVERNMENT ASSISTANCE TO AIG AS OF SEPTEMBER 1, 2010
[Dollars in millions]
Amount
Allocated

Assistance
Amount
Outstanding
as of 9/1/2010

FRBNY 101
Revolving Credit Facility 102 ........................................................................................
Maiden Lane II: Outstanding principal amount of loan from FRBNY ........................
Accrued interest payable to FRBNY ............................................................................
Maiden Lane III: Outstanding principal amount of loan from FRBNY .......................
Accrued interest payable to FRBNY ............................................................................
Preferred interest in AIA Aurora LLC ...........................................................................
Accrued dividends on preferred interests in AIA Aurora LLC .....................................
Preferred interest in ALICO SPV ..................................................................................
Accrued dividends on preferred interests in ALICO Holdings LLC 103 ........................

$30,000
22,500
—
30,000
—
16,000
—
9,000
—

$20,057
13,873
387
15,107
477
16,469
111
9,264
62

Total FRBNY .......................................................................................................

107,500

75,807

Series E Non-cumulative Preferred stock ....................................................................
Unpaid dividends on Series D Preferred stock 104 ......................................................
Series F Non-cumulative Preferred stock 105 ..............................................................

40,000
—
29,835

40,000
1,605
7,544

Total TARP ..........................................................................................................

69,835

49,149

Net borrowings .............................................................................................................
Accrued interest payable and unpaid dividends ........................................................

181,035
—

122,314
2,642

Total Balance Outstanding on All Government Investments ..........................

$177,335

$127,598

TARP

Total FRBNY + TARP

101 Id.

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102 Id.

See also AIG Press Release, supra note 96.

98 U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for
the Period Ending September 9, 2010, at 21 (Sept. 13, 2010) (online at
www.financialstability.gov/
docs/transaction-reports/9-1310%20Transactions%20Report%20as%20of%209-9-10.pdf) (hereinafter ‘‘Treasury Transactions
Report’’); TARP Monthly 105(a) Report—August 2010, supra note 55. See also June 2010 Oversight Report, supra note 21, at 15. Under the equity capital facility, AIG may draw up to $29.8
billion.
99 Because AIG failed to pay dividends on AIG Series E Preferred Stock (par value $5.00 per
share) and AIG Series F Preferred Stock for four quarters, on April 1, 2010 Treasury exercised
its right to appoint two directors to the Board of Directors of AIG. American International
Group, Inc., Form 10–Q for the Quarterly Period Ended March 31, 2010, at 73 (May 7, 2010)
(online at www.sec.gov/Archives/edgar/data/5272/000104746910004918/a2198531z10-q.htm).
100 Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances
(H.4.1) (Aug. 12, 2010) (online at www.federalreserve.gov/releases/h41/Current/) (hereinafter
‘‘Factors Affecting Reserve Balances (H.4.1)’’). See also June 2010 Oversight Report, supra note
21, at 15.

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103 Factors Affecting Reserve Balances (H.4.1), supra note 100 (‘‘Dividends accrue as a percentage of FRBNY’s preferred interests in AIA
Aurora LLC and ALICO Holdings LLC. On a quarterly basis, the accrued dividends are capitalized and added to FRBNY’s preferred interests in
AIA Aurora LLC and ALICO Holdings LLC.’’). FRBNY also reports the Net Portfolio Holdings for Maiden Lane II and III (ML II and ML III, respectively). These figures represent fair market value estimates of the assets of the two Maiden Lane SPVs. The current Net Portfolio Holdings values are $15,967 for ML II and $23,324 for ML III (in millions of dollars). These can theoretically be compared to FRBNY’s investments and
accrued interest to determine an approximate paper gain or loss. For ML II and ML III, this would represent gains of $2,094 and $8,217, respectively.
104 U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending August 20, 2010, at 21 (Aug.
20, 2010) (online at www.financialstability.gov/docs/transaction-reports/8-24-10%20Transactions%20Report%20as%20of%208-20-10.pdf).
105 AIG Form 10–Q for the Second Quarter 2010, supra note 96, at 107.

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The timing of Treasury’s exit is complicated by the fact that AIG
is not permitted to repay Treasury until it has fully repaid FRBNY.
Treasury, the Federal Reserve, and AIG have stated that they are
confident that AIG will fully repay FRBNY in the near future without jeopardizing its financial viability.106 In addition, over recent
months Treasury and AIG have stated that they are increasingly
optimistic that AIG will fully repay Treasury; however, neither AIG
nor Treasury has provided a timeline or articulated a firm exit
strategy.107 Furthermore, AIG must overcome several barriers before it can repay its FRBNY debt, let alone its Treasury debt. Notably, problems have arisen in the planned sales of certain subsidiaries.108 In addition, at this time AIG cannot afford to divert the
cash it is generating through its insurance operations towards repaying FRBNY because it is still quite weak financially.109 Both
the timing of the government’s exit from its involvement with AIG,
and the ultimate return on its investment, are difficult to predict
with confidence.
106 Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report
on Credit and Liquidity Programs and the Balance Sheet, at 27 (July 2010) (online at
www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201007.pdf) (‘‘[T]he Federal Reserve anticipates that the loans provided by the Federal Reserve under the Revolving Credit
Facility, including interest and commitment fees under the modified terms of the facility, will
be fully repaid and the face value of the preferred interests in the AIA and ALICO SPVs, plus
accrued dividends, will be received. Accordingly, the Federal Reserve anticipates that the facility
will not result in any net loss to the Federal Reserve or taxpayers.’’); Congressional Oversight
Panel, Testimony of Robert Benmosche, president and chief executive officer, American International Group, Inc., Transcript: COP Hearing on TARP and Other Assistance to AIG (May 26,
2010) (publication forthcoming) (online at cop.senate.gov/hearings/libraryhearing-052610aig.cfm) (‘‘I believe that we will pay back all that we owe the U.S. Government. And I believe
at the end of the day, the U.S. Government will make an appropriate profit.’’); Jim Millstein
AIG Testimony, supra note 95 (‘‘[T]he New York Fed, which has about $83 billion dollars outstanding today, is very likely to be paid in full.’’). See also June 2010 Oversight Report, supra
note 21, at 196.
107 See June 2010 Oversight Report, supra note 21, at 196–197, 200.
108 AIG’s primary strategy for repaying FRBNY debt has faltered in recent months. AIG had
planned to repay FRBNY with the proceeds from the sale of its Asian insurance subsidiaries,
AIA and ALICO. On June 2, 2010, the AIA sale to Prudential for $35.5 billion was cancelled
due to disagreements over the sale price. AIG is now contemplating an alternative strategy to
sell AIA through an IPO on the Hong Kong Stock Exchange. On March 8, 2010, AIG agreed
to sell ALICO to MetLife for $15.5 billion, but the sale has not yet closed. AIG’s ability to repay
FRBNY in the near future is uncertain as it does not appear that AIG has a viable alternative
to repaying FRBNY other than through an IPO or sale of AIA and ALICO. Other assets AIG
has slated for sale will not generate sufficient proceeds to repay FRBNY. See American International Group, Inc., AIG to Sell ALICO to MetLife for Approximately $15.5 Billion (Mar. 8,
2010)
(online
at
phx.corporate-ir.net/External.File?item=
UGFyZW50SUQ9MzU0MTl8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1).
Despite the challenges outlined above, AIG has made measured progress in the disposition
of certain assets. On August 11, 2010, AIG announced the sale of 80 percent of its ownership
stake in American General Finance Inc. to Fortress Investment Group LLC. American International Group, Fortress Funds to Purchase American General Finance (Aug. 11, 2010) (online
at www.aigcorporate.com/newsroom/index.html).
109 See generally, AIG Form 10–Q for the Second Quarter 2010, supra note 96, at 12. AIG had
a net loss of $2.7 billion in the second quarter of 2010, which the company attributed to restructuring-related charges.

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3. Automotive Industry Financing Program 110
There are currently $67.1 billion in TARP funds outstanding
under the Automotive Industry Financing Program (AIFP).111 The
passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act ensures that there will be no further commitments or
expenditures under the AIFP, and the $67.1 billion currently outstanding under the program is the maximum amount that will be
at risk going forward.112
CBO, OMB, and Treasury are projecting losses in the amount of
$34 billion,113 $28.2 billion,114 and $24.6 billion,115 respectively,
from the assistance provided under the AIFP, although the estimated losses have steadily decreased since the early stages of government assistance. Whether Treasury will incur losses from its investment in the AIFP depends on the ability of GM and Chrysler
to achieve strong operating results and establish themselves as
competitive auto manufacturers, and the ability of GMAC, now Ally
Financial, to rebuild itself as a healthy standalone company.
a. General Motors
Treasury initially invested a total of $49.9 billion in GM. Approximately $30.1 billion was provided in the form of debtor-in-possession (DIP) financing to support GM’s Chapter 11 restructuring.116 Through bankruptcy, the initial investment was converted to $2.1 billion in preferred stock, 60.8 percent in common equity, and $6.7 billion in debt.117 Proceeds in the amount of $16.4
billion from the DIP facility were deposited in escrow to be distributed to GM at its request, subject to certain conditions.118 In April
2010, GM repaid its outstanding $6.7 billion debt to Treasury using
the funds in the escrow account. Despite this debt repayment,
Treasury maintains a significant equity stake in the company.119
On July 22, 2010, GM announced its acquisition of AmeriCredit,
an auto finance company specializing in non-prime lending, for $3.5
110 See

Annex I, infra.
Transactions Report, supra note 98, at 18.
Monthly 105(a) Report—July 2010, supra note 27, at 4.
113 CBO Report on the TARP—March 2010, supra note 67, at 3.
114 The President’s Budget for Fiscal Year 2011, supra note 93, at 40. The subsidy cost represents the lifetime net present value cost of TARP obligations from the date TARP obligations
originate. CBO, OMB, and Treasury do not disaggregate subsidy estimates by each institution
(GM, Chrysler, and GMAC), and instead use overall subsidy rates for AIFP recipients. The OMB
estimate ($28.2 billion) includes an interest adjustment on its previously published estimate;
without this adjustment, the OMB estimate is $30.8 billion.
115 Treasury Summary Tables of TARP Investments, supra note 66, at 2.
116 TARP Monthly 105(a) Report—July 2010, supra note 27, at Appendix 1—Page 8.
117 This figure does not include $361 million in loans repaid by GM immediately following its
emergence from bankruptcy on July 10, 2009. Treasury Transactions Report, supra note 98, at
18.
118 GM was required to meet the following conditions in order to access the funds in the escrow account: ‘‘(1) the representations and warranties GM made in the loan documents are true
and correct in all material respects on the date of the request; (2) GM is not in default on the
date of the request taking into consideration the amount of the withdrawal request; and (3) the
United States Department of the Treasury (UST), in its sole discretion, approves the amount
and intended use of the requested disbursement.’’ General Motors Co., Form 8–K for the Period
Ended September 2, 2009 (Nov. 2, 2009) (online at www.sec.gov/Archives/edgar/data/1467858/
000119312509220534/d8k.htm).
119 GM repaid $1 billion on December 18, 2009, $35 million on January 21, 2010, $1 billion
on March 31, 2010, and the remaining $4.7 billion on April 20, 2010, for a total of $6.7 billion.
With Treasury’s permission, GM made each payment using the funds in the escrow account.
U.S. Department of the Treasury, Troubled Assets Relief Program (TARP): Monthly 105(a) Report_April 2010, at 11 (May 10, 2010) (online at www.financialstability.gov/docs/
105CongressionalReports/April%202010%20105(a)%20reportlfinal.pdf).
111 Treasury

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billion.120 GM has had limited access to non-prime car buyers because Ally Financial (formerly GMAC), GM’s long-time financing
partner, had withdrawn from the subprime lending market as a result of the financial crisis.121 GM has stated that it is expecting the
AmeriCredit acquisition to allow it to offer more financing options
and to increase sales in the non-prime market.122 In August, GM
announced that it recorded its second straight quarter of profitability, earning $1.3 billion in the second quarter of 2010.123
On August 18, 2010, GM filed a form S–1 registration statement
with the Securities and Exchange Commission which announced
the planned sale of common shares to the public.124 Treasury has
been named as a selling shareholder in this IPO, although the complete details of the sale, including the portion of Treasury’s stake
to be sold, have not yet been disclosed. Assuming Treasury does not
dispose of all its shares in an IPO, it will then need to sell its
shares in the open market to recoup its investment in GM. As a
major shareholder of GM stock, Treasury will need to dispose of its
shares over a protracted period to avoid a trading imbalance due
to significant selling volume. Such an extended exit strategy leaves
Treasury vulnerable to several risks in recouping its investment,
including market fluctuations and the performance of GM’s stock
price. Meanwhile, General Motors also announced in August that
Edward E. Whitacre would step down as CEO on September 1,
2010, and as chairman of the board by the end of the year.125 He
was replaced by Daniel F. Akerson, a GM director and a managing
director of the Carlyle Group, a private equity firm.126 Mr. Akerson
was appointed to GM’s board by the Obama Administration in July
2009. He is GM’s fourth CEO in less than two years.

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b. Chrysler
As of August 2010, Treasury has incurred a total of $1.6 billion
in losses from its $12.5 billion investment in Chrysler. In April
2010, Treasury extinguished a $1.9 billion DIP loan and transferred the remaining assets of Old Chrysler to a liquidation account.127 Although Treasury has the right to recover the proceeds
120 General Motors Co., GM to Acquire AmeriCredit (July 22, 2010) (online at media.gm.com/
content/media/us/en/news/news_detail.brand_gm.html/content/Pages/news/us/en/2010/July/
0722_americredit) (hereinafter ‘‘GM to Acquire AmeriCredit’’).
121 GMAC LLC, Form 10–K for Fiscal Year Ended December 31, 2008, at 28 (Feb. 27, 2009)
(online at www.sec.gov/Archives/edgar/data/40729/000119312509039567/d10k.htm). See also
March 2010 Oversight Report, supra note 6, at 72. In the second quarter of 2010, only 13 percent of Ally’s loans were non-prime. Ally Financial, Inc., 2Q10 Earnings Review, at 6 (Aug. 3,
2010)
(online
at
phx.corporate-ir.net/External.File?item
=UGFyZW50SUQ9MzI0MjM1M3xDaGlsZElEPTM5MTY3NXxUeXBlPTI=&t=1)
(hereinafter
‘‘GMAC 2Q10 Earnings Review’’).
122 GM to Acquire AmeriCredit, supra note 120.
123 GM reported net profits in the second quarter of 2010 of $1.3 billion on revenues of $33.2
billion. In the first quarter of 2010, GM reported net profits of $865 million on revenues of $31.5
billion. General Motors Co., Press Release: GM Announces 2010 Second Quarter Results (Aug.
12,
2010)
(online
at
phx.corporate-ir.net/External.File?item
=UGFyZW50SUQ9NTc2NDV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1).
124 General Motors Co., Form S–1 (Aug. 18, 2010) (online at www.sec.gov/Archives/edgar/data/
1467858/000119312510192195/ds1.htm).
125 General Motors Co., Press Release: GM Announces CEO Succession Process (Aug. 12, 2010)
(online at media.gm.com/content/media/us/en/news/news_detail.globalnews.html/content/Pages/
news/global/en/2010/0812_transition).
126 Id.
127 Following the bankruptcy proceedings for Old Chrysler, the $1.9 billion DIP loan was deducted from Treasury’s AIFP investment amount. It is accounted for here as a loss until the
point in time when all assets sales are completed. TARP Monthly 105(a) Report—August 2010,
supra note 55; Treasury conversations with Panel staff (Aug. 19, 2010).

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29
from the sale of certain assets in the liquidation account, Treasury
stated that it did ‘‘not expect a significant recovery from the liquidation proceeds.’’ 128 As of August 18, 2010, Treasury had recovered $31 million from the sale of collateral associated with this
loan.129 In addition to the $1.9 billion loss from the DIP loan, on
May 14, 2010 Treasury accepted a payment of $1.9 billion from
CGI Holding (formerly Chrysler Holding LLC) to settle and terminate one of Chrysler’s AIFP loans totaling $3.5 billion. Treasury
stated that it accepted the repayment, which represents a loss of
$1.6 billion to taxpayers, because $1.9 billion was ‘‘significantly
more than Treasury had previously estimated to recover’’ on the
loan.130 Treasury currently holds $7.1 billion in debt and 9.9 percent equity ownership in New Chrysler.
On August 9, 2010, Chrysler Group LLC reported its financial results for the second quarter 2010. The company reported an operating profit of $183 million and reaffirmed its 2010 guidance that
it will not lose money in the fiscal year and is likely to revise these
estimates upward.131 Chrysler also announced a target of $40 billion to $45 billion in net revenues during 2010.

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c. Ally Financial (Formerly GMAC) 132
Treasury’s investment in Ally Financial (Ally) includes 56.3 percent of Ally’s common stock, $2.5 billion in trust-preferred securities, and $11.4 billion in mandatorily convertible preferred (MCP)
shares.133 As a result of Treasury’s increase in equity ownership
from 35 percent to 56.3 percent in December 2009, Treasury has
the right to appoint four out of the nine directors to Ally’s Board
of Directors. As of August 2010, Treasury had only appointed one
director.134
In the Panel’s March 2010 report on GMAC, the Panel noted that
Ally’s relationship with GM remains critical to Ally’s success. The
report suggested that consideration be given to merging Ally back
into GM.135 However, as mentioned above, GM recently acquired
AmeriCredit, another provider of automobile financing. Ally CEO
Michael Carpenter told investors that AmeriCredit’s role would be
largely confined to subprime financing and leasing, while Ally
would remain the preferred vendor of floorplan financing for GM
dealers.136 Although AmeriCredit is small compared to Ally, the
128 U.S. Department of the Treasury, Troubled Assets Relief Program (TARP): Monthly 105(a)
Report—May 2010, at 13 (June 10, 2010) (online at www.financialstability.gov/docs/
105CongressionalReports/May%202010%20105(a)%20Reportlfinal.pdf)
(hereinafter
‘‘TARP
Monthly 105(a) Report_May 2010’’).
129 Treasury Transactions Report, supra note 98, at 18.
130 TARP Monthly 105(a) Report—May 2010, supra note 128, at 3, 13.
131 Chrysler 2Q10 Financial Results, supra note 35.
132 GMAC Financial formally changed its name on May 10, 2010 to Ally Financial Inc. Ally
Financial, Inc., Ally Financial Statement on New Corporate Brand (May 10, 2010) (online at
media.ally.com/index.php?s=43&item=401).
133 TARP Monthly 105(a) Report—August 2010, supra note 55, at Appendix I—page 12.
134 TARP Monthly 105(a) Report—May 2010, supra note 128, at Appendix I—page 13. On May
26, 2010, Treasury announced the appointment of Marjorie Magner to the Ally Financial Inc.
Board of Directors.
135 March 2010 Oversight Report, supra note 6, at 121.
136 See Ally Financial, Q2 2010 Ally Financial Inc. Earnings Conference Call Webcast (Aug.
3,
2010)
(online
at
web.servicebureau.net/conf/meta?i=1113186441&c=2343&m=was&u
=/w_ccbn.xsl&date_ticker=**GMAC) (hereinafter ‘‘Ally Financial Earnings Conference Call
Webcast’’); Ally Financial, Inc., Transcript of Ally Financial Inc.’s Q2 2010 Earnings Call, at 4
(Aug. 3, 2010) (online at ofchq.snl.com/Cache/753E92A12B9915308.pdf) (hereinafter ‘‘Transcript
Continued

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purchase raised questions from some industry analysts regarding
the future of GM’s relationship with Ally.137
In its second quarter 2010 earnings review, Ally reported a quarterly profit of $565 million, compared with a loss in the same quarter of last year of $3.9 billion.138 Despite these positive results,
Ally’s greatest liability remains its mortgage businesses, which it
has been attempting to downsize. In April, Ally’s troubled real estate finance subsidiary, Residential Capital (ResCap), agreed to sell
European mortgage assets and businesses to affiliates of hedge
fund and private equity firm Fortress Investment Group. After adjusting for the pending sale of the European assets, ResCap still
has a balance sheet of $17.7 billion, including $4.7 billion in what
it calls ‘‘value sensitive exposures.’’ 139 Ally has stated that it is
considering a number of strategic alternatives with respect to
ResCap, including one or more sales, spin-offs, or other potential
transactions.140

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4. Mortgage Foreclosure Relief Programs
Unlike programs assisting financial institutions and the auto industry, Treasury’s mortgage modification efforts were not designed
to recover losses through repayment to the federal government.
The programs are intended to offset systemic and societal harm
through a reduced foreclosure rate. As part of the 2011 federal
budget, OMB projected the total cost of Treasury’s foreclosure mitigation programs at $48.8 billion.141 Treasury currently estimates
that its foreclosure mitigation programs will total $45.6 billion. The
revised program total is comprised of $11 billion for the FHA, $4.1
billion for the Hardest Hit Fund, and $30.5 billion for the remaining programs under HAMP.142
Under the current program guidelines for HAMP, servicers will
continue to offer modifications through December 31, 2012, and
conversions to permanent status through May 1, 2013. The program offers cost-sharing for the reduced payments, as well as incentive payments for servicers, lenders, and borrowers. These payments occur in installments for a period of up to five years. Because the program is in its first year of a multi-year program, and
due to the staggered payments, only a fraction of the funds committed have been paid out to date. Of the $30.5 billion currently
committed to HAMP, approximately $395 million has been disbursed.143
of Ally Financial Earnings Call’’). Ally increased its penetration of GM and Chrysler wholesale
financing from 42 percent in the first half of 2009 to 84 percent in the first half of 2010.
137 See the Panel’s March Report for a detailed discussion of the relationship between Ally and
GM, and the potential consequences for Ally arising from GM’s acquisition of a financing company. March 2010 Oversight Report, supra note 6, at 108-109. See also David Mildenberg, Ally
‘‘Loves’’ GM Deal That Values Firm at $30 Billion, Bloomberg Businessweek (Aug. 3, 2010) (online
at
www.businessweek.com/news/2010-08-03/ally-loves-gm-deal-that-values-firm
-at-30-billion.html) (‘‘The one question Ally cannot answer right now is, ‘Why does it make sense
for GM to continue doing business with them now that they have created a new captive lender?’
[managing director of Institutional Risk Analytics Chris] Whalen said in a telephone interview.
‘I want to hear about how they’re going to fill out the rest of the business model.’ ’’).
138 GMAC 2Q10 Earnings Review, supra note 121.
139 See Ally Financial Earnings Conference Call Webcast, supra note 136; Transcript of Ally
Financial Earnings Call, supra note 136, at 4.
140 Ally Financial, Inc., Form 10–Q for the Quarterly Period Ended June 30, 2010, at 10 (Aug.
6, 2010) (online at www.sec.gov/Archives/edgar/data/40729/000119312510181437/d10q.htm).
141 The President’s Budget for Fiscal Year 2011, supra note 93, at 40.
142 TARP Monthly 105(a) Report—July 2010, supra note 27, at 6.
143 Data provided by Treasury to Panel staff (Sept. 14, 2010).

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31
The latest CBO report from March 2010 offers its projection for
spending under Treasury’s mortgage foreclosure mitigation program. Since, as noted above, the program was not designed to recover amounts spent, this number represents the amount that will
be ‘‘lost’’ under the program. CBO estimates that Treasury will disburse $1.5 billion for the Hardest Hit Fund and $20 billion to
servicers for permanent loan modifications.144 CBO attributed the
$27.3 billion difference between its estimate and OMB’s estimate to
differing assumptions of homeowner eligibility and participation in
HAMP and the subsidy cost of future commitments to new programs.145 On August 19, 2010, CBO noted that disbursements
under HAMP were slower than expected, although it did not
change its estimate that the total cost of the program would be approximately $22 billion.146 Barring a dramatic increase in homeowners admitted to the program and the rate converting to permanent modifications, it is unlikely that Treasury will have a high
enough participation rate to expend all of the funds currently committed to HAMP.147
D. How Has Treasury Used Its Extended TARP Authority?

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In the December 2009 letter to Congressional leadership in
which Secretary Geithner extended the TARP, he set out three discrete areas to which Treasury would limit new TARP funding commitments, ‘‘unless necessary to respond to an immediate and substantial threat to the economy stemming from financial instability.’’ 148 The letter stated:
• ‘‘We will continue to mitigate foreclosure for responsible American homeowners as we take the steps necessary to stabilize our
housing market.’’
• ‘‘We recently launched initiatives to provide capital to small
and community banks, which are important sources of credit for
small businesses. We are also reserving funds for additional efforts
to facilitate small business lending.’’
• ‘‘Finally, we may increase our commitment to the Term AssetBacked Securities Loan Facility (TALF), which is improving
securitization markets that facilitate consumer and small business
loans, as well as commercial mortgage loans. We expect that increasing our commitment to TALF would not result in additional
cost to taxpayers.’’ 149
Treasury did not promise that it would commit additional funds
for foreclosure mitigation, small business lending, and the TALF,
but rather preserved its discretion to do so. Treasury’s focus on
those three areas, however, did come in response to its assessment
of particular weaknesses in the financial system. Secretary
Geithner’s letter noted, for example, that ‘‘[t]oo many American
144 Although Treasury uses the term ‘‘permanent modification,’’ after five years the interest
rate and payments on the modified loan can rise. Therefore, the modification is not truly ‘‘permanent.’’ However, for clarity and consistency with Treasury’s terms, this report uses the term
‘‘permanent modification.’’
145 CBO Report on the TARP—March 2010, supra note 67, at 6.
146 CBO Budget and Economic Outlook, supra note 68, at 70.
147 For further discussion of the status of HAMP and Treasury’s other foreclosure mitigation
programs, see Section D.1, infra.
148 Letter from Secretary Geithner to Hill Leadership, supra note 48.
149 Letter from Secretary Geithner to Hill Leadership, supra note 48.

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32
families, homeowners, and small businesses still face severe financial pressure.’’ It also stated that ‘‘foreclosures are increasing’’ and
that ‘‘many small businesses face very difficult credit conditions.’’
The Secretary also noted that extending the TARP will ‘‘enable us
to continue to implement programs that address housing markets
and the needs of small businesses.’’ 150
The discussion below focuses on the actions that Treasury has
taken in each of the three areas Secretary Geithner cited when he
notified Congress of his decision to extend the TARP.

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1. Foreclosure Mitigation
Prior to the TARP’s extension, Treasury had established and
begun operating its signature foreclosure mitigation program,
HAMP. HAMP is part of a broader umbrella of Administration
housing programs known as Making Home Affordable (MHA),
which was announced in February 2009, and aims to stabilize the
housing market and help homeowners avoid foreclosure.151 HAMP
provides a combination of incentives and cost-sharing to mortgage
servicers, investors, and borrowers in order to encourage loan modifications that reduce homeowners’ monthly mortgage payments to
31 percent of their monthly income.152 Borrowers may enter temporary modifications, and after three months of payments, they become eligible for conversion into permanent modifications. The program is mandatory for servicers of loans owned or guaranteed by
Fannie Mae and Freddie Mac, and voluntary for servicers of other
loans.153
When the Administration announced HAMP, it designated $50
billion in TARP funds for the program.154 By December 2009, when
Treasury extended the TARP until October 3, 2010, a total of $27.4
billion of that $50 billion had been committed; in other words,
$27.4 billion represented the maximum amount that Treasury
150 Letter from Secretary Geithner to Hill Leadership, supra note 48 (‘‘Too many American
families, homeowners, and small businesses still face severe financial pressure. Although the
economy is recovering, foreclosures are increasing, and unemployment is unacceptably high.
Businesses are still cautious in the face of uncertainty about the strength of the recovery, and
many small businesses face very difficult credit conditions. Although bank lending standards are
starting to ease, many categories of bank lending continue to contract. This contraction has hit
small businesses very hard because they rely heavily on such lending, and do not have the ability to substitute credit from securities issuance. Commercial real estate losses also weigh heavily
on many small banks, impairing their ability to extend new loans.’’).
151 The other major component of MHA is the Home Affordable Refinancing Program (HARP),
which allows homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac the
opportunity to refinance into a more sustainable mortgage. HARP does not use any TARP funds.
152 For a more detailed discussion of HAMP and MHA, see the Panel’s October 2009 and April
2010 reports. October 2009 Oversight Report, supra note 6; April 2010 Oversight Report, supra
note 6.
153 In 2009, Treasury also established subprograms of HAMP to deal with second liens that
might otherwise prevent the successful HAMP modification of a mortgage, to encourage short
sales (home sales for less than the amount owed by the homeowner) or deeds-in-lieu of foreclosure (agreements by defaulted homeowners to vacate their homes, often in exchange for some
cash from the lender) in situations where they are only feasible alternatives to foreclosure, and
to provide additional incentives for mortgage investors to modify loans in regions where home
prices have experienced a steep decline. U.S. Department of the Treasury, Supplemental Directive 09–05 Revised: Update to the Second Lien Modification Program (2MP) (Mar. 26, 2010) (online at www.hmpadmin.com/portal/docs/second_lien/sd0905r.pdf); U.S. Department of the Treasury, Supplemental Directive 09–09 Revised: Home Affordable Foreclosure Alternatives—Short
Sale and Deed-in-Lieu of Foreclosure Update (Mar. 26, 2010) (online at www.hmpadmin.com
/portal/docs/hafa/sd0909r.pdf); U.S. Department of the Treasury, Supplemental Directive 09–04:
Home Affordable Modification Program—Home Price Decline Protection Incentives (July 31,
2009) (online at www.financialstability.gov/docs/press/SupplementalDirective7-31-09.pdf).
154 U.S. Department of the Treasury, Section 105(a) Troubled Assets Relief Program Report to
Congress for the Period February 1, 2009 to February 28, 2009, at 1 (Mar. 6, 2009) (online at
financialstability.gov/docs/105CongressionalReports/105aReport_03062009.pdf).

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33
would have to pay under agreements it had signed with
servicers.155
Since the extension of the TARP on December 9, 2009, Treasury
has made a number of changes with regard to MHA. First, it established the Hardest Hit Fund, which provides TARP assistance to
certain states that have suffered from the economic and housing
downturn, and has since committed $4.1 billion to the Fund. Second, it established a program with the Federal Housing Administration (FHA) to allow certain homeowners who owe more on their
mortgages than their homes are worth to refinance into FHA loans
with lower principals, and has since committed up to $11 billion to
the program. Third, it entered into new contracts with loan
servicers to modify primary mortgages and second liens as part of
HAMP. Treasury states that none of these new programs and new
contracts would have been authorized absent the extension of the
TARP.156 Treasury also made various changes to the structure of
HAMP, such as increasing certain incentive payments, providing
temporary assistance to unemployed homeowners, and adding an
option for servicers to write down mortgage principal. These
changes may have been allowable, according to Treasury, even if
the TARP had not been extended.157
Since the extension of the TARP, Treasury has not allocated any
additional money to foreclosure mitigation beyond the initial $50
billion. In fact, as part of its actions to adjust its programs under
the new $475 billion cap imposed by the Dodd-Frank Act, the allocation was reduced to $45.6 billion, and the allocations for the
Hardest Hit Fund and the FHA program were carved out of that
total. Figure 3 shows how that money was allocated at the time
Treasury extended the TARP, and how it is split today.
FIGURE 3: TREASURY’S TARP ALLOCATIONS FOR HOUSING PROGRAMS
[Dollars in billions]
Program

Prior
Allocation

Current
Allocation

HAMP ........................................................................................................................................
Hardest Hit Fund .....................................................................................................................
Treasury/FHA refinance program .............................................................................................

$50
........................
........................

$30.5
4.1
11.0

Total ................................................................................................................................

$50

$45.6

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This section summarizes the actions Treasury has taken since
the TARP’s extension with regard to foreclosure mitigation. In the
coming months, the Panel plans to engage in further oversight of
Treasury’s foreclosure mitigation efforts.158

155 U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for
the Period Ending December 3, 2009, at 20–23 (Dec. 7, 2009) (online at financialstability.gov/
docs/transaction-reports/12-7-09 Transactions Report as of 12-3-09.pdf). Servicers under HAMP
are responsible for passing along the government’s contributions to homeowners and investors.
156 Treasury conversations with Panel staff (Aug. 26, 2010).
157 Treasury conversations with Panel staff (Aug. 26, 2010).
158 See March 2009 Oversight Report, supra note 6; October 2009 Oversight Report, supra note
6; April 2010 Oversight Report, supra note 6.

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a. Hardest Hit Fund
The Hardest Hit Fund was established in February 2010.159 In
three separate rounds of funding, Treasury has committed $4.1 billion in TARP funds to 18 states and the District of Columbia for
a variety of foreclosure mitigation and other housing assistance
programs.160 Eligibility criteria have differed for each of the three
rounds of funding. The first round, $1.5 billion, was committed to
five states—Arizona, California, Florida, Michigan, and Nevada—
which had experienced home price declines of at least 20 percent
from their peaks. Treasury has since approved all five states’ plans
for their use of the money.161 These plans call primarily for some
combination of the following types of initiatives: reducing mortgage
principal to assist homeowners who owe more than their homes are
worth; assisting unemployed and under-employed homeowners with
their mortgage payments; assisting homeowners who have fallen
behind on their mortgage payments; facilitating short sales and
deeds-in-lieu of foreclosure; and encouraging the removal of second
liens as an obstacle to mortgage modifications.162
The second round of funding, $600 million, was split between
North Carolina, Ohio, Oregon, Rhode Island, and South Carolina.
These five states qualified for funding based on a formula that excluded the first-round recipients and measured the percentage of
the state population that lived in counties with an unemployment
rate over 12 percent in 2009. Treasury has approved the secondround recipients’ plans for their use of the money. Like the firstround plans, these plans contain a mix of foreclosure mitigation
initiatives, including efforts to assist unemployed homeowners, to
encourage short sales and deeds-in-lieu of foreclosure in certain situations, and to reduce mortgage principal for some homeowners.163
Figure 4 provides additional detail on the plans of the 10 states approved by Treasury. Altogether, the 10 states are expected to assist
an estimated 127,420 borrowers. Some of the states note in their
plans that they only expect to help a small fraction of the borrowers who are expected to face foreclosure in the coming years.164
159 The White House, President Obama Announces Help for Hardest Hit Housing Markets
(Feb. 19, 2010) (online at www.whitehouse.gov/the-press-office/president-obama-announces-helphardest-hit-housing-markets).
160 U.S. Department of the Treasury, Obama Administration Approves States’ Plans for Use
of $1.5 Billion in ‘Hardest Hit Fund’ Foreclosure-Prevention Funding (June 23, 2010) (online at
financialstability.gov/latest/pr_06232010.html) (hereinafter ‘‘Obama Administration Approves
States’ Plans for Use of $1.5 Billion in ‘Hardest Hit Fund’ Foreclosure-Prevention Funding’’);
U.S. Department of the Treasury, Obama Administration Approves State Plans for $600 Million
of ‘Hardest Hit Fund’ Foreclosure Prevention Assistance (Aug. 3, 2010) (online at
financialstability.gov/latest/prl08042010.html) (hereinafter ‘‘Administration Approves State
Plans for Hardest Hit Fund’’); U.S. Department of the Treasury, Obama Administration Announces Additional Support for Targeted Foreclosure-Prevention Programs to Help Homeowners
Struggling with Unemployment (Aug. 11, 2010) (online at financialstability.gov/latest/
pr_08112010.html) (hereinafter ‘‘Administration Announces Additional Support for Targeted
Foreclosure-Prevention’’).
161 Details of the Arizona, California, Florida, Michigan, and Nevada plans are available online. See Making Home Affordable: Hardest Hit Fund, supra note 39.
162 U.S. Department of the Treasury, Troubled Asset Relief Program (TARP) Monthly 105(a)
Report_July 2010, at Appendix I—page 20 (Aug. 10, 2010) (online at www.financialstability.gov/
docs/105CongressionalReports/July%202010%20105%28a%29%20ReportlFinal.pdf) (hereinafter
‘‘TARP Monthly 105(a) ReportlJuly 2010’’).
163 Details of the North Carolina, Ohio, Oregon, Rhode Island, and South Carolina plans are
available online. See Making Home Affordable: Hardest Hit Fund, supra note 39.
164 Data provided in North Carolina’s proposal indicates that the state expects to help 7,190
homeowners over a period of three years, preventing just over 5 percent of the 135,544 foreclosures expected in the state over the same time period. See North Carolina Housing Finance
Agency, Hardest Hit Fund Proposal, at 3–4 (July 23, 2010) (online at www.financialstability.gov/

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35
FIGURE 4: STATE-BY-STATE SUMMARY OF HARDEST HIT FUND PLANS
State

Allocation165

Arizona .......................
California ...................
Florida ........................
Michigan ....................
Nevada .......................
North Carolina ............
Ohio ............................
Oregon ........................
Rhode Island ..............
South Carolina ...........

$125.1 million ...........
$699.6 million ...........
$418.0 million ...........
$154.5 million ...........
$102.8 million ...........
$159.0 million ...........
$172.0 million ...........
$88.0 million .............
$43.0 million .............
$138.0 million ...........

Total ..................

$2.1 billion ................

Estimated
Number of
Borrowers
to be
Assisted

4,348

Dollars per
Borrower
to be
Assisted

Types of
Assistance166

17,224
7,313
7,190
18,502
7,400
5,000
12,204

MD, 2L, UE ....................................................
UE, AR, PR, SD ..............................................
UE, PR, 2L .....................................................
UE, AR, PR ....................................................
PR, 2L, SS, FC ...............................................
UE, 2L, MD ....................................................
AR, UE, MD, SD .............................................
MA, UE, AR, SD, FC .......................................
MA, UE, SD, FC .............................................
UE, AR, MA, 2L, SD .......................................

$28,772
18,295
41,800
8,970
14,057
21,114
9,296
11,892
8,600
11,308

127,420

........................................................................

169 $16,481

167 38,239
168 10,000

165 These

figures do not include third-round allocations to most of the same states, since the states have not yet submitted their plans for
spending their third-round allocations.
166 AR = program to assist homeowners with arrearages; FC = foreclosure counseling; MA = assistance aimed at encouraging successful
modifications in other programs; MD = modification program; PR = principal reduction program; SD = short sale/deed-in-lieu program; SS =
short sale program; UE = program for unemployed, underemployed homeowners; 2L = second lien program. These are broad categorizations of
the programs, and in some cases there is overlap between them. For example, modification programs may include a principal-reduction element.
167 California estimates that 7,854 of these borrowers will participate in two or more of its programs.
168 Florida estimates that 7,500–12,500 borrowers will be assisted. The Panel’s estimate of 10,000 is based on the average of Florida’s
high-end and low-end estimates.
169 This figure is a weighted average, calculated by dividing the 10 states’ allocation of $2.1 billion by the total estimated number of borrowers assisted, 127,420.

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The Hardest Hit Fund’s third round of funding, $2 billion, was
announced on August 11, 2010. States qualified if their unemployment rate during the previous 12 months exceeded the national average. Unlike in the second round, states that had previously been
approved for funding were eligible. All of the earlier recipients
qualified again, except for Arizona, along with eight other states
and the District of Columbia.170 Treasury’s rules for how states
spend the third-round funds are more restrictive than they were in
the two previous rounds; recipient states are required to use the
money to establish a bridge loan program for unemployed or underemployed homeowners that will cover a portion of their mortgages
while they look for work. Seventeen states and the District of Columbia submitted their term sheets and plans for this round of
funding by the September 1, 2010 deadline. These plans are currently under review.171
roadtostability/NC.PDF). Ohio’s proposal notes that with available funding the state would be
able to provide assistance for just 5 to 7 percent of the potentially eligible households in the
state. See Ohio Housing Finance Agency, Ohio Hardest-Hit Fund: Final Submission to the U.S.
Department of the Treasury, at 12 (July 23, 2010) (online at www.financialstability.gov/
roadtostability/OH.PDF). Arizona is most direct in making this point, stating that ‘‘[g]iven the
number of households significantly underwater with their mortgages and an unemployment rate
hovering at 10 percent, $125.1 million is not nearly enough money to stabilize the Arizona housing market. At best, these funds will assist just over 4,000 households or over 11,000 individuals
to remain in their homes. To put this in perspective, in March 2010, 5,556 homes were foreclosed on in the Phoenix area alone. Arizona is expecting as many as 50,000 foreclosures in
2010.’’ Arizona Foreclosure Prevention Funding Corporation, Proposal for Use of HFA HardestHit Fund, at 4 (July 23, 2010) (online at www.financialstability.gov/roadtostability/AZ.pdf).
170 Administration Announces Additional Support for Targeted Foreclosure-Prevention, supra
note 160.
171 U.S. Department of the Treasury, Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets: Guidelines for HFA Proposal Submission for Unemployment Programs,
at
1–2,
5
(Aug.
2010)
(online
at
www.financialstability.gov/docs/
HHF%20Unemployment%20Program%20Guidelines.pdf). Treasury conversations with Panel
staff (Sept. 10, 2010).

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36
Figure 5 shows the total state-by-state funding from all three
rounds of Hardest Hit Fund allocations. The top two recipients are
California, which will receive 29 percent of the funds, and Florida,
which will receive 16 percent.
FIGURE 5: TOTAL HARDEST HIT FUND ALLOCATIONS 172
State

Total Allocation

Alabama ...............................................................................................................................................
Arizona ..................................................................................................................................................
California ..............................................................................................................................................
District of Columbia .............................................................................................................................
Georgia .................................................................................................................................................
Florida ...................................................................................................................................................
Illinois ...................................................................................................................................................
Indiana .................................................................................................................................................
Kentucky ...............................................................................................................................................
Michigan ...............................................................................................................................................
Mississippi ............................................................................................................................................
Nevada ..................................................................................................................................................
New Jersey ............................................................................................................................................
North Carolina ......................................................................................................................................
Ohio ......................................................................................................................................................
Oregon ..................................................................................................................................................
Rhode Island ........................................................................................................................................
South Carolina ......................................................................................................................................
Tennessee .............................................................................................................................................

$60,672,471
125,100,000
1,175,857,070
7,726,678
126,650,987
656,864,755
166,352,726
82,762,859
55,588,050
282,961,559
38,036,950
136,856,581
112,200,638
279,874,221
320,728,864
137,294,215
56,570,770
196,772,347
81,128,260

Total ............................................................................................................................................

$4,100,000,000

172 Obama

Administration Approves States’ Plans for Use of $1.5 Billion in ‘Hardest Hit Fund’ Foreclosure-Prevention Funding, supra note
160; Administration Approves State Plans for Hardest Hit Fund, supra note 160; Administration Announces Additional Support for Targeted
Foreclosure-Prevention, supra note 160.

Treasury is encouraging, but not requiring, states that participate in the Hardest Hit Fund to leverage their TARP funds with
matching contributions from affected financial institutions.173 For
example, Arizona, which is using the federal dollars to fund a principal reduction program, has stated that it expects the lender or
servicer of loans to match the principal reduction provided by
TARP funds on a dollar-for-dollar basis.174 In cases where states
obtain a dollar-for-dollar match for TARP funds, the payments by
the states are in effect grants, so there is no possibility that the
funds will be repaid to the state.175 If the state is unable to obtain
a dollar-for-dollar match, though, their payments must be structured as forgivable loans, according to Treasury.176 Forgivable
loans are loans that do not require repayment as long as certain
conditions are met. (Treasury has not made public any information
about the criteria that must be met in order to qualify for loan forgiveness.) If the states receive funds from repaid loans, they may
recycle those dollars to provide assistance to additional homeowners. This is true until December 31, 2017, at which point the
173 Treasury

conversations with Panel staff (Sept. 2, 2010).
Department of the Treasury, Commitment to Purchase Financial Instrument and HFA
Participation Agreement Between Treasury and the Arizona Department of Housing, at 33 (June
23, 2010) (online at www.financialstability.gov/docs/Redacted Arizona HPA.pdf) (hereinafter
‘‘Agreement Between Treasury and the Arizona Department of Housing’’).
175 Treasury conversations with Panel staff (Sept. 2, 2010).
176 Treasury conversations with Panel staff (Sept. 2, 2010).

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174 U.S.

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37
participating states must return any remaining program funds to
Treasury.177
As of September 10, 2010, Treasury had paid out a total of $41.9
million from the Hardest Hit Fund to Arizona, California, Florida,
Nevada, and Michigan, or about 3 percent of the funds those states
are scheduled to receive in first-round payments. No other states
have received funding to date.178 Once the recipient states begin
spending TARP funds, Treasury, through an agent, Bank of New
York Mellon, plans to collect program data from the states on a
quarterly basis.179 No such data have been collected yet. On July
20, 2010, Treasury awarded four blanket purchase agreements that
will cover HHF compliance activities and monitoring.180 At Treasury’s request, participating states are in the process of building
their own compliance programs.181

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b. Treasury/FHA Refinance Program
Treasury announced its joint mortgage refinance program with
FHA in March 2010. The program will use up to $11 billion in
TARP funds to allow borrowers who are current on their mortgage
payments and owe more than their homes are worth to refinance,
following a principal write-down, into mortgages insured by
FHA.182 The idea is that by shifting most of the mortgage investor’s risk of loss to a government program that is designed to handle such losses, the program will encourage investors to write down
principal on certain loans whose value exceeds that of the property.
For a homeowner to qualify, the first-lien mortgage holder must
write down at least 10 percent of the loan’s principal. The loan-tovalue ratio (the ratio between the outstanding value of the firstlien mortgage and the current value of the property) can be no
higher than 97.75 percent after the refinancing. In addition, the
combined loan-to-value ratio on the refinanced mortgage (the ratio
between the outstanding value of all mortgages and the current
value of the property) can be no greater than 115 percent.183 As
with other FHA-insured loans, the mortgage holder will have the
benefit of insurance on up to 97.75 percent of the property’s value.
177 See, e.g., Agreement Between Treasury and the Arizona Department of Housing, supra
note 174, at 22. Other Hardest Hit Fund contracts between Treasury and state housing finance
agencies are available online as well. See U.S. Department of the Treasury, OFS Contracts List
(online at www.financialstability.gov/impact/contracts_list.htm) (accessed Aug. 30, 2010).
178 Treasury conversations with Panel staff (Sept. 10, 2010).
179 Treasury conversations with Panel staff (Aug. 18, 2010). Treasury is collecting various data
on borrowers who participate in the Hardest Hit Fund programs, including income, geographic
breakdown, delinquency status, reason for hardship, and loan-to-value ratio. Treasury is also
collecting data on each state initiative, including the number of applicants approved and denied,
characteristics of the loans before and after assistance, median length of time from initial request to assistance granted, and homeownership retention after six and 12 months.
180 Among the issues that will be monitored are the internal controls of the state housing finance agencies (HFAs) that receive the funds, the HFAs’ processes for dealing with money and
expenses, and their monitoring of any third parties that are part of the programs. Treasury conversations with Panel staff (Sept. 10, 2010).
181 Treasury conversations with Panel staff (Sept. 10, 2010).
182 TARP Monthly 105(a) Report—July 2010, supra note 162, at 6. Loans that have been modified under HAMP and other loan-modification programs may be eligible for this program. See
U.S. Department of Housing and Urban Development, FHA Refinance of Borrowers in Negative
Equity Positions, Mortgagee Letter 2010–23, at 3 (Aug. 6, 2010) (online at www.hud.gov/offices/
adm/hudclips/letters/mortgagee/files/10-23ml.pdf) (hereinafter ‘‘FHA Refinance of Borrowers in
Negative Equity Positions’’).
183 FHA Refinance of Borrowers in Negative Equity Positions, supra note 182, at 2.

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38
Participation in the program is voluntary for lenders and servicers,
and they can decide whether to participate on a loan-by-loan basis.
The $11 billion TARP contribution to this program includes approximately $3 billion to be used toward incentive payments to resubordinate and to pay for the write-down and extinguishment of
second liens, which often serve as a barrier to the modification or
refinancing of first liens. In order to overcome that impediment,
Treasury will have to persuade servicers of second liens to sign
participation agreements under which they agree to write down
loans in exchange for incentive payments from Treasury. After
Treasury issues formal guidance through a Supplemental Directive
in mid September, servicers will be able to sign up for the program.184
Both in the joint program with Treasury and outside of it, FHA
charges lenders a fee in exchange for a government guarantee in
the event of a default. Under the joint Treasury/FHA program, in
an acknowledgement that the risk of loss is higher than it normally
is for FHA, Treasury is agreeing to use up to $8 billion in TARP
funds to share losses with FHA. In the event of default under the
program, Treasury will be in a first-loss position, and it expects to
be responsible for losses equal to around 12.75 percent of the property’s value, meaning that FHA will be responsible for the remaining losses, up to, but not exceeding, a total of 97.75 percent.185 For
example, if a lender lost $50,000 on a mortgage on a $200,000
property, Treasury would be responsible for the first $25,500 in
losses, and FHA would cover the remaining $24,500. To be eligible
for the program, refinanced loans must close by December 31,
2012.186 Treasury’s participation in the loss-sharing will continue
until August 2020, at which point FHA will be responsible for any
additional losses.187
Treasury launched this program on September 7, 2010, although
there are a number of other steps to be taken before the program
is fully implemented, including the procurement of claims processing and financial administration contractors. The second lien
portion of the program is scheduled to be effective on September
30, 2010. As a brand new program, there are no performance data
to evaluate at this point.188 A recent analysis by the U.S. Department of Housing and Urban Development (HUD) anticipates that
the program will have 1 million participants. The study also found
that this program would result in $23.5 billion in net benefits to
society, $20.4 billion of which would take the form of benefits to
owners of first and second liens. According to HUD estimates, each
refinancing under the program would cost Treasury an average of
$4,083, which would mean that Treasury would end up losing
about $4 billion of the $8 billion in TARP funds it is setting aside
for loss-sharing.189
184 Treasury

conversations with Panel staff (Sept. 10, 2010).
conversations with Panel staff (July 28, 2010).
Refinance of Borrowers in Negative Equity Positions, supra note 182, at 1.
187 Treasury conversations with Panel staff (July 28, 2010).
188 Treasury conversations with Panel staff (Sept. 10, 2010).
189 U.S. Department of Housing and Urban Development, Economic Impact Analysis of the
FHA Refinance Program for Borrowers in Negative Equity Positions (July 16, 2010) (online at
www.hud.gov/offices/adm/hudclips/ia/ia-refinancenegativeequity.pdf). The $23.5 billion is a net
figure that includes the $4 billion estimated cost to Treasury.
185 Treasury

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186 FHA

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In its April 2010 report, the Panel questioned whether this program would be able to make significant headway against the problem of ‘‘underwater’’ borrowers, who owe more than their homes
are worth.190 The Panel has the same concerns today. Although the
program shifts most of a loan’s risk from the lender to the government, it is unclear whether this will be sufficient incentive to persuade a large number of lenders to participate, in light of the significant principal write-downs participating lenders must offer to
borrowers.191 And if lenders do participate on a widespread basis,
this raises another concern: that private lenders are shifting the
risk of loss on their worst loans to the government. Such cherrypicking, if it materializes, would increase the federal government’s
sizable exposure to the struggling U.S. housing market.
The Panel is also concerned about the precedent set by a government program that pays holders of second liens while asking firstlien holders to take a loss. As long as the homeowner is underwater, the second lien only has value inasmuch as it can prevent
the first lien from being modified or refinanced. Making payments
to the second-lien holders under these circumstances overturns the
fundamental notion that second liens are subordinate to first liens,
and thereby introduces a moral hazard, providing an incentive for
lenders to take imprudent risks on second liens in the future. On
the other hand, if there is good reason to believe that the property’s
value will recover such that the homeowner regains equity, then
the second lien does have value.
Finally, the Panel is concerned that in many instances, the financial institutions that own second liens also service first liens on the
same homes, which presents a conflict of interest and gives the second-lien holder the ability to allocate losses to the first-lien holder.192 The nation’s four largest commercial banks—Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo—hold 43 percent
of second liens.193 Those same four banks are also the four largest
servicers of residential mortgages.194 Unlike second liens, first
liens are usually securitized, and are more broadly distributed
among investors. It is possible that this program may benefit the
large banks that hold second liens at the expense of first lien investors.

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190 April

2010 Oversight Report, supra note 6, at 21–22.
191 Amherst Securities Group LP explores this question in an August 10, 2010 research report.
The report concludes that loans in private-label servicing and loans guaranteed by Fannie Mae
and Freddie Mac are unlikely to take advantage of the program, and notes that loans already
guaranteed by the FHA are ineligible. Amherst states that it expects the program to be used
primarily by banks holding loans on their balance sheet and special servicers that are working
out loans. Amherst Securities Group LP, Amherst Mortgage Insight: HAMP: A Progress Report,
at 6–7 (Aug. 10, 2010).
192 See id. at 6–7 (‘‘One issue with the FHA short refi program is that it leaves room for the
2nd lien investor to game the 1st lien investor. The 1st mortgage need not be for 97.75%; it
can be for less and there is no minimum. The servicer that owns the 2nd lien could choose to
allocate the entire subordinate lien to the 2nd, give the borrower a small 1st mortgage, and
leave the entire 2nd mortgage intact and in a much stronger position. Can’t 1st lien investors
sue if servicers act in obvious self interest? No—as per Supplemental Directive 10–05, released
on June 3, 2010, the FHA short refi program is now under HAMP, and servicers are protected
by the servicer safe harbor.’’).
193 Amherst Securities Group LP data provided to Panel staff (Sept. 2, 2010). The distribution
of second liens in discussed further in Section E.1.d.
194 In the first quarter of 2010, the top mortgage servicers were Bank of America (19.9 percent
market share); Wells Fargo (16.9 percent market share); Chase (12.6 percent market share); and
Citi (6.3 percent market share). Inside Mortgage Finance, Top Mortgage Servicers in 2010 (June
30, 2010).

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c. HAMP
HAMP remains the cornerstone of Treasury’s foreclosure mitigation efforts. Since the TARP’s extension in December 2009, Treasury has introduced various changes to the program. These changes,
which are discussed in greater detail in the Panel’s April 2010 report, include a principal-reduction option for servicers, higher incentive payments in some instances, and the addition of temporary
assistance for unemployed homeowners.195
The portion of the program that provides temporary assistance
for unemployed homeowners became effective on August 1, 2010.196
Treasury states that it has not developed metrics that would inform a judgment on this program’s effectiveness. Treasury expects
the principal-reduction option to be effective by October 3, 2010.197
In February 2009, Treasury stated that HAMP would help three
to four million homeowners stay in their homes.198 More recently,
Treasury has stated that this goal refers to the number of trial
modifications offered to borrowers,199 rather than permanent modifications, or even trial modifications entered. During Secretary
Geithner’s June 22, 2010 testimony before the Panel, he described
Treasury’s goals for HAMP as limited. He acknowledged that
HAMP is ‘‘subject to so much criticism from people who had hoped
that the program would be designed to keep a much larger fraction
of Americans in their homes.’’ He added: ‘‘Our program was designed . . . to make sure for those Americans—and there are
many—who have a realistic prospect . . . of staying in their home,
who can afford to stay in their home in that context, have the option and the chance to do that.’’ 200
The Panel believes that the most important measure of HAMP’s
effectiveness is the number of sustainable permanent modifications, and that HAMP should also be evaluated in the context of
the number of American families that are losing their homes in
foreclosures.
Between September 2009, when the first homeowners received
permanent HAMP modifications, and July 2010, 434,716 homeowners had entered permanent modifications under the program.
Of those, 12,912 homeowners, or about 3 percent, had either re-defaulted on their mortgages or left the program for another reason.
Subtracting out the homeowners who had left the program, 421,804
homeowners were in permanent modifications at the end of July
2010.201 During the same 11-month period, there were around 1

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195 April

2010 Oversight Report, supra note 6, at 18–20, 22–27.
196 Congressional Oversight Panel, Questions for the Record from the Hearing on June 22,
2010 for the Honorable Timothy F. Geithner, Secretary of the Treasury, at 2 (online at
cop.senate.gov/documents/testimony-062210-geithner-qfr.pdf).
197 A few servicers began offering the principal-reduction alternative in HAMP prior to the
program’s official launch; they will be eligible for retroactive incentive payments. Treasury conversations with Panel staff (Aug. 26, 2010 and Sept. 10, 2010).
198 U.S. Department of the Treasury, Homeowner Affordability and Stability Plan Executive
Summary (Feb. 18, 2009) (online at www.financialstability.gov/latest/tg33.html).
199 U.S. Department of the Treasury, Making Home Affordable Program: Servicer Performance
Report Through May 2010, at 7 (June 21, 2010) (online at financialstability.gov/docs/May MHA
Public 062110.pdf) (‘‘In 2009, Treasury set a goal of offering help to 3–4 million borrowers
through the end of 2012, as measured by trial plan offers extended to borrowers.’’).
200 Congressional Oversight Panel, Testimony of Timothy F. Geithner, secretary, U.S. Department of the Treasury, Transcript: COP Hearing with Treasury Secretary Timothy Geithner (June
22, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-062210geithner.cfm) (hereinafter ‘‘Transcript: COP Hearing with Secretary Geithner’’).
201 Treasury data provided to the Panel (Aug. 23, 2010).

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41
million foreclosure sales nationwide.202 Figure 6 shows the trend in
the permanent modifications added each month against the backdrop of monthly foreclosure sales.
FIGURE 6: FORECLOSURE SALES AND NET NEW HAMP PERMANENT MODIFICATIONS 203

202 HOPE NOW, Appendix—Mortgage Loss Mitigation Statistics: Industry Extrapolations
(Monthly for Dec. 2008 to Nov. 2009), at 2 (online at www.hopenow.com/industry-data/
HOPE%20NOW%20National%20Data%20July07%20to%20Nov09%20v2%20(2).pdf)
(accessed
Sept. 14, 2010); HOPE NOW, Appendix—Mortgage Loss Mitigation Statistics: Industry Extrapolations (Monthly for Dec. 2009 to Jan. 2010), at 8 (online at www.hopenow.com/industry-data/
HOPE%20NOW%20Data%20Report%20(May)%2006-21-2010.pdf) (accessed Sept. 14, 2010);
HOPE NOW, Appendix—Mortgage Loss Mitigation Statistics: Industry Extrapolations (Monthly
for Feb. 2010 to July 2010), at 8 (online at www.hopenow.com/industry-data/
HOPE%20NOW%20Data%20Report%20(July)%2009-01-2010.pdf) (hereinafter ‘‘HOPE NOW Statistics (Dec. 2008 to July 2010)’’) (accessed Sept. 14, 2010).
203 The net number of permanent modifications by month is calculated by subtracting the
number of permanent modifications that fail each month from the number of new permanent
modifications started each month. Treasury data provided to the Panel (Aug. 23, 2010). Foreclosure sales is a conservative measure of the foreclosure problem. HOPE NOW also tracks foreclosure starts, which totaled 2.3 million between September 2009 and July 2010. HOPE NOW
Statistics (Dec. 2008 to July 2010), supra note 202, at 2, 8. RealtyTrac tracks all foreclosure
actions, which totaled 3.6 million during the same period. RealtyTrac, Press Releases (online at
www.realtytrac.com/content/press-releases) (accessed Sept. 14, 2010).
204 U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance
Report Through July 2010, at 2 (Aug. 20, 2010) (online at financialstability.gov/docs/
JulyMHAPublic2010.pdf). See Figure 8, infra, for the reasons that servicers have given for why
trial modifications have failed.

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The pace of new permanent modifications is also being outstripped each month by the number of failed trial modifications.
Between June 2009 and July 2010, a total of 616,839 trial modifications have failed.204 Figure 7 shows the number of trial modifications that failed each month in comparison to new permanent
modifications added and foreclosure sales each month.

42
FIGURE 7: FAILED TRIAL MODIFICATIONS OUTPACE NEW PERMANENT MODIFICATIONS 205

205 Treasury data provided to the Panel (Aug. 23, 2010); HOPE NOW Statistics (Dec. 2008 to
July 2010), supra note 202, at 8.

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HAMP also requires that borrowers be provided with a reason
when their modifications fail to convert from trial to permanent
status. Figure 8 shows the breakdown of reasons that servicers
have provided, which Treasury refers to as ‘‘denial codes.’’

43
FIGURE 8: TOTAL NUMBER OF MODIFICATIONS FAILING TO CONVERT FROM TRIAL TO
PERMANENT, BY DENIAL CODE 206

206 Denial codes classified as ‘‘Other Reasons’’ are: bankruptcy court declined modification;
previous HAMP modification; investor guarantor not participating; default not imminent; loan
paid off or reinstated; and other ineligible property, such as a property larger than four units.
Treasury data provided to Panel (Aug. 23, 2010).
207 See, e.g., National Community Reinvestment Coalition, HAMP Mortgage Modification Survey
2010
at
11
(online
at
www.ncrc.org/images/stories/mediaCenter_reports/
hamp_report_2010.pdf) (stating that 70.6 percent of 160 respondents in a survey of HAMP applicants reported being asked to re-submit documents). See also Office of the Special Inspector
General for the Troubled Asset Relief Program, Factors Affecting Implementation of the Home
Affordable Modification Program (Mar. 25, 2010) (online at www.sigtarp.gov/ reports/audit/2010/
Factors_ Affecting_Implementation_ of_the_Home_Affordable_ Modification_Program.pdf) (finding that changing documentation requirements, repeated changes and clarifications in net
present value models, a lack of clear guidance from Treasury, and servicer capacity and training
issues all posed challenges to the implementation of HAMP).

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Unfortunately, despite Treasury’s efforts to collect meaningful
data in this area, there remain important questions about why
such a large number of trial modifications have failed to convert to
permanent modifications. As Figure 8 shows, the most common
reason given is ‘‘Request Incomplete,’’ which means that the
servicer reported that it did not have all of the paperwork necessary to approve the modification. This could be for one of two reasons, though: either because the homeowner failed to provide the
necessary documentation, or because the servicer lost it. Homeowners applying to the program have consistently told stories of
servicers losing their documentation.207 In addition, the fourth

44
most common denial code is ‘‘Missing,’’ which means that the
servicer did not provide a denial code. The data in Figure 8 do shed
some light on the causes of failed trial modifications, though. For
example, the data show that 21 percent of the trial modifications
that failed did so because borrowers defaulted on their modified
mortgages. The data also indicate that Treasury’s initial decision
to allow servicers to enroll homeowners into trial modifications
without written documentation has contributed to the failure
rate—several of the most frequently used denial codes involve violations of basic HAMP eligibility requirements.208

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2. Small Business Lending and Small Banks
Treasury has announced or implemented three TARP-related
programs with the stated goal of supporting the small business
lending market: the SBA 7(a) Securities Purchase Program, the
Small Business Lending Fund, and the Community Development
Capital Initiative.209 Although all of the programs were announced,
in some fashion, before the December 9, 2009 extension of the
TARP, none were launched prior to that date.210 On February 3,
2010, the Administration outlined its intent to create the SBLF
outside of the TARP.211
Treasury’s Unlocking Credit for Small Businesses initiative involves the purchase of securities backed by Small Business Administration (SBA) loans.212 Treasury’s goal with these purchases was
to provide liquidity to the SBA securitization market.213 When the
program was announced on March 16, 2009,214 Treasury allocated
$15 billion in TARP funds for the purchases. Since then, the program’s scale has sharply decreased. In April 2010, Treasury revised
208 For example, borrowers with debt-to-income ratios below 31 percent are not eligible for
HAMP, properties must be owner-occupied to be eligible, and mortgages that exceed $729,750
are ineligible. U.S. Department of the Treasury, Borrower Frequently Asked Questions (June 8,
2010) (online at makinghomeaffordable.gov/borrower-faqs.html). Treasury now requires servicers
to collect written documentation prior to enrollment in a trial modification.
209 See the Panel’s May 2010 report for a discussion of the small business credit crunch. The
report explores the extent to which the credit crunch is the result of a lack of demand for small
business loans, or the result of a lack of supply of such loans as a result of bank instability.
It concludes that both factors have contributed to the problem. May 2010 Oversight Report,
supra note 6.
210 The White House, President Obama Announces New Efforts to Improve Access to Credit for
Small Businesses (Oct. 21, 2009) (online at www.whitehouse.gov/assets/documents/
small_business_final.pdf) (hereinafter ‘‘President Announces New Efforts to Improve Access to
Credit for Small Businesses’’). See also The White House, Remarks by the President on Small
Business Initiatives (Oct. 21, 2009) (online at www.whitehouse.gov/the-press-office/remarkspresident-small-business-initiatives-landover-md).
211 The White House, President Obama Outlines New Small Business Lending Fund (Feb. 2,
2009) (online at www.whitehouse.gov/the-press-office/president-obama-outlines-new-small-business-lending-fund) (hereinafter ‘‘President Outlines New Small Business Lending Fund’’).
212 The initiative also included, among other things, increased guarantees for SBA loans, and
removing certain fees on SBA loans. These programs were not, however, funded with TARP
money. See U.S. Department of the Treasury, Fact Sheet: Unlocking Credit for Small Businesses
(Apr.
26,
2010)
(online
at
www.financialstability.gov/roadtostability/
unlockingCreditforSmallBusinesses.html) (hereinafter ‘‘Fact Sheet: Unlocking Credit for Small
Businesses’’).
213 Traditionally, SBA lending has been supported by an active secondary market, as community banks and other lenders sell the government-guaranteed portion of their loans, providing
them with new capital to make additional loans. But in the fall of 2008, this secondary market—
which has historically supported over 40 percent of SBA’s 7(a) lending program—froze up. As
a result, both lenders, including community banks and credit unions, and the ‘‘pool assemblers’’
that securitize their loans were left with government-guaranteed SBA loans and securities on
their books. This prevented them from making or buying new loans. See May 2009 Oversight
Report, supra note 6, at 50–53. See also May 2010 Oversight Report, supra note 6, at 33–34.
214 The White House, President Obama and Secretary Geithner Announce Plans to Unlock
Credit for Small Businesses (Mar. 16, 2009) (online at www.sba.gov/idc/groups/public/documents/
sba_homepage/white_house_factsheet_031609.pdf).

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its planned investment down to just $1 billion.215 Then, as part of
its implementation of the Dodd-Frank Act, the amount allocated for
purchases was again reduced to $400 million.216
Treasury did not make its first purchases under the program
until March 2010, one year after the program was announced. The
same month, the government’s involvement in the SBA 7(a) loan
market through the Term Asset-Backed Securities Lending Facility
(TALF) ended.217 Treasury indicated that it decided to begin to
make purchases, and thus support the SBA market, in March 2010
in response to the expiration of the TALF and other factors Treasury believed would negatively impact the SBA-backed lending market.218 (Treasury states that it could not have made any purchases
under the program in 2010 if the TARP had not been extended,
since as of December 2009 it had not yet committed funds to the
program.) 219 As of August 17, 2010, a total of $261.7 million had
been spent under this program,220 an amount equal to about 3 percent of the volume of SBA loans approved in the same period, and
even a far smaller percentage of the overall small-business lending
market.221 Figure 9 shows the volume of securities Treasury has
purchased by month.

215 U.S. Department of the Treasury, Troubled Assets Relief Program (TARP) Monthly 105(a)
Report—March 2010, at 7 fn 6 (Apr. 12, 2010) (online at www.financialstability.gov/docs/
105CongressionalReports/March%202010%20105%28a%29%20monthly%20report_final.pdf).
216 TARP Monthly 105(a) Report—July 2010, supra note 162, at 6.
217 U.S. Department of the Treasury, Unlocking Credit for Small Businesses Fact Sheet (Mar.
2, 2009) (online at www.financialstability.gov/latest/tg58.html) (hereinafter ‘‘Unlocking Credit for
Small Businesses Fact Sheet’’). For a full discussion of the SBA loan securities purchase program, see May 2010 Oversight Report, supra note 6, at 40–42.
218 In particular, Treasury cited uncertainty at the time about whether or not the expanded
guarantees and reduced fees on SBA-backed loans provided by the American Recovery and Reinvestment Act of 2009 would be extended. These incentives were viewed as providing support
for the market, and their expiration could be expected to curtail SBA lending significantly. See
May 2010 Oversight Report, supra note 6, at 41.
219 Treasury conversations with Panel staff (Aug. 26, 2010).
220 U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for
the Period Ending August 31, 2010, at 40 (Aug. 31, 2010) (online at www.financialstability.gov/
docs/transaction-reports/8-31-10%20Transactions%20Report%20as%20of%208-27-10.pdf) (hereinafter ‘‘Treasury Transactions Report’’).
221 In fiscal year 2009, the SBA approved a total of $15.2 billion in loans across all of its loan
programs, or roughly $7.6 billion over six months—the same amount of time in which Treasury
spent $253.2 million on its SBA Securities Purchase Program. This equates to approximately
3.3 percent of SBA lending over the same period. U.S. Small Business Administration, Table
2—Gross Approval Amount by Program (online at www.sba.gov/idc/groups/public/documents/
sba_homepage/serv_bud_lperf_grossapproval.pdf) (accessed Sept. 7, 2010). The Government Accountability Office has calculated that, in recent years, only about four percent of the total value
of outstanding small business loans is guaranteed through the 7(a) program. See U.S. Government Accountability Office, Small Business Administration: Additional Measures Needed to Assess 7(a) Loan Program’s Performance, at 7 (July 2007) (GAO–07–769) (online at www.gao.gov/
new.items/d07769.pdf). Treasury purchases of SBA loans therefore account for only approximately 0.13 percent of all small business lending.

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FIGURE 9: MONTHLY VOLUME OF SBA SECURITIES PURCHASES (AS OF SEPTEMBER 1,
2010) 222

222 Treasury Transactions Report, supra note 220, at 40.
223 President Announces New Efforts to Improve Access to Credit for Small Businesses, supra
note 210.
224 The proposal has gone through a number of iterations since it was initially announced. See
the Panel’s May 2010 and July 2010 reports for more thorough discussions. See May 2010 Oversight Report, supra note 6; July 2010 Oversight Report, supra note 23, at 42 fn 152.
225 See Congressional Oversight Panel, Testimony of Timothy F. Geithner, secretary, U.S. Department of the Treasury, Transcript: COP Hearing with Treasury Secretary Timothy Geithner,
at 41 (Dec. 10, 2009) (online at cop.senate.gov/documents/transcript-121009-geithner.pdf) (hereinafter ‘‘Transcript: COP Hearing with Secretary Geithner’’) (‘‘So, if we’re going to be effective
in dealing with this, we have to find some way to mitigate both the stigma of coming and the
fear of changes in the future rules of the game that are going to apply to them. It is something
we cannot do on our own. It’s going to require some help from Congress, to help deal with those
basic concerns.’’).
226 President Outlines New Small Business Lending Fund, supra note 211.
227 President Announces New Efforts to Improve Access to Credit for Small Businesses, supra
note 210.

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The second program, which was supposed to provide capital to
banks in order to increase lending to small businesses, was first
announced on October 21, 2009.223 In its original form, the program would have used TARP funds to provide capital to small and
community banks in such a way that provided them an incentive
to increase their lending.224 But following the TARP’s extension,
and after hearing from bankers who did not want to participate in
the program as long as it was a part of the TARP, due to the stigma associated with the TARP,225 the Administration decided to
seek congressional authorization to establish the program outside
the TARP. The Administration would create a separate $30 billion
program now known as the Small Business Lending Fund.226 This
proposal passed the House of Representatives on June 17, 2010, as
part of the Small Business Jobs and Credit Act of 2010. The Senate
is scheduled to vote on this bill during the week of this report’s
publication.
Finally, on February 3, 2010, Treasury announced the Community Development Capital Initiative. This program was initially
conceived in 2009 as part of the Administration’s aforementioned
small business lending proposals.227 The CDCI provides low-cost
capital to Community Development Financial Institutions (CDFIs),
which lend to small businesses in underserved communities. Under

47
the program, CDCIs pay a 2 percent dividend rate on the capital
they receive. This means that participating CDFIs receive funding
on more favorable terms than do CPP-recipient banks, which pay
a 5 percent dividend rate.228
Treasury initially allocated $1 billion in TARP funds to the
CDCI. That allocation has since been decreased to $780 million.229
This program made its first investments on July 30, 2010. As of
September 1, 2010, 11 CDFIs have received a total of $143.2 million under the program.230 Treasury states that if the TARP had
not been extended, it could not have established the CDCI.231

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3. Support for Securitization Markets Through the TALF
The final area where Secretary Geithner reserved the authority
to use his extended TARP authority was in supporting
securitization markets through the TALF. The Federal Reserve
Bank of New York (FRBNY) created the TALF in November 2008
in response to frozen securitization markets.232 Its goal was to encourage the issuance of various classes of asset-backed securities
(ABS), including auto loans, credit card loans, and student loans,
and commercial mortgage-backed securities (CMBS).233 Borrowers
applied for a TALF loan, which was usually issued at below market
228 U.S. Department of the Treasury, Obama Administration Announces Enhancements For
TARP Initiative For Community Development Financial Institutions (Feb. 3, 2010) (online at
www.financialstability.gov/latest/pr_02032010.html).
229 TARP Monthly 105(a) Report—July 2010, supra note 162, at 6. Banks and credit unions
that are CDFIs hold a total of about $35.3 billion in assets, so this program would provide capital equal to about 2 percent of their total assets. CDFIs hold 1.9 percent of all assets held by
credit unions, and 0.14 percent of assets held by banks. For a list of CDFI-certified institutions,
see Community Development Financial Initiative Fund, Certified Community Development Financial Institutions—By Organization Type (online at www.cdfifund.gov/docs/certification/cdfi/
CDFIList-ByType-7-31-10.pdf) (accessed Sept. 14, 2010). Data on bank holding company, commercial bank, and savings institution assets compiled using the Federal Deposit Insurance Corporation Institution Directory (online at www2.fdic.gov/idasp/main.asp) and Statistics on Depository Institutions (www2.fdic.gov/sdi/). For data on credit union assets, see National Credit Union
Administration, Call Report Data Facts/Summary (June 2010) (online at www.ncua.gov/
DataServices/FOIA/2010/June/June10PACAFacts.xlsx). For total assets of individual credit
unions, see National Credit Union Administration, Credit Union Online (online at
cuonline.ncua.gov/CreditUnionOnline/CU/FindCreditUnions.aspx) (accessed Sept. 14, 2010).
230 Sept. 3 TARP Transactions Report, supra note 26.
231 Treasury conversations with Panel staff (Aug. 26, 2010).
232 The securitization market has accounted for approximately $2 trillion in loans to consumers, students, and businesses over the past decade. Securitization of assets involves diversifying risk by pooling assets and then issuing new securities backed by those assets and their
cash flows. Investors purchase the securities and acquire the rights to the associated cash flows
as well as the risk of default. Financial institutions acquire the proceeds from the sale, transfer
ownership of the assets to investors, and simultaneously free up capital for further lending. As
long as there are originators and investors in the market, securitization results in increased
lending capacity. When buyers abandon the market, however, originators cannot move
securitized assets off their books and their lending capacities can become constrained. See generally Brian P. Sack, executive vice president, Federal Reserve Bank of New York, Remarks at
the New York Association for Business, Reflections on the TALF and the Federal Reserve’s Role
as Liquidity Provider (June 9, 2010) (online at www.newyorkfed.org/newsevents/speeches/2010/
sac100609.html) (hereinafter ‘‘Brian Sack Remarks at the New York Association for Business’’).
233 U.S. Department of the Treasury, TALF Frequently Asked Questions, at 1 (Mar. 2009) (online at www.federalreserve.gov/newsevents/press/monetary/monetary20090303a2.pdf) (hereinafter ‘‘TALF Frequently Asked Questions’’). To be eligible under the TALF, ABS had to be newly
issued AAA-rated securities. In addition to auto loans, credit card loans, and private and government-guaranteed student loans, loans guaranteed by the Small Business Administration were
also eligible. Board of Governors of the Federal Reserve System, Press Release (Nov. 25, 2008)
(online at www.federalreserve.gov/newsevents/press/monetary/20081125a.htm). FRBNY expanded TALF to include newly issued CMBS in June 2009 and legacy (i.e., previously issued)
CMBS in July 2009. Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress, at 91 (July 21, 2010) (online at www.sigtarp.gov/reports/
congress/2010/July2010_Quarterly_Report_to_Congress.pdf) (hereinafter ‘‘SIGTARP Quarterly
Report to Congress—July 2010’’).

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48
rates.234 In return for the loan, the borrower posted collateral in
the form of an ABS or a CMBS, paid an administrative fee, and
took a ‘‘haircut,’’ meaning that its posted collateral had a market
value greater than the loan the borrower was receiving.235
As part of the program, FRBNY created a special purpose vehicle, TALF LLC, to buy from FRBNY collateral seized in the event
that a TALF loan was not repaid. In exchange for a fee, TALF LLC
agreed to buy the seized collateral for a price equal to the outstanding amount of the TALF loan plus any unpaid interest payments.236 Treasury initially agreed to loan TALF LLC up to $20
billion in TARP funds, although this amount was later reduced to
$4.3 billion.237 FRBNY has also committed to loaning up to $180
billion to TALF LLC, but Treasury was in a position to absorb the
first losses.238
The TALF closed on June 30, 2010.239 As securitization markets
improved in 2009 and early 2010, borrowers were able to borrow
from third parties at rates lower than they were from the TALF.
Consequently, the TALF became less appealing relative to other
sources of borrowing.240 Figure 10 shows how use of the TALF by
market participants generally declined over the life of the program.

234 TALF Frequently Asked Questions, supra note 233, at 6; SIGTARP Quarterly Report to
Congress—July 2010, supra note 233, at 94.
235 TALF loans have durations of either three or five years and are non-recourse. Federal Reserve Bank of New York, 2009 Annual Report, at 35–36 (June 2010) (online at
www.newyorkfed.org/aboutthefed/annual/annual09/annual.pdf) (hereinafter ‘‘FRBNY 2009 Annual Report’’).
236 FRBNY 2009 Annual Report, supra note 235, at 36. Another way of phrasing this is to
say that in the event of a loss, TALF LLC agreed to buy the collateral in satisfaction of the
put contract even if its value was much less than the TALF loan outstanding. Consequentially,
TALF LLC rather than FRBNY absorbs losses resulting from the TALF loans. Cf. Brian Sack
Remarks at the New York Association for Business, supra note 232.
237 SIGTARP Quarterly Report to Congress—July 2010, supra note 233, at 95; TALF Terms
and Conditions, supra note 89. Under the original financing agreement, Treasury’s $20 billion
loan would have had to have been exhausted before FRBNY disbursed its loan to TALF LLC.
Brian Sack Remarks at the New York Association for Business, supra note 232.
238 FRBNY retained control of TALF LLC and would be the first to receive funds resulting
from the eventual sale of the collateral that TALF LLC had previously purchased. FRBNY 2009
Annual Report, supra note 235, at 36–37.
239 TALF Terms and Conditions, supra note 89. The TALF held its final subscription on June
18, 2010. SIGTARP Quarterly Report to Congress—July 2010, supra note 233, at 41.
240 Brian Sack Remarks at the New York Association for Business, supra note 232.

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FIGURE 10: MONTHLY ISSUANCE OF TALF LOANS COLLATERALIZED BY ABS SECURITIES

49
As of September 10, 2010, no collateral had yet been seized or
purchased by TALF LLC.241 Still, it is very early to judge the performance of TALF loans, given their three- to five-year duration.242
Over the life of the program, $71 billion in TALF loans were settled, about 35 percent of the $200 billion initially set aside under
the facility. ABS TALF loans totaled $59 billion, and CMBS loans
totaled $12 billion. From January 2010 through June 2010, $9.45
billion in TALF loans were issued; ABS TALF loans totaled $6.14
billion, and CMBS loans totaled $3.32 billion.243 Overall, while the
TALF was in existence, it made up about 25 percent of the ABS
market, and about 71 percent of the CMBS market, reflecting that
market’s considerable slowdown during the financial crisis.244
In December 2009, when Treasury extended the TARP, it believed that demand under the TALF for CMBS might increase in
2010, which might require a greater commitment of TARP funds to
the program. Instead, all new issuances of CMBS after March 2010
happened outside of the TALF.245 As a result, despite Secretary
Geithner’s statement in December 2009 that Treasury might use
its extended TARP authority to increase its support for the TALF,
it did not.246
4. Summary of Treasury’s Use of TARP Authority Since December 2009
Since December 2009, Treasury has used its extended TARP authority in an extremely limited way. In testimony before the Panel
on June 22, 2010, more than three months before the program’s expiration, Secretary Geithner spoke about Treasury’s reluctance to
use its extended authority. ‘‘This hearing should be a eulogy for
TARP,’’ he said. ‘‘As I said many times, we are working very hard
to put this program to rest, put it out of its misery. It is not going
to solve all the problems facing the country. It was not designed
241 Treasury

conversations with Panel staff (Sept. 10, 2010).
it has not yet purchased any loans, TALF LLC has cost $1 million in administrative fees from its creation through June 30, 2010. Of Treasury’s $100 million initial loan to
TALF LLC, $15.8 million was allocated to cover administrative expenses. SIGTARP Quarterly
Report to Congress_July 2010,supra note 233, at 95–96.
243 Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: nonCMBS (online at www.newyorkfed.org/markets/talf_operations.html) (hereinafter ‘‘Term AssetBacked Securities Loan Facility: non-CMBS’’) (accessed Sept. 14, 2010); Federal Reserve Bank
of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at
www.newyorkfed.org/markets/TALF_recent_operations.html) (accessed Sept. 14, 2010); Federal
Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: CMBS (online at
www.newyorkfed.org/markets/ cmbs_operations.html) (accessed Sept. 14, 2010); Federal Reserve
Bank of New York, Term Asset-Backed Securities Loan Facility: CMBS (online at
www.newyorkfed.org/markets/ CMBS_recent_operations.html) (hereinafter ‘‘Term Asset-Backed
Securities Loan Facility: CMBS’’) (accessed Sept. 14, 2010). Altogether, approximately $70 billion of TALF loans were issued but, because some loans were being repaid at the same time
that others were being issued, there was never more than about $50 billion of TALF loans outstanding. Brian Sack Remarks at the New York Association for Business, supra note 232.
244 Term Asset-Backed Securities Loan Facility: CMBS, supra note 243; Securities Industry
and Financial Markets Association, SIFMA Research and Statistics—US ABS Issuance (online
at www.sifma.org/uploadedFiles/Research/ Statistics/SIFMA_USABSIssuance.xls) (accessed Sept.
14, 2010); CRE Finance Council, Compendium of Statistics (Sept. 3, 2010) (online at
www.crefc.org/uploadedFiles/
CMSA_Site_Home/Industry_Resources/Research/
Industry_Statistics/CMSA_Compendium.pdf) (hereinafter ‘‘CRE Finance Council Compendium of Statistics’’).
245 Term Asset-Backed Securities Loan Facility: CMBS,supra note 243; CRE Finance Council
Compendium of Statistics, supra note 244; Treasury conversations with Panel staff (Aug. 26,
2010).
246 When the TALF was closed on June 30, 2010, there were $43 billion in loans outstanding.
Accordingly, on July 21, 2010, the Treasury reduced the credit protection provided for the TALF
from $20 billion to $4.3 billion, constituting 10 percent of the total outstanding TALF loans.
TALF Terms and Conditions, supra note 89.

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242 Although

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50
to. We are not going to use it that way. We use it very carefully,
but it has done the essential thing it was designed to do and therefore our expectation is it will be allowed to expire . . . .’’ 247
Overall, as of December 2009, Treasury had committed a total of
$474.7 billion in TARP funds; that number tracks almost exactly
with a $475 billion cap on TARP expenditures imposed in July
2010 by the Dodd-Frank Act.248 Thus, although there were new
TARP programs established in 2010 that cost up to $15.9 billion,
Treasury funded those programs by reallocating TARP dollars that
had already been allocated for specific uses, not by dipping into
unallocated TARP funds.
With respect to the TALF, Treasury did not use its extended
TARP authority, and its commitment to the program never came
close to the $20 billion in credit protection it originally pledged.
With respect to small business lending, not only did Treasury
abandon its plans to use the TARP for its proposed Small Business
Lending Fund, Treasury also never approached expending the
amount of its initial commitment of $15 billion in the Unlocking
SBA Lending program.249 To date, Treasury has only expended a
total of $261.7 million under the program and has reduced its commitment from $15 billion to $400 million.250 Treasury did establish
the CDCI, but that program can only spend up to $780 million.
Treasury’s most significant use of its extended TARP authority
involved foreclosures. But even in this area, Treasury used its authority in a narrow way. Both new TARP foreclosure mitigation
programs were carved out of funding that was initially reserved for
HAMP. Moreover, it is not clear how much of the $15.1 billion that
Treasury has committed to the three new programs will actually be
spent. As of September 10, 2010, Treasury had spent just $41.9
million on these programs, or well under 1 percent of the total
amount committed to them.251 The amount of money that is eventually spent will depend largely on how many people and financial
institutions participate in the programs.
E. How Is the American Economy Performing in the Wake
of the TARP, Particularly Those Sectors—Financial Markets, Housing, Autos—That Have Been the Specific Target
of TARP Assistance?
1. Indicators of the TARP’s Impact
Assessing the TARP in the context of both the broad U.S. economy and specific economic sectors is a difficult but important
247 Transcript:

COP Hearing with Secretary Geithner, supra note 200.
December 2009 Oversight Report,supra note 6, at 75–76 (showing that Treasury had
committed $474.7 billion in TARP funds as of November 30, 2009); Dodd-Frank Wall Street Reform and Consumer Protection Act, supra note 15, 130 (stating that the amount available under
TARP is reduced to $475 billion).
249 When Treasury first announced the Unlocking SBA Lending program in March 2009, it
planned to purchase $15 billion in 7(a) securities to ‘‘jumpstart credit markets for small businesses.’’ Unlocking Credit for Small Businesses Fact Sheet, supra note 217. Treasury made its
first purchases of these securities on March 19, 2010 (one year later) and at the time reaffirmed
its intent to use the full $15 billion. Treasury Transactions Report, supra note 220, at 40; Fact
Sheet: Unlocking Credit for Small Businesses, supra note 212.
250 Treasury Transactions Report, supra note 220, at 40. As described in greater detail in Section D.3, TALF is broadly credited with jump-starting the securitization markets again. TALF
expired as expected and additional support might not have been necessary.
251 Treasury data provided to Panel staff (Aug. 18, 2010).

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248 See

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51
task.252 The purposes of the law that established the TARP include
ensuring that the law’s authorities are used in a matter that ‘‘promotes jobs and economic growth,’’ ‘‘preserves homeownership,’’ and
‘‘protects home values, college funds, retirement accounts, and life
savings. . . .’’ 253 Thus, while its primary goal was financial stability, the TARP was also intended to have a positive effect on the
economy more generally. The passage of the American Recovery
and Reinvestment Act of 2009 (ARRA) and the actions of the Federal Reserve at the time of the financial crisis were also designed
to spur economic recovery.254
It is impossible to attribute changes in the economic climate solely to the TARP without data that isolate the TARP’s effect.
Changes in key economic and industry-specific metrics over time
show only potential correlation, not causation. Further, any present
assessment is necessarily limited to currently available data, and
more time and analysis will be necessary before more definitive determinations of the TARP’s effect can be made. It has, however,
been two years since the acute crisis, and an assessment of the
broader economy is therefore a useful standpoint from which to review the TARP. Analysis of these metrics provides insight into economic conditions at the height of the financial crisis and since the
implementation of the TARP.

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a. Macroeconomic Indicators
Real GDP is the total value of goods and services produced within the United States and is considered to be a comprehensive measure of the performance of the U.S. economy.255
As shown in Figure 11 below, real GDP increased steadily from
1991 to 2007, remained flat year-over-year from 2007 to 2008, and
decreased in 2009.256 Personal consumption expenditures drove
252 The GAO noted the difficulty of measuring TARP’s impact on the economy while identifying key metrics that may be suggestive of TARP’s economic impact in a previous report that
stated, ‘‘TARP’s activities could improve market confidence in banks that choose to participate
and have beneficial effects on credit markets, but several factors will complicate efforts to measure any impact. If TARP is having its intended effect, a number of developments might be observed in credit and other markets over time, such as reduced risk spreads, declining borrowing
costs, and increased lending. However, several factors will make isolating and measuring the
impact of TARP challenging, including simultaneous changes in economic conditions, changes
in monetary and fiscal policy, and other programs introduced by the Treasury, the Federal Reserve, FDIC, and FHFA to support banks, credit markets, and other struggling institutions. As
a result, any improvement in capital markets cannot be attributed solely to TARP nor will a
slow recovery necessarily reflect its failure because of the effects of market forces and economic
conditions outside of the control of TARP. Nevertheless, we have preliminarily identified some
indicators that may be suggestive of TARP’s impact over time. These indicators include measures of the perception of risk in interbank lending, consumer lending, corporate debt markets,
and the overall economy. We have also identified a number of other indicators that we are also
monitoring and may include in future reports.’’ U.S. Government Accountability Office, Troubled
Asset Relief Program: Additional Actions Needed to Better Integrity, Accountability, and Transparency, at 46 (Dec. 2008) (GAO–09–161) (online at www.gao.gov/new.items/d09161.pdf).
253 12 U.S.C. § 5201.
254 Recovery.gov,
About: The Recovery Act (online at www.recovery.gov/About/Pages/
The_Act.aspx) (accessed Sept. 14, 2010); Board of Governors of the Federal Reserve System,
Monetary Policy Report to the Congress, at 2 (Feb. 24, 2009) (online at www.federalreserve.gov/
monetarypolicy/files/20090224_mprfullreport.pdf).
255 Bureau of Economic Analysis, Concepts and Methods of the U.S. National Income and
Product Accounts, at 2–13 (Oct. 2009) (online at www.bea.gov/national/pdf/NIPAhandbookch1–
4.pdf) (accessed Sept. 14, 2010).
256 Bureau of Economic Analysis, Table 1.1.6.: Real Gross Domestic Product, Chained Dollars
(online
at
www.bea.gov/national/nipaweb/TableView.asp?
SelectedTable=6&Freq=Qtr&FirstYear=2008&LastYear=2010) (hereinafter ‘‘Bureau of Economic
Analysis, Table 1.1.6.’’) (accessed Sept. 8, 2010). Until the year-over-year decrease from 2007 to
2008, nominal GDP had not decreased on an annual basis since 1949. Bureau of Economic AnalContinued

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52
year-over-year increases in GDP from 2000 to 2007. During the
height of the economic crisis in 2008 and 2009, however, decreasing
gross private domestic investments (specifically, lower fixed investment and private inventories), resulted in a reduction in real
GDP.257 This trend has reversed in recent quarters, as increases in
gross private domestic investments have driven the three percent
increase in real GDP from the second quarter of 2009 to the second
quarter of 2010.258
FIGURE 11: REAL GDP 259

ysis, Table 1.1.5.: Gross Domestic Product (online at www.bea.gov/national/nipaweb/
TableView.asp?SelectedTable=5&Freq=Qtr&FirstYear= 2008&LastYear=2010) (accessed Aug.
18, 2010).
257 ‘‘Personal consumption expenditures’’ include the purchases of services and both durable
and nondurable goods. ‘‘Gross private domestic investment’’ includes nonresidential structures
and equipment and software, residential investment, and changes in private inventories. Bureau
of Economic Analysis, Table 1.1.2.: Contributions to Percent Change in Real Gross Domestic
Product
(online
at
www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=2&
FirstYear=2009&Last Year=2010& Freq=Qtr) (accessed Aug. 18, 2010); Bureau of Economic
Analysis, Table 1.1.1.: Percent Change From Preceding Period in Real Gross Domestic Product
(online at www.bea.gov/ national/ nipaweb/ TableView.asp?SelectedTable=1 &ViewSeries=NO
&Java=no &Request3Place=N &3Place=N &FromView=YES &Freq=Qtr &FirstYear=
2010&LastYear= 2010&3Place= N&Update=Update &JavaBox=no) (hereinafter ‘‘Bureau of Economic Analysis, Table 1.1.1.’’) (accessed Aug. 18, 2010).
258 Bureau of Economic Analysis, Table 1.1.2.: Contributions to Percent Change in Real Gross
Domestic
Product
(online
at
www.bea.gov/national/nipaweb/TableView.asp?
SelectedTable=2&ViewSeries=NO&Java=
no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=
2008&LastYear=2010&3Place=N&Update=Update&JavaBox=no) (accessed Sept. 7, 2010); Bureau of Economic Analysis, Table 1.1.6.: Real Gross Domestic Product, Chained Dollars (online
at
www.bea.gov/national/nipaweb/TableView.asp?SelectedTable6&ViewSeries=NO&Java
=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=
2000&LastYear=2010&3Place=N&Update= Update&JavaBox=no) (accessed Sept. 7, 2010).
259 Bureau of Economic Analysis, Table 1.1.6., supra note 256.
260 Bureau of Economic Analysis, Table 1.1.1., supra note 257.

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The rate of real GDP growth quarter-over-quarter peaked at five
percent in the fourth quarter of 2009 and has decreased during
2010. Real GDP increased at rates of 3.7 and 1.6 percent in the
first and second quarters of 2010, respectively.260 These growth
rates were also impacted by the 2010 U.S. Census. The Economics
and Statistics Administration within the U.S. Department of Commerce estimated that the spending associated with the 2010 Census would peak in the second quarter of 2010 and could boost
annualized nominal and real GDP growth by 0.1 percentage point

53

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in the first quarter of 2010 and 0.2 percentage point in the second
quarter of 2010.261 As the boost from the Census is a one-time occurrence, continuing increases in private investment and personal
consumption expenditures as well as in exports will be needed to
sustain the resumption of growth that has occurred in the U.S.
economy over the past year.
The unemployment rate has reached levels not seen since the recession of the early 1980s. As seen in Figure 12 below, the unemployment rate has increased since 2007 to a height of 10 percent
in the fourth quarter of 2009 and is currently 9.5 percent. The combined rate of unemployment plus underemployment has exhibited
a similar trend, jumping from 8.8 percent at the end of 2007 to the
July 2010 rate of 16.5 percent, implying an increasing number of
part-time workers who could be working full-time.262 It is important to note that the rate of unemployment plus underemployment
does not include people who have stopped actively looking for work
altogether. The median duration of unemployment has increased
from six weeks in early 2000 to the current median duration of 20
weeks, the highest level since tracking began on this data, and
much of that increase occurred during 2009.263

261 Economics and Statistics Administration, U.S. Department of Commerce, The Impact of the
2010 Census Operations on Jobs and Economic Growth, at 8 (online at www.esa.doc.gov/
02182010.pdf).
262 A person is classified as unemployed if he/she does not have a job, has actively looked for
work in the prior four weeks, and is currently available for work. People are considered employed if they did any work for pay or profit during the employment survey week. Bureau of
Labor Statistics, How the Government Measures Unemployment (online at www.bls.gov/cps/
cps_htgm.htm#unemployed) (accessed Aug. 19, 2010). Underemployment includes part-time
workers and is defined based on two types: time-related underemployment and inadequate employment situations. Time-related underemployed individuals are those who are both willing
and available to work additional hours and have worked fewer hours than a threshold of ‘‘sufficient’’ hours (with the number of hours deemed ‘‘sufficient’’ set by public policy). The other type
of underemployment involves individuals in inadequate employment situations, meaning they
were willing to change their current employment situation and wanted to do so due to inadequate use of their skill set, inadequate income, or excessive work hours. International Labour
Organization, Underemployment: Current Guidelines (online at www.ilo.org/global/What_we_do/
Statistics/topics/Underemployment/guidelines/lang_Ken/index.htm) (accessed Aug. 19, 2010).
263 Bureau of Labor Statistics, Databases, Tables & Calculators by Subject: (online at
data.bls.gov/PDQ/servlet/SurveyOutputServlet) (accessed Sept. 7, 2010).

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54
FIGURE 12: UNEMPLOYMENT, UNDEREMPLOYMENT, AND MEDIAN DURATION OF
UNEMPLOYMENT (JANUARY 2000–JULY 2010) 264

264 While the Bureau of Labor Statistics (BLS) does not have a distinct metric for ‘‘underemployment,’’ the U–6 category of Table A–15 ‘‘Alternative Measures of Labor Underutilization’’
is used here as a proxy. BLS defines this measure as: ‘‘Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.’’ United
States Department of Labor, International Comparisons of Annual Labor Force Statistics (online
at www.bls.gov/webapps/legacy/cpsatab15.htm) (accessed Sept. 13, 2010).

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b. Housing Real Estate Sector Performance Metrics
The Case-Shiller composite index (Case-Shiller) and Federal
Housing Finance Agency’s House Price Index (HPI) are important
measures of home price trends.

55
FIGURE 13: CASE-SHILLER NATIONAL INDEX AND FHFA HPI (JANUARY 2000–MAY
2010) 265

265 Federal Housing Finance Agency, Purchase Only Indexes: U.S. and Census Division (Seasonally Adjusted and Unadjusted): January 1991–Latest Month (online at www.fhfa.gov/Default.aspx?Page=87) (accessed Aug. 30, 2010); Standard & Poor’s, S&P/Case-Shiller Home Price
Indices: U.S. National Values (online at www.standardandpoors.com/ indices/sp-case-shillerhome-price-indices/en/us/ ?indexId=spusa-cashpidff_p_us_) (accessed Aug. 30, 2010). Case-Shiller
was normalized at 100 in January 2000, as the U.S. Census count of single-family housing units
for metro areas in 2000 was used as a base for weights and aggregate values. This creates the
initial gap at the January 2000 starting point for the two indexes in the figure.
266 Several additional differences exist between Case-Shiller and HPI. Both utilize repeat sales
of homes (both exclude first time sales, therefore first-time constructions/new homes are excluded), but HPI includes refinancing valuations. HPI includes only conforming, conventional
mortgages (FRE/FNMA), while Case-Shiller includes all mortgages (including foreclosures).
Case-Shiller uses arithmetic weighting, so it is similar to an average price, and thus, higher
valued homes have greater influence on the average. HPI uses geometric weighting, so it is more
similar to a median price. Case-Shiller excludes 13 states, whereas the national HPI includes
all states.

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As shown in Figure 13 above, Case-Shiller displayed a sharper
increase and subsequent drop in housing prices compared to that
seen in the HPI. Case-Shiller increased 105 percent from January
2000 to April 2006, then fell 32 percent to its trough of May 2009.
HPI increased 63 percent from January 2000 to April 2007 and
then fell only 14 percent to February 2010. HPI includes only conventional mortgages, and thus excludes the subprime and other
problem loans that ignited the housing crisis, and it therefore did
not show the same degree of appreciation and depreciation seen in
Case-Shiller. Case-Shiller also appears to have picked up on the
bursting of the bubble more quickly.266

56
FIGURE 14: EXISTING-HOME SALES (JAN. 2000–JULY 2010) 267

267 Existing-home sales are completed transactions that include single-family, townhomes, condominiums, and co-ops. Data obtained from National Assocation of Realtors.
268 National Association of Realtors, July Existing-Home Sales Fall as Expected but Prices Rise
(Aug. 24, 2010) (online at www.realtor.org/pres_room/news_releases/2010/08ehs_fall).
269
Board of Governors of the Federal Reserve Ssytem, Data Download Program: Selected
Interest Rates (H.15) (online at www.federalreserve.gov/datadownload/) (hereinafter ″Federal Reserve Selected Interest Rates (H.15)’’) (accessed Sept. 8, 2010).

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As noted in Figure 14 above, existing-home sales declined 37 percent from September 2005 to November 2008, spiked significantly
during 2009, and dropped to their lowest point in more than a decade in July 2010. The tax credits for first-time home buyers and
repeat home buyers, beginning in January 2009 and November
2009, respectively, correlate with sales spikes seen during those periods. As both tax credits were extinguished on April 30, 2010, existing-home sales have dropped to 3.8 million, the lowest level since
the total existing-home sales series launched in 1999. Lower sales
have increased the glut of housing inventory. As of July 2010, the
total housing inventory represents a 12.5 month supply at the current sales pace, an increase from the 8.9 month supply as of June
2010.268
Housing sales are sensitive to interest rates, as borrowing costs
directly impact the cost of home ownership. Generally, lower longterm interest rates generate higher value in house prices, and
lower mortgage rates encourage more home purchases and
refinancings. Long-term interest rates, specifically 30- and 10-year
Treasury yields, increased significantly from the late 1970s to early
1980s and have gradually decreased since then. Similarly, fixedrate, 30-year conventional mortgage rates peaked at 18.45 percent
in October 1981 and have subsequently trended downward, with
rates at an all-time low of 4.43 percent as of August 2010.269

57
FIGURE 15: FORECLOSURE COMPLETIONS (2007–Q2 2010) 270

270 HOPE NOW, Mortgage Loss and Mitigation Statistics, Industry Extrapolations (Quarterly
from
Q1–2007
to
Q1–2009)
(online
at
www.hopenow.com/industry-data/
HOPE%20NOW%20National%20Data%20July07%20to%20April09.dpf)
(hereinafter
‘‘HOPE
NOW Statistics (July 2007 to Apr. 2009)’’) (accessed Sept. 14, 2010); HOPE NOW Statistics (Dec.
2008 to July 2010), supra note 202.
271 HOPE NOW Statistics (July 2007 to Apr. 2009), supra note 270; HOPE NOW Statistics
(Dec. 2008 to July 2010), supra note 202.

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Monthly foreclosure completions have increased from approximately 111,000 in the first quarter of 2007 to approximately
287,000 in the second quarter of 2010. Foreclosure completions in
the second quarter of 2010 decreased by only 1,000 following four
quarters of increasing foreclosures.271

58
FIGURE 16: DELINQUENCY RATES FOR SINGLE FAMILY RESIDENTIAL MORTGAGES (2000–
SECOND QUARTER 2010) 272

272 Delinquency rate is seasonally-adjusted and includes the total number of loans that are
30, 60, and 90 days past due. It does not include loans that are in foreclosure. Bloomberg Data
Service (accessed Aug. 26, 2010).
273 HOPE NOW Statistics (July 2007 to Apr. 2009), supra note 270; HOPE NOW Statistics
(Dec. 2008 to July 2010), supra note 202.
274 February 2010 Oversight Report, supra note 28, at 2, 38, 102.
275 February 2010 Oversight Report, supra note 28, at 42.
276 Foresight Analytics data provided to Panel staff (Aug. 24, 2010).

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As seen in Figure 16, despite three million foreclosures since the
first quarter of 2007,273 single family real estate delinquencies
have continued to increase. Housing prices will continue to be influenced by the supply of homes on the market, which in turn is
a function of the overall foreclosure and default rates.
In its February 2010 report, the Panel highlighted the struggling
commercial real estate (CRE) market, which has continued to experience decreased demand. Between 2010 and 2014, approximately
$1.4 trillion in CRE loans will reach maturity. Losses on these
loans for commercial banks alone could total $200 billion to $300
billion for 2011 and beyond.274
As illustrated by Figure 17, the burden of these losses will fall
disproportionately on small and mid-size banks that do almost half
of the nation’s small business lending.275 In recent months, however, small banks have been attempting to remove CRE loans from
their balance sheet. For example, in the second quarter of 2010
alone, small banks cut their outstanding balance of construction
and land loans, one type of CRE loan, by 10 percent.276

59
FIGURE 17: COMMERCIAL REAL ESTATE EXPOSURE AS A PERCENTAGE OF TOTAL RISKBASED CAPITAL 277

Since the Panel’s February report, the amount of outstanding
CRE loans at commercial banks has decreased slightly. Their holdings decreased by $26 billion, or 2 percent in the fourth quarter of
2009,278 and by $19 billion, or 1.3 percent, in the first quarter of
2010, due in part to repayments and write-offs from foreclosures.279
Commercial banks’ total holdings, however, still remain at almost
$1.5 trillion.280
The number of distressed CRE properties has continued to
grow.281 The total value of troubled properties has increased to
$154 billion, and another $32 billion worth of CRE has been repossessed by the lender through foreclosure.282

from Foresight Analytics, LLC. This data does not include owner-occupied properties.
278 Mortgage Bankers Association, Commercial Real Estate/Multifamily Finance Quarterly
Data Book: Q4 2009, at 51 (Mar. 2010) (online at www.mbaa.org/files/Research/DataBooks/
4Q09QuarterlyDataBook.pdf).
279 Mortgage Bankers Association, Commercial Real Estate/Multifamily Finance Quarterly
Data Book: Q1 2010, at 48 (May 2010) (online at www.mbaa.org/files/Research/DataBooks/
1Q10QuarterlyDataBook.pdf) (hereinafter ‘‘CRE/Multifamily Finance Quarterly Data Book: Q1
2010’’).
280 Id. at 48.
281 Distressed properties are those that are either troubled or REO. For definitions of these
terms, see footnote 283, infra.
282 Real Capital Analytics, Fresh Evidence of Lenders Moving to Resolve Trouble (July 29,
2010) (hereinafter ‘‘Fresh Evidence of Lenders Moving to Resolve Trouble’’).

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277 Data

60
FIGURE 18: TOTAL OUTSTANDING DISTRESSED CRE 283

Recently, however, the rate at which properties are becoming distressed has slowed. In June 2010, only $6.3 billion worth of CRE
fell into distress, the smallest one-month increase since October
2008. In the first half of 2010, an additional $56.8 billion of CRE
loans became distressed, down 24 percent from the same period
last year. At the same time, the rate and total value of
restructurings and resolutions of CRE loans has increased. In the
first half of 2010, $15.2 billion worth of CRE loans were restructured, up 205 percent from the same period last year. The $14 billion of CRE loans resolved in the first half of 2010 is 272 percent
higher than the same period last year.284
Returns on CRE properties have recently begun to rebound.285
Vacancy rates remain high, however, meaning that many properties continue to produce no revenue and have little value even if
foreclosed.286 Although the rate of properties becoming distressed
has slowed, a glut of such properties remains in the market.

283 Data from Real Capital Analytics. Troubled properties are those where there is a default,
bankruptcy, or foreclosure pending, or some kind of lender forbearance or other restructuring.
REO stands for Real Estate Owned properties. REO properties are those that have been repossessed by the lender via foreclosure. Restructured properties are those where ownership or debt
terms have changed but no long term solution to the cause of distress has been reached. Resolved properties are those that have moved out of distress. Real Capital Analytics, Troubled
Assets Radar: Methodology, at 1 (Apr. 5, 2010) (online at www.rcanalytics.com/troubled-assetsmethodology.pdf).
284 Fresh Evidence of Lenders Moving to Resolve Trouble, supra note 282.
285 CRE Finance Council Compendium of Statistics, supra note 244, at 25.
286 PIMCO,
PIMCO U.S. Commercial Real Estate Project (July 2010) (online at
www.pimco.com/Pages/USCommercialRealEstateProjectJune2010.aspx); CRE/Multifamily Finance Quarterly Data Book: Q1 2010, supra note 279, at 27; CRE Finance Council Compendium
of Statistics, supra note 244, at 24.

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c. Financial Sector Performance Metrics
The crisis that peaked in the fall of 2008 was centered in the financial sector. Numerous metrics, including credit spreads, loan
delinquency rates, measures of financial market activity, and bank
failures, shed light on the sector’s health.
Credit spreads, which measure the differences in bond yields,
serve as a good proxy for market perceptions of risk. The LIBOR-

61
OIS spread provides insight into market participants’ confidence in
their counterparties’ abilities to repay their obligations; as the
spread increases, market participants are more concerned about
potential default risk.287 Former Federal Reserve Chairman Alan
Greenspan has noted, for example, that the LIBOR-OIS spread
served as a ‘‘barometer of fears of bank insolvency.’’ 288 The TED
spread, the difference between LIBOR and short-term Treasury bill
interest rates, is another indicator of perceived credit risk, with a
higher spread indicating that market participants are unwilling to
hold investments other than safe Treasury bills. LIBOR is an average of interbank borrowing rates at large banks, and its movement
was closely correlated to the disbursement of TARP funds to the
largest U.S. banks in October 2008.289

287 The LIBOR-OIS spread shows the difference between the London Interbank Offering Rate
(LIBOR), which is the rate at which banks are willing to lend to one another for a specified
loan term, and the Overnight Indexed Swaps rate (OIS), which is the rate on a derivative contract on the overnight rate, measuring the cost of extremely short-term borrowing by financial
institutions. Federal Reserve Bank of St. Louis, What the Libor-OIS Spread Says (May 11, 2009)
(online at research.stlouisfed.org/publications/es/09/ES0924.pdf).
288 Id.
289 LIBOR is calculated from the interbank borrowing rates of 16 contributor panel banks,
with the top four and bottom four of the rates discarded. The middle eight rates are then used
to calculate an average, which becomes the day’s LIBOR rate. The contributor panel banks are
selected by the Foreign Exchange and Money Markets committee on the basis of scale of activity
in the London market and perceived expertise in the currency concerned. British Bankers’ Association, Understanding BBA LIBOR: a briefing by the British Bankers’ Association, at 1 (May
27, 2010) (online at www.bbalibor.com/news-releases/understanding-bba-libor) (accessed Sept.
14, 2010); British Bankers’ Association, BBA LIBOR Panels (June 10, 2010) (online at
www.bbalibor.com/news-releases/bba-libor-panels1).
290 Bloomberg Financial.

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FIGURE 19: 3-MONTH LIBOR-OIS SPREAD 290

62
FIGURE 20: TED SPREAD BETWEEN 3-MONTH LIBOR AND 3-MONTH TREASURY BILL
YIELDS 291

Both spreads declined significantly from October 2008 to early
2009 and have generally leveled off and returned to rates maintained throughout the first half of the decade. The leveling trends
imply increased confidence in the credit risk of counterparties that
is correlated with, but not necessarily a consequence of, the government’s assistance.292 The slight uptick seen in both the 3-Month
LIBOR–OIS and TED spreads in 2010 mirrors the market uncertainty regarding the European financial crisis.
Delinquency rates are currently at a ten-year high across all loan
types. For loans secured by real estate, both single-family residenFinancial.
292 The Federal Reserve introduced the Term Auction Facility (TAF) as a means for banks to
borrow from the Federal Reserve without using the discount window, with the specific purpose
of providing liquidity directly to financial institutions to improve money market functioning and
drive down the spread on term lending relative to overnight loans. Various studies have been
performed to determine TAF’s effect on credit spreads, with differing outcomes. In their analysis
of the Federal Reserve’s policy responses to the jump in interest rate spreads, John Taylor and
John Williams found that increased counterparty risk contributed to the increase in interest
rate spreads but that the government’s policy responses, specifically the TAF, did not have a
significant impact on spread reduction. Taylor and Williams used a no-arbitrage model of the
term structure of interest rates, building in expectations of future short-term rates and risk factors drawn from derivative securities markets before and after the financial crisis, to test the
hypothesis that the spread should be related to expectations of future overnight rates and to
counterparty risk with no impact from liquidity demands. Their results showed this hypothesis
to be true, although it also highlighted the need for formal treatment of liquidity effects in future research, and has implications on future policy decisions in times of widening interest rate
spreads. See John B. Taylor and John C. Williams, A Black Swan in the Money Market, American Economic Journal: Macroeconomics, Vol. 1, No. 1 (Jan. 2009) (hereinafter ‘‘A Black Swan
in the Money Market’’). On the other hand, Jens Christensen, Jose Lopez, and Glenn Rudebusch
used a six-factor arbitrage free model of U.S. Treasury yields, financial corporate bond yields,
and term interbank rates to assess the effect of central bank liquidity facilities on LIBOR. Their
model allowed them to account for fluctuations in the term structure of credit and liquidity risk.
They found that the TAF and other liquidity facilities did impact interbank lending rates and
that, through their testing of a counterfactual scenario with no central bank liquidity facilities,
without the liquidity facilities, the three-month LIBOR rate (and thus, credit spreads) would
have been higher. See Jens Christensen, Jose Lopez, and Glenn Rudebusch, Do Central Bank
Liquidity Facilities Affect Interbank Lending Rates?, Federal Reserve Bank of San Francisco
Working Paper, No. 2009–13 (June 2009) (online at www.frbsf.org/publications/economics/papers/2009/wp09-13bk.pdf). Other academic researchers have also looked into the effect of TAF
on LIBOR using similar methods to Taylor-Williams with slight variations and have also found
that TAF had a significant impact. See James McAndrews, Asani Sarkar, and Zhenyu Wang,
The Effect of the Term Auction Facility on the London Inter-bank Offered Rate, Federal Reserve
Bank of New York Staff Report, No. 335 (July 2008) (online at www.newyorkfed.org/research/
staff._reports/sr335.pdf).

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291 Bloomberg

63
tial and commercial, delinquency rates have increased the most
dramatically since 2006, despite three million foreclosures since
2007.293 While commercial real estate loan delinquencies have leveled off a bit in recent quarters, those for single-family real estate
loans continue trending upward. Conversely, delinquency rates on
consumer294 and credit card loans have decreased 0.67 and 1.74
percentage points, respectively, from the second quarter of 2009 to
the second quarter of 2010.
FIGURE 21: DELINQUENCY RATES BY LOAN TYPE (2000–SECOND QUARTER OF 2010) 295

293 HOPE NOW Statistics (July 2007 to Apr. 2009), supra note 270; HOPE NOW Statistics
(Dec. 2008 to July 2010), supra note 202.
294 Consumer loans includes most short- and intermediate-term loans extended to individuals,
excluding loans secured by real estate. Loans for automobiles, mobile homes, education, boats,
trailers, and vacations are included in this category, although for the purposes of Figure 21, the
Federal Reserve’s category of ‘‘other consumer loans’’ is excluded. Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: G19 Consumer Credit (Aug. 6, 2010)
(online at www.federalreserve.gov/releases/g19/Current/) (accessed Sept. 2, 2010).
295 For the purposes of this graph and related text, delinquent loans and leases are those past
due 30 days or more and still accruing interest as well as those in nonaccrual status. Board
of Governors of the Federal Reserve System, Data Download Program: Delinquency Rates/All
Banks (online at www.federalreserve.gov/datadownload/Choose.aspx?rel=CHGDEL) (accessed
Aug. 20, 2010).
296 According to the most recent senior loan officer survey conducted by Federal Reserve, a
fraction of respondents from large banks noted their lending standards and terms have eased
on prime residential mortgage loans and consumer loans (other than credit card). As standards
ease and credit becomes more available, changes in delinquency rates will continue to be an important metric. July 2010 Senior Loan Officer Opinion Survey, supra note 29, at 3–4.
297 August 2009 Oversight Report, supra note 6.

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These data suggest that loans secured by real estate continue to
comprise the bulk of problem loans at financial institutions. The
overall increase in delinquency rates highlights the continuing
strain that financial institutions face through losses and write-offs
on their loan portfolios.296 As noted in the Panel’s August 2009 report, valuing the exact amount of troubled assets remaining is very
difficult due to the lack of an agreed-upon definition of ‘‘troubled
asset,’’ the need to rely upon future projections of losses, and the
fact that it is difficult to assemble the information required for
valuation from publicly-available data. The inability to value these
troubled assets, in turn, makes it difficult to assess fully the health
of the financial sector.297

64
Mortgage-backed securities have been the source of significant
losses to financial institutions. As shown in Figure 22, non-agency
mortgage-backed securities, meaning those not secured by one of
the government sponsored enterprises (GSEs), reached a height of
$2.4 trillion outstanding in 2007, and then fell 36 percent to $1.5
trillion outstanding in 2010. This reflects both lower demand, as
the appetite for these securities has fallen dramatically, and lower
supply, as fewer non-agency loans are being underwritten and
securitized. Figure 22 also suggests that the volume of troubled
real-estate assets held by financial institutions has correspondingly
decreased.
FIGURE 22: MORTGAGE-BACKED SECURITIES OUTSTANDING, BY SECTOR 298

298 JPMorgan,

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Total underwritings per month, as shown in Figure 23 below, reflect both the debt and equity raised by corporations in the public
markets. While extremely volatile, underwritings have generally
been on an upward swing since 2008. Notably, initial public offerings have increased from a low of 11 deals in 2008 to 26 in 2009,
which suggests an increasing appetite for risk in the public markets. The successful completion of these deals represents increased
demand in public markets for new issues of debt and equity, thereby reflecting a more efficient allocation of funds from investor to
borrower in the capital markets.

65
FIGURE 23: TOTAL UNDERWRITINGS PER MONTH (DEBT AND EQUITY) 299

299 Securities Industry and Financial Markets Association, U.S. Key Stats (Instrument: U.S.
Corporate Issuance, ‘‘Total Underwritings’’) (online at www.sifma.org/uploadedFiles/Research/
Statistics/SIFMA_USKeyStats.xls) (accessed Sept. 14, 2010). Monthly data prior to January
2009 was provided by SIFMA staff in response to Panel request.

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Total loans at commercial banks increased from $3.5 trillion in
January 2000 to a height of $7.3 trillion in October 2008, an increase of 111 percent. While outstanding loans decreased during
the financial crisis, they jumped to nearly $7.0 billion in March,
and the current trend suggests that they have begun to level off.
Real estate loans drove the sharp increase in total loans from 2000
to 2008, although they have decreased slightly in recent years.
Consumer loans also increased to a lesser magnitude and, despite
a slight dip in late 2009, have grown to their highest level of the
decade. Commercial and industrial (C&I) loans dropped by 25 percent since 2006 and have since not returned to earlier levels. As
the data include both new and previously issued loans, they do not
provide much detail to improve our understanding of bank lending
activity.

66
FIGURE 24: TOTAL COMMERCIAL BANK LOANS, BY TYPE, SEASONALLY ADJUSTED 300

300 Board of Governors of the Federal Reserve System, Data Download Program: H.8 Assets
and Liabilities of Commercial Banks in the United States: All Commercial Banks, SA (online
at www.federalreserve.gov/datadownload/Choose.aspx?rel=H.8) (accessed Aug. 30, 2010).
301 July 2010 Oversight Report, supra note 23, at 91–93.

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Since 2007, bank failures have increased dramatically after almost two decades at very low failure rates. It is helpful to view annual bank failures as a percentage of total banks in order to understand the relative impact of the failures on the financial sector. As
noted in Figure 25 below, bank failures as a percentage of total
banks have not reached the levels seen in the early 1990s, but they
have dramatically increased from the 16-year span prior to 2009,
when there were a negligible number of failures. The number of
failures from January–July 2010 has nearly reached the level for
all of 2009.301

67
FIGURE 25: BANK FAILURES AS A PERCENTAGE OF TOTAL BANKS AND BANK FAILURES
BY TOTAL ASSETS (1990–2010) 302

As noted in Figure 25 above, in recent years, the number of
failed banks has increased, while the total assets of failed banks
have decreased. The disparity between the number of and total assets of failed banks in 2008 is driven primarily by the failure of
Washington Mutual Bank, which held $307 billion in assets. The
composition of failing institutions in 2009 and 2010, however, is
small and medium-sized banks; while they are failing in high numbers, their aggregate total assets are relatively modest. In fact, although the number of failed banks in 2010 as of August 20, 2010,
is 84 percent of that in all of 2009, the total assets of failed banks
as of the same date are only 48 percent of the total assets of failed
banks in 2009. This suggests that the average size of failed banks
has decreased.
As was discussed in the Panel’s July 2010 report, these small
and medium-sized banks have greater exposures to commercial real
estate loans, especially those of lower credit quality, due to larger
banks’ ability to often provide better loan terms and attract borrowers with greater credit quality. In an economic cycle in which
retail businesses face slumping sales and construction projects are
put on hold, smaller institutions have suffered from higher commercial real estate delinquencies.

302 The 2010 year-to-date percentage of bank failures includes failures through July. The total
number of FDIC-insured institutions as of March 31, 2010 is 7,932 commercial banks and savings institutions. As of August 20, 2010, there have been 118 failed institutions. Federal Deposit
Insurance Corporation, Failures and Assistance Transactions (online at www2.fdic.gov/hsob/
SelectRpt.asp?EntryTyp=30) (accessed Aug. 25, 2010). Asset totals adjusted for deflation into
2005 dollars using the GDP implicit price deflator. The quarterly values were averaged into a
yearly value. U.S. Department of Commerce, Bureau of Economic Analysis, Gross Domestic
Product: Implicit Price Deflator (online at research.stlouisfed.org/fred2/data/GDPDEF.txt)
(accessed Sept. 14, 2010).

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d. ‘‘Too-Big-To-Fail’’ Banks
Upon enactment of EESA in October 2008, Treasury used the
TARP to make capital injections of $115 billion in the eight largest
banks in the country. An important aspect of assessing the impact
of the TARP is to analyze the financial condition of those same in-

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stitutions today, almost two years later. In addition to reviewing financial data, the Panel has also solicited the views of several research analysts who follow large capital banks.
In May 2009, the Federal Reserve published the results of a onetime analysis of the balance sheets of the 19 largest U.S. financial
institutions, including all of the initial eight TARP recipients,
which it undertook in the preceding weeks in an exercise called the
Supervisory Capital Assessment Program, or ‘‘stress tests.’’ This exercise assessed banks’ strength in the face of certain adverse economic scenarios. Under the more adverse scenario, the results suggested that the stress-tested banks would lose nearly $600 billion
during 2009 and 2010.303
As Figure 26 below shows, while losses by the stress-tested
banks were considerable during the height of the crisis, their net
income has since improved significantly. From the first quarter of
2009 to the second quarter of 2010, the 18 stress-tested banks that
received TARP funds have earned $77.3 billion.304 Since the end of
2008, the stress-tested banks have dramatically outperformed all
other commercial banks. During the fourth quarter of 2008, the
stress-tested firms had total net income of $10 billion, as did the
balance of all non-stress tested banks. By comparison, during the
second quarter of 2010, the stress-tested firms earned $17 billion
in net income while all other banks earned only $3 billion.
The government took a number of steps to assure market participants that the stress-tested institutions would be secure. Beyond
the TARP investments in 18 of the 19 stress-tested banks, the Capital Assistance Program (CAP) was created as a mechanism to provide additional assistance to the stress-tested institutions. While
the CAP was never used and no funds were disbursed, the stress
tests signaled an implicit government guarantee of these institutions.
This market perception is evidenced by the long-term credit ratings of the stress-tested banks, which experienced an average
downgrade of only two notches from the beginning of 2007 to the
second quarter of 2010. More specifically, Standard & Poor’s, in a
report issued in May 2010, outlined the ratings impact of government support on four of the largest stress-tested institutions. The
report stated that the credit ratings of Bank of America, Citigroup,
and Morgan Stanley were three notches higher than they would
have been without government support and Goldman Sachs was
two notches higher. These four institutions, the report noted, were
the only ones that S&P believes ‘‘have the potential for government
support above and beyond system-wide programs.’’ 305

303 Board of Governors of the Federal Reserve System, The Supervisory Capital Assessment
Program: Overview of Results, at 3 (May 7, 2009) (online at www.federalreserve.gov/newsevents/
press/bcreg/bcreg20090507a1.pdf).
304 This figure excludes MetLife, which was part of the SCAP but did not receive TARP funds,
and includes GMAC, which received TARP funds under the AIFP. The other 17 stress-tested
banks received funds through the CPP and, in two cases, the TIP.
305 Standard & Poor’s, Evaluating The Impact of Far-Reaching U.S. Financial Regulatory Reform Legislation on U.S. Bank Ratings (May 25, 2010); Panel staff conversation with S&P staff
on September 15, 2010.

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69
FIGURE 26: STANDARD & POOR’S LONG-TERM CREDIT RATING OF STRESS-TESTED BANKS 306
Q1 2007

American Express Company ..................................................................
American International Group, Inc. .......................................................
Bank of America Corporation ................................................................
Bank of New York Mellon Corporation ..................................................
BB&T Corporation ..................................................................................
Capital One Financial Corporation ........................................................
Citigroup Inc. .........................................................................................
GMAC/Ally ...............................................................................................
Goldman Sachs Group, Inc. ...................................................................
JPMorgan Chase & Co. ..........................................................................
KeyCorp ..................................................................................................
MetLife, Inc. ...........................................................................................
Morgan Stanley ......................................................................................
PNC Financial Services Group, Inc. .......................................................
Regions Financial Corporation ..............................................................
State Street Corporation ........................................................................
SunTrust Banks, Inc. .............................................................................
U.S. Bancorp ..........................................................................................
Wells Fargo & Company ........................................................................

A+
AA
AA
A+
A+
BBB+
AA
BB+
AA¥
AA¥
A¥
A
A+
A
A
AA¥
A+
AA
AA+

Q3 2008

A
A¥
A+
AA¥
A+
BBB+
A
B¥
AA¥
A+
A¥
A
A
A+
A
AA¥
A+
AA
AA

Q2 2010

BBB+
A¥
A
AA¥
A
BBB
A
B
A
A+
BBB+
A¥
A
A
BBB¥
A+
BBB
A+
AA¥

306 The Standard & Poor’s rating system is composed of the following hierarchy of grades: ‘‘AAA’’,‘‘AA’’,‘‘A’’, ‘‘BBB’’, ‘‘BB’’, ‘‘B’’, ‘‘CCC’’,
‘‘CC’’, ‘‘C’’, ‘‘D.’’ Furthermore, the system utilizes plus (+) and minus (¥) signs to reflect relative strength within each category. Standard &
Poor’s, Credit Ratings Definitions & FAQs (online at www.standardandpoors.com/ratings/definitions-and-faqs/en/us) (accessed Sept. 14, 2010).
SNL Financial. Standard & Poor’s long-term issuer credit rating for the company. S&P Ratings Copyright 2006, Standard & Poor’s, a division
of The McGraw-Hill Companies, Inc.

FIGURE 27: NET INCOME OF STRESS-TESTED BANKS AS COMPARED TO ALL
COMMERCIAL BANKS 307

307 SNL Financial. Stress-tested banks exclude MetLife, which was part of the SCAP, but did
not receive TARP funds.
308 As of Q2 2010, reserves as a percentage of loans in the U.S. banking industry are at their
second highest level (3.4 percent) since this data was first measured in 1948. Barclays Capital,
FDIC Banking Industry Charts: 1934-1H10 (Sept. 9, 2010).

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Furthermore, the investment analysts whom the Panel consulted
emphasized the historically high level of capital reserves being
maintained by the largest institutions.308 Tier 1 capital ratios,
which are calculated by dividing core capital by risk-adjusted as-

70
sets, are a measure of banks’ strength.309 As illustrated in Figure
27 above, the average Tier 1 capital ratio of the 18 stress-tested
banks that took TARP funds has increased dramatically. Since the
third quarter of 2008, the average Tier 1 capital ratio of these companies has increased from 8.6 percent to 12 percent during the second quarter of 2010.310
Another measure of the increasing capital is loan loss reserves.311 Since the first quarter of 2007, the average loan loss reserve ratio for the stress-tested banks has increased from 1.08 percent to 3.19 percent.
FIGURE 28: TIER 1 CAPITAL RATIO OF THE STRESS-TESTED BANKS 312

309 Core capital is a regulatory measure of a bank’s health that is primarily comprised of the
company’s common stock and disclosed reserves. The value of risk-adjusted assets is derived
from assigning a percentage risk value to an asset in order to better assess an institution’s actual risk profile.
310 SNL Financial.
311 SNL Financial. This indicator is defined as: Total Loan Loss and Allocated Transfer Risk
Reserves/Total Loans & Leases (Net of Unearned Income & Gross of Reserves).
312 SNL Financial. This ratio is defined as: Core capital/risk-adjusted assets (tier 1 ratio).
313 SNL Financial. Net interest margin is defined as a bank’s net interest income as a percentage of its average earning assets.

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For the same 18 banks, the net interest margin, an indicator of
a bank’s operating performance, has also increased since the height
of the crisis, though it remains below its levels from 2000–2005.313
The investment analysts whom the Panel consulted noted that the
current low interest rate environment has placed pressure on bank
spreads—the difference between the rate at which the institution
borrows and the rate at which it then lends—and has effectively
squeezed the firms’ profits. As shown in Figure 28 below, the measure has increased 11 percent since its trough in the second quarter
of 2009.

71
FIGURE 29: NET INTEREST MARGIN OF STRESS-TESTED BANKS 314

314 SNL Financial. This metric is defined as: Net interest income (fully taxable equivalent, if
available) as a percentage of average earning assets. (Annualized).
315 Jason Goldberg, Asset Quality Update, Barclays Capital (Aug. 26, 2010).

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Not all indicators of the strength of the nation’s largest banks
are positive. The nation’s largest banks have 32 percent of their
loan books exposed to the residential real estate market.315 Uncertainty in the real estate market remains a serious concern for these
banks. Figure 30 below shows the dollar value of the unpaid balances of residential loans in bankruptcy proceedings at the stresstested banks at the end of each quarter as compared to the chargeoffs. While the amount of unpaid principal balance on homes in
foreclosure has recently leveled off at $70 billion, the amount of
charge-offs taken by the large banks on residential mortgages in
the second quarter of 2010 decreased by 17 percent from the first
quarter of 2010. As Figure 30 highlights, however, nearly $97 billion in residential loans are at least 90 days past due as of the second quarter of 2010.

72
FIGURE 30: TOTAL UNPAID PRINCIPAL OF 1–4 FAMILY MORTGAGES IN FORECLOSURE
PROCEEDINGS AT STRESS TEST BANKS COMPARED TO CHARGE-OFFS ON 1–4 FAMILY
MORTGAGES 316

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316 SNL Financial. The unpaid principal figure is comprised of total unpaid principal balance
of loans secured by 1–4 family residential properties (in domestic offices) for which formal foreclosure proceedings to seize the real estate collateral have started and are ongoing as of quarterend, regardless of the date the foreclosure procedure was initiated. (Call Report Line
Item:RCONF577/RCONF577). The charge-off figure is comprised of the revolving and permanent
loans secured by real estate as evidenced by mortgages (FHA, FmHA, VA, or conventional) or
other liens secured by 1–4 family residential property charged off, for domestic offices only. It
includes liens on: nonfarm property containing 1–4 dwelling units or more than 4 dwelling units
if each is separated from other units by dividing walls that extend from ground to roof, mobile
homes where: (a) state laws define the purchase or holding of a mobile home as the purchase
of real property and where (b) the loan to purchase the mobile home is secured by that mobile
home as evidenced by a mortgage or other instrument on real property, individual condominium
dwelling units and loans secured by an interest in individual cooperative housing units, even
if in a building with 5 or more dwelling units, vacant lots in established single-family residential
sections or areas set aside primarily for 1–4 family homes, housekeeping dwellings with commercial units combined where use is primarily residential and where only 1–4 family dwelling
units are involved charged off.
317 SNL Financial.

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FIGURE 31: TOTAL REAL ESTATE LOANS 90+ DAYS PAST DUE AT STRESS-TESTED
BANKS 317

73
Furthermore, second liens remain a concern and are a particularly acute problem at the nation’s largest banks. As Figure 32
shows, 42 percent of second liens are held by the nation’s four largest banks: Bank of America, Wells Fargo, JPMorgan Chase, and
Citigroup.318 There is still a significant amount of risk associated
with these potentially under collateralized home equity loans.
FIGURE 32: TOTAL SECOND LIENS BY HOLDER (BILLIONS OF DOLLARS) 319

318 Second lien mortgages are carried as loans held for investment. This means that the carrying value of these loans consist of the outstanding principal balance net of unearned fees and
unamortized deferred fees. These loans are not accounted for under mark-to-market accounting.
Furthermore, while the four largest banks (Bank of America, JPMorgan Chase, Citigroup, Wells
Fargo) hold 42 percent of second liens, these loans represent a small proportion of the residential loans these banks hold on their loan books. As of the second quarter 2010, the average percentage of second liens that comprise the 1–4 family servicing book of these banks was 7.5 percent. Amherst Securities; Board of Governors of the Federal Reserve System, Flow of Funds Accounts of the United States (June 10, 2010) (online at www.federalreserve.gov/releases/z1/current/z1.pdf) (hereinafter ‘‘Flow of Funds Accounts of the United States’’).
319 Flow of Funds Accounts of the United States, supra note 318. The ‘‘Top 4 Commercial
Banks’’ bucket is comprised of Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup.
320 Information provided in industry analyst conversations with Panel staff between August
26 and August 30, 2010.

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Whether the largest recipients of TARP assistance are indeed
sound depends in substantial measure on their future earnings
prospects. The overall outlook remains uncertain as large firms attempt to navigate an unfavorable economic environment. In June
and July, trading volume and activity were low, and economic data
continued to decline.
Looking forward, one analyst consulted by the Panel observed
that significant growth in revenue will be difficult due to changes
in the regulatory environment, declines in medium- and long-term
interest rates, and weakening capital markets. Another analyst
saw volatility in earnings prospects as loan balances and loan loss
provisions decline.320 In the view of these analysts, and as illustrated in Figure 33 below, the large banks are still profitable, but
profits are not at the levels they once were. There are, however, opportunities for large banks to grow outside the United States.
These analysts believe that large U.S. banks that are well-positioned in emerging Asia and Europe will be able to realize high-

74
single-digit to low-double-digit growth through international capital
markets, whereas traditional banks can expect to see low single
digit growth at best.321
While there is widespread agreement among analysts that recent
regulatory changes and ongoing market weaknesses will adversely
affect certain segments of the stress-tested institutions’ profitability, analyst consensus estimates illustrate a belief that the
health of these firms will continue to improve in the coming years.
Estimates of earnings per share (EPS), GAAP net income, and returns on equity/assets from Wall Street research firms show a dramatic increase in these measures from 2009 to 2012.322
FIGURE 33: EARNINGS PER SHARE AND NET INCOME OF STRESS-TESTED BANKS 2009–
2012 323

321 Information provided in industry analyst conversations with Panel staff between August
26 and August 30, 2010.
322 Figure 33 reflects composites of investment analysts’ estimates for specific company
metrics. Each data point is comprised of between seven and nineteen analyst estimates, thereby
providing a wider array of thoughts and opinions rather than relying on only one analyst.
323 Bloomberg. The 2009 figures were the actual amounts (reflected by ‘‘A’’ following the year)
and the 2010–2012 figures are composite estimates (reflected by ‘‘E’’ following the year). This
analysis excludes GMAC (Ally Financial) which is a private company and, as such, analysts do
not publish earnings estimates.
324 See August 2009 Oversight Report, supra note 6, at 27 (‘‘the usefulness of public financial
records is limited, though, by a lack of uniformity in reporting and formatting and a lack of
granularity.’’).

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The Panel’s assessment of the current condition and future prospects of the large banks that were the initial beneficiaries of TARP
assistance must ultimately be qualified by the many lingering
questions concerning the accuracy and completeness of the financial data upon which we and analysts must rely. The TARP has
never fully addressed the issue of valuation of troubled loans remaining on the balance sheets of these institutions. Many of the
assets of these large banks continue to be recorded at values that
are not necessarily consistent across banks, due to differences in
mark-to-model valuations, or are not open to public verification,
due to the limitations of data contained in public financial disclosure documents.324 Consequently, the Panel is unable to say
whether the American taxpayer can rest assured that over the long

75
term these institutions have been fully restored to a financially
sound condition in the aftermath of their TARP capital injections
and repayment.
e. Automotive Sector Performance Metrics
Though the financial and housing sectors faced the most obvious
challenges posed by the financial crisis, the U.S. automotive industry faced a similar credit crunch and loss of sales. Treasury viewed
a major disruption to the automotive industry as a systemic risk
to financial market stability and as liable to have a negative impact on the economy.325 As such, Treasury established the AIFP to
provide relief to Chrysler, General Motors, Chrysler Financial, and
GMAC.326
Since the AIFP was implemented, the automotive industry has
begun to recover. Following a steep decline at the end of 2008, both
global sales and industrial production of automobiles have rebounded and stabilized. Total automotive and parts manufacturing
employment has stopped declining.
FIGURE 34: U.S. AUTO AND LIGHT TRUCK ASSEMBLIES (MILLIONS) AND MOTOR VEHICLE
AND PARTS EMPLOYMENT (THOUSANDS) 327

325 September 2009 Oversight Report, supra note 6, at 8.
326 U.S. Department of the Treasury, Automotive Industry Financing Program (Aug. 26, 2010)
(online at www.financialstability.gov/roadtostability/autoprogram.html).
327 Board of Governors of the Federal Reserve System, Data Download: G.17 Industrial Production and Capacity Utilization, Motor Vehicle Assembles (online at www.federalreserve.gov/
datadownload/Choose.aspx?rel=G.17) (accessed Sept. 14, 2010); Bureau of Labor Statistics, Current Employment Statistics Databases: Employment, Hours, and Earnings-National: All Employees: Durable Goods: Motor Vehicles and Parts (online at www.bls.gov/ces/data.htm) (accessed
Sept. 14, 2010).
328 Bankruptcy is considered a benefit because it allows a company to discharge its unsecured
debt and deal with certain pension obligations. For a more complete timeline of AIFP assistance,
as well as the GM and Chrysler bankruptcies, see September 2009 Oversight Report, supra note
6. The Cash for Clunkers program was signed into law on June 24, 2009 and began on July
27, 2009. National Highway Traffic Safety Administration, Transportation Secretary Ray
Continued

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It is important to note, however, that the automotive sector has
also benefited from many other factors besides the government’s investments, most notably, the Cash for Clunkers program and the
bankruptcies of GM and Chrysler.328

76
2. The TARP’s Effect on the Financial System
As described in section E.1, supra, there are metrics that can
provide a certain assessment of various sectors of the economy before and after the implementation of the TARP. While these yield
useful information, some of the challenges for oversight and evaluation lie in teasing out the results that can be directly attributed to
the implementation of a single program from other factors, and
comparing what actually occurred with what might have occurred
under a counterfactual scenario. In addressing these questions, the
Panel consulted with Professors Alan Blinder, Simon Johnson, Anil
Kashyap, and Kenneth Rogoff to elicit their views on the TARP,
particularly in the context of the Panel’s current evaluation. The
Panel asked these economists to provide broad guidance on, among
other things: the effectiveness of the TARP (as they believed ‘‘effectiveness’’ should be measured), particularly in comparison to other
government programs during the crisis; alternatives to the TARP
and ways in which the TARP could have been better implemented
or designed; negative effects from the TARP; and implications of
the TARP for the future. While differing on numerous points, the
economists generally agreed that the TARP was both necessary to
stabilize the financial system and that its implementation had been
flawed in some significant ways and could pose significant costs far
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a. Isolating the TARP
A predicate to determining the effectiveness of the TARP is isolating the effects of the TARP alone from other influences on the
economy. The economists differed on whether the effect of the
TARP could ever be isolated. Both Professors Kashyap and Rogoff
stated that they did not believe that it is possible to determine the
effectiveness of the TARP, by itself, on the health of the entire U.S.
economy.329 Professor Kashyap noted that ‘‘figuring out the contribution of TARP in isolation is not really possible’’ because ‘‘TARP
by itself would not have been sufficient [to] stave off a
disaster[.]’’ 330 Professors Blinder and Johnson, however, expressed
a belief that it is possible to isolate at least certain effects of the
TARP. Professor Blinder suggested that the fact that risk spreads
rose sharply before the TARP was enacted and fell sharply afterward is ‘‘highly suggestive that the TARP spread a security blanket
across the financial markets.’’ 331 Professor Johnson suggested that
the TARP be viewed in light of three main goals for a government
facing a major financial crisis: (1) stabilizing the banking system;
(2) preventing the overall level of spending from collapsing; and (3)
laying the groundwork for a sustainable recovery.332
LaHood Kicks-Off CARS Program, Encourages Consumers to Buy More Fuel Efficient Cars and
Trucks (July 27, 2009) (online at www.cars.gov/files/official-information/July27PR.pdf).
329 Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010); Kenneth Rogoff, Written Answers to Questions Posed by the Congressional Oversight Panel (Aug. 2010).
330 Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
331 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
332 Simon Johnson, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).

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To the extent that Treasury itself has articulated a metric by
which to measure TARP’s success, that metric has generally been
the response to the question: will the taxpayers get their money
back.333 While it is true that EESA mandates that any program
undertaken by Treasury under the Act ‘‘maximize[ ] overall returns
to the taxpayers of the United States’’ 334 repayment does not provide a complete picture of either the success of TARP or its cost.
Professor Rogoff has noted that a proper cost benefit analysis
‘‘needs to price the risk the taxpayer took on during financial crisis.
Ex post accounting (how much did the government actually earn or
lose after the fact) can yield an extremely misguided measure of
the true cost of the bailout, especially as a guide to future policy
responses.’’ 335 Therefore the simple question of whether the program ends with a negative or positive balance does not provide a
complete answer to whether the program was necessary, or properly designed and implemented.

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b. Necessity for and Effectiveness of the TARP
Despite the difficulty some of them found in ascribing particular
effects to the TARP, the Panel’s experts were consistent in their
view that even if mismanaged in many ways, TARP was the right
thing to do. Professor Kashyap noted that the Federal Reserve did
not have enough options to handle the crisis without the tools provided by the TARP, while Professor Johnson similarly stated that
the TARP was the right thing to do. Professor Blinder observed
that ‘‘laissez faire would have been catastrophic,’’ 336 while Professor Rogoff stated that the bailout policy must be given credit for
averting the second great depression that might otherwise have occurred.337 While expressing some concerns, Professor Kashyap said,
considering all of the policies aimed at preventing a complete collapse of the financial system, ‘‘the package worked.’’ 338 Professor
Blinder has said that ‘‘regarding stabilizing institutions like AIG,
one has to count TARP as a huge success.’’ 339
The TARP was enacted amidst enormous market turmoil. After
Lehman Brothers’ failure, major Wall Street players Goldman
Sachs and Morgan Stanley saw their stock prices fall 30 percent
and nearly 42 percent, respectively, in the week following the an333 In an opinion piece for The New York Times titled ‘‘Welcome to the Recovery,’’ Secretary
Geithner wrote that ‘‘[t]he government’s investment in banks has already earned more than $20
billion in profits for taxpayers, and the TARP program will be out of business earlier than expected—and costing nearly a quarter of a trillion dollars less than projected last year.’’ Timothy
F. Geithner, Welcome to the Recovery, New York Times (Aug. 2, 2010) (online at
www.nytimes.com/2010/08/03/opinion/03geithner.html?—r=2&dbk). See also U.S. Department of
the Treasury, Treasury Department Announces TARP Milestone: Repayments to Taxpayers Surpass TARP Funds Outstanding (June 11, 2010) (online at financialstability.gov/latest/pr—
06112010.html) (quoting Assistant Secretary Herbert Allison as saying that ‘‘TARP repayments
have continued to exceed expectations, substantially reducing the projected cost of this program
to taxpayers. . . . This milestone is further evidence that TARP is achieving its intended objectives: stabilizing our financial system and laying the groundwork for economic recovery.’’).
334 12 U.S.C. § 5201(2)(C).
335 Kenneth Rogoff, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010).
336 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
337 Kenneth Rogoff, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010).
338 Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
339 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).

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nouncement. In the week immediately following the passage of
TARP, the S&P500 index fell by more than 18 percent. The TED
Spread spiked 177 points, rising from about 136 points on September 12, 2008, to 313 points by September 18, 2008.
The rapid collapse or disappearance of Lehman Brothers, AIG,
Merrill Lynch, Fannie Mae and Freddie Mac over a period of days
fed an environment where both firms and investors lost confidence
in the solvency of financial institutions broadly. There was clearly
a significant threat of a freeze in global credit markets, with banks
refusing to lend to each other or demanding high premiums, as
measured by the rising TED spreads.
Following the initial CPP investments and the implicit government guarantee associated with those investments, interbank credit markets became more liquid and markets began to differentiate
more clearly among stronger and weaker institutions. Citigroup
and Bank of America received additional assistance through the
TIP, and Citigroup also received a government guarantee through
participation in the AGP.
Ultimately, TARP’s provision of government liquidity and implicit guarantees, together with actions by the Federal Reserve and
the other bank regulators both stopped the broader market panic
in early October 2008, and kept almost all of the nation’s major financial institutions as of the date of the passage of the EESA from
bankruptcy. The only major post-EESA financial bankruptcy was
that of the CIT Group.340 In February 2009, Treasury unveiled the
Administration’s financial stability plan, which included plans to
perform an assessment or ‘‘stress test’’ of the nation’s largest financial institutions with an underlying promise to provide adequate
capital to ensure that none of the tested banks would fail.341 By
summer 2009, there was a consensus that the acute financial crisis
had passed. Economic recovery, however, including financial sector
recovery, is far from complete, and many Americans are still struggling as they face long term unemployment, mortgage foreclosures,
and other fall-out from the late 2008 crash.342

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3. Costs of the TARP: Moral Hazard and Stigma
Even while saying that TARP ‘‘worked’’, the economists that the
Panel consulted did not state that all exercises of the TARP were
positive. The unquantifiable and immeasurable effects are not a
one-way ratchet in favor government intervention. The TARP distorted the market at the same time as it stabilized it, and many
of the costs of this distortion will likely occur in the future. Although it is difficult to determine what the long-term consequences
of the TARP will be, it is clear that the TARP has introduced some
effects that might have been averted had the TARP either not been
340 CIT announced that it would file a pre-packaged bankruptcy plan on November 1, 2009.
CIT Group, CIT Board of Directors Approves Proceeding with Prepackaged Plan of Reorganization with Overwhelming Support of Debtholders (Nov. 1, 2009) (online at cit.com/media-room/
press-releases/corporate-news/index.htm).
341 Congressional Oversight Panel, June Oversight Report: Stress-Testing and Shoring Up
Bank Capital (June 9, 2009) (online at cop.senate.gov/documents/cop–060909–report.pdf).
342 See, e.g., Board of Governors of the Federal Reserve System, Summary of Commentary on
Current Economic Conditions By Federal Reserve District, at 4 (Aug. 2009) (online at
www.federalreserve.gov/FOMC/Beigebook/2009/20090909/fullreport20090909.pdf) (noting that all
districts reported ‘‘that economic activity continued to stabilize in July and August’’).

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created or been implemented differently. Many of these effects will
not be quantifiable until many years down the road.

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a. Poor Implementation and Stigma
Some of the decisions Treasury made in designing and implementing the TARP have increased the stigma that currently dogs
the program. Professor Johnson and Professor Kashyap both said
that the October 2008 change in TARP strategy from asset purchases to capital injections, followed by the 2009 rollout of numerous seemingly unconnected programs, combined with largely ineffective communication of the reasoning behind these actions,
spread confusion in the public and undermined trust in the
TARP.343 Professor Kashyap described the difficulties with Treasury’s reversal of direction from its original September 2008 plan to
purchase troubled assets to, one month later, capital injections, and
argued that ‘‘buying toxic assets never made sense and the fact
that the government could not explain how this was going to help
with the crisis was a tell-tale sign that this idea was flawed.’’ 344
While Professor Blinder argued that Treasury could have proceeded with its original plan of purchasing troubled assets from the
banks rather than, or in addition to, providing those banks with
capital infusions,345 he also said that Treasury made numerous tactical errors in implementing the TARP. These include ‘‘forcing capital on banks that did not want it,’’ giving terms to TARP recipients that were too generous, and not requiring that recipient institutions forgo paying dividends but increase lending as a quid pro
quo for receiving government assistance. Additionally, Professor
Johnson has expressed significant concern with the inequity of various TARP actions, suggesting that some actions were motivated by
favoritism towards politically connected groups,346 and that the
program has rewarded failure, and provided a certain amount of
artificial support to the financial system. Concerns such as these
may have stoked hostility towards the program. Even though Main
Street generally benefits from a well-functioning financial system,
the hostility towards the program is potentially exacerbated by the
TARP’s comparatively languid approach to addressing issues that
have a greater direct effect on Main Street, such as small business
lending and foreclosures.
The TARP’s image has been further damaged by its prominence.
The TARP was only the most visible portion of a number of government policy responses to the financial crisis, most notably the far
larger Federal Reserve liquidity operations and guarantees. As Professor Rogoff observed, ‘‘[t]hese subsidies, however, were less transparent, and of course TARP funds covered some of the ugliest and
343 Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010); Simon Johnson, Written Answers to Questions Posed by the Congressional Oversight Panel (Aug. 2010).
344 Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
345 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010). See also August 2009 Oversight Report, supra note 6, at 9 (discussing differences
between capital infusions and purchases of troubled assets).
346 Simon Johnson, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).

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most painful parts of the bailout, including, for example, AIG.’’ 347
Considering the myriad sources of resentment towards the TARP
and the intensity of the stigma that has developed, it is not surprising that many observers believe as Professor Blinder does, that
‘‘in the near term, the extreme unpopularity of TARP will make it
hard to do anything even remotely like it again, should the need
arise.’’ 348 Some of these effects are already apparent. Treasury
hoped, for example, that the CPP would attract 2,000 to 3,000 participant banks: the result was a comparatively disappointing 707,
and some of the unpopularity of the program has been attributed
to the stigma that became attached to the TARP.349 Similarly, the
pending SBLF legislation was deliberately created outside of the
TARP because the stigma associated with the TARP led Treasury
to be concerned that participation in another TARP program would
be too low.350 Professor Johnson stated that one result is that the
current recovery strategy has produced a stalemate between the
Administration’s reluctance to dictate terms to the banks (out of a
concern that such an approach will be viewed as an attempt at nationalization) and ‘‘bailout fatigue,’’ among the public and Congress, which ‘‘has made it impossible for the administration to propose a solution that is too generous to banks, or that requires new
money from Congress.’’ 351

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b. Moral Hazard
Commentators on the TARP, including the Panel’s experts, are
almost universally concerned with the costs of the interventions,
particularly the moral hazard it created in the financial system.
After all, the government had alternatives for the form of its intervention. For example, as an alternative to subsidizing large, distressed banks, it had the option of putting them into liquidation or
receivership, removing failed managers, and wiping out existing
shareholders.352 Such a strategy has been used successfully in past
banking crises, as noted by Professor Johnson, such as the South
Korean crisis of 1997, or in the U.S. Savings and Loan Crisis of the
early 1990s. The failure to follow this more aggressive course was
criticized by Professor Johnson, who argued that unlimited government support must be accompanied by orderly resolution for troubled large institutions and rigorous governance reform to ensure
347 Kenneth Rogoff, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010).
348 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
349 Financial Crisis Inquiry Commission, Testimony of Henry M. Paulson, Jr., former secretary, U.S. Department of the Treasury, The Shadow Banking System, at 70 (Mar. 6, 2010)
(online at www.fcic.gov/hearings/pdfs/2010–0506–Transcript.pdf) (Then-Secretary Paulson testifying that the CPP was designed to have ‘‘two or three thousand banks’’ hold the CPP for ‘‘three
to five years’’); Transcript: COP Hearing with Secretary Geithner, supra note 225, at 40; May
2010 Oversight Report, supra note 6, at 68–72; House Financial Services, Subcommittee on Financial Institutions and Consumer Credit, Written Testimony of David N. Miller, acting chief
investment officer, Office of Financial Stability, U.S. Department of the Treasury, The Condition
of Financial Institutions: Examining the Failure and Seizure of an American Bank, at 1 (Jan.
21,
2010)
(online
at
www.house.gov/apps/list/hearing/financialsvcs_dem/miller_house_testimony_final_1-21-10_5pm.pdf).
350 Transcript: COP Hearing with Secretary Geithner, supra note 200, at 84.
351 Simon Johnson, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
352 Congressional Oversight Panel, April Oversight Report: Assessing Treasury’s Strategy: Six
Months of TARP, at 78–79 (Apr. 7, 2009) (online at cop.senate.gov/documents/cop-040709-report.pdf) (hereinafter ‘‘April 2009 Oversight Report’’).

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that short-term stability does not come at the cost of sustainable
recovery.353 Professor Blinder also argued that tougher conditions
on banks receiving assistance, such as lending targets or banning
dividends would have made TARP more effective and given it more
political legitimacy.354 Professor Rogoff noted that the TARP nationalized the liabilities of the banks while protecting equity holders and even junior bond holders.355 Similarly, the structure of the
AIG rescue—in which counterparties received full payment while
taxpayers continue to face a significant loss—has shaken public
confidence and created a substantial moral hazard.356
One of the most significant arenas in which commentators, including the Panel’s experts, debate moral hazard is in the discussion of those entities that are ‘‘too big to fail’’ and the effect of such
entities on the financial system generally. Those banks considered
to be ‘‘too big to fail’’ enjoy an implicit guarantee backed by the
U.S. government, giving them an advantage in attracting business
and financing, and potentially making them even larger and more
interconnected than ever.357 In his written testimony before the
House Financial Services Subcommittee on Oversight and Investigations, Thomas Hoenig, the president and chief executive officer
of the Federal Reserve Bank of Kansas City, recently warned of
just this effect. ‘‘Because the market perceived the largest banks as
being too big to fail,’’ he noted, ‘‘they have had the advantage of
running their business with a much greater level of leverage and
a consistently lower cost of capital and debt.’’ He also described the
challenges small banks will face going forward, including higher
regulatory compliance costs, as well as higher costs of capital and
of deposits, as long as some banks are perceived to be too big to
fail.358 Professor Rogoff echoed this in noting to the Panel that the
smaller banks, which are not considered to be ‘‘too big to fail,’’ and
those which followed more conservative lending policies, are now at
a huge disadvantage in raising funding compared to their more
risk-tolerant but larger competitors.359 The TARP has therefore
created a ‘‘perverse incentive’’ for large banks to disregard risk,
since when it comes to their all-important cost of capital, the markets will no longer penalize them for recklessness or shortsightedness in lending, nor will they reward responsibility or prudence.
Professor Johnson made a similar observation, stating that FDICtype liquidation procedures were applied to small and medium
banks, but not to large banks, sending confusing messages, while
providing those large banks with an incentive to take excessive
353 Simon Johnson, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
354 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
355 Kenneth Rogoff, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010).
356 June 2010 Oversight Report, supra note 21, at 10.
357 See Figure 26, supra.
358 House Financial Services, Subcommittee on Oversight and Investigations, Written Testimony of Thomas M. Hoenig, president and chief executive officer, Federal Reserve Bank of Kansas City, Too Big Has Failed: Learning from Midwest Banks and Credit Unions, at 4 (Aug. 23,
2010) (online at www.kansascityfed.org/speechbio/hoenigpdf/hearing-testimony-8-23-10.pdf).
359 Kenneth Rogoff, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010).

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risk.360 Additionally, the 2009 bank stress tests have been interpreted by multiple economists the Panel has spoken with as reinforcing the implicit guarantees of ‘‘too-big-to-fail’’ banks.361 Even
the structure of the CPP reinforced this disparity, as noted by Professor Kashyap when he criticized Treasury’s willingness to inject
capital into banks without first gaining a clear idea of their solvency.362 This trend is reflected in the data presented in section
E.1, supra, which shows that the largest 19 banks appear to be on
a swifter path toward recovery than their competitors. The economists contacted by the Panel generally agree, however, that some
of the moral hazard costs of the TARP were largely unavoidable.
Professors Blinder and Kashyap have suggested that the solution
may lie in stronger ‘‘resolution authority,’’ whereby the government
could close down systemically significant, insolvent financial institutions in an orderly manner that minimizes impacts on markets
or the financial system, instead of bailing them out.363 The degree
to which any resolution authority reduces perverse incentives and
thus moral hazard will depend on how seriously market participants take the threat that the authority will be used, and insolvent
‘‘too-big-to-fail’’ banks will be liquidated. Since the TARP has set a
precedent for bailouts, and was justified using arguments that
would likely apply in future crises, Professor Blinder has noted
that resolution authority will likely have to be used in a prominent
example before it is taken seriously enough for bankers and investors to change their behavior.364 Professor Kashyap and others
have suggested that absent such credible resolution authority, the
TARP’s legacy may actually be to make similar financial crises
more likely in the future.365
Some additional costs lie in distorted pricing: the government
paid more than par value for some of its rescue efforts,366 and as
Professor Blinder noted, the government gave the banks better
terms than Warren Buffett did. As discussed above, Professor
Rogoff finds that the cost of the bailout has been improperly analyzed.367 He holds that a ‘‘proper cost-benefit analysis needs to
price the risk the taxpayer took on during financial crisis.’’ In his
view, if there had been a major geo-political crisis while the banking system was fragile and underpinned by the government, the
cost to the taxpayer of the various implicit and explicit guarantees
could have been enormous.
360 Simon Johnson, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
361 Simon Johnson, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010); Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010).
362 Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
363 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010); Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010).
364 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
365 Anil Kashyap, Written Answers to Questions Posed by the Congressional Oversight Panel
(Aug. 2010).
366 Congressional Oversight Panel, February Oversight Report: Valuing Treasury’s Acquisitions, at 4 (Feb. 6, 2009) (online at cop.senate.gov/documents/cop-020609-report.pdf).
367 Kenneth Rogoff, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010).

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4. Other Potential Near and Long-Term Costs of the TARP

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Beyond the costs described above, however, are several that remain unknown and may ultimately prove unknowable. While it
will never be possible to say definitively what would have happened absent the TARP, and it is too soon to say what the TARP’s
long-term ramifications will be, it may be possible to highlight a
few potential effects, although even such an endeavor is largely
speculative. Moreover, there have not been thus far comprehensive,
statistical analyses of the impact of the TARP on the U.S. economy
or on how, if at all, the TARP contributed to ending the financial
crisis.368
While there has been no active TARP program dedicated to the
purchase of troubled assets,369 a major initiative of the Federal Reserve appears to have facilitated the reduction in mortgage assets
held by large TARP-assisted institutions. During the period December 2008 through March 2010, the Federal Reserve purchased over
$1.2 trillion face value of mortgage-backed securities (MBS) 370
guaranteed by Fannie Mae, Freddie Mac (the government sponsored enterprises, or GSEs), and Ginnie Mae, and purchased nearly
$175 billion face value of federal agency debt securities.371 While
the Federal Reserve used investment managers to obtain the best
possible competitive bids on the specified amounts of mortgagebacked securities they were offering to buy, there can be no doubt
that this massive intervention in the marketplace served to drive
up prices and reduce yields on MBS—indeed that was their deliberate intention. Consequently, at least for the period during which
the Federal Reserve was active in the MBS market, all holders of
MBS—including TARP-assisted banks—received higher prices for
these securities than would otherwise have been the case.
TARP-assisted institutions were also among the many beneficiaries of the federal government’s rescue of the GSEs themselves.
Given the large holding of GSE securities at the largest TARP-assisted institutions, the federal government’s rescue of Fannie Mae
and Freddie Mac effectively served to prevent major losses at these
institutions. As a result of the federal government’s intervention to
place Fannie Mae and Freddie Mac in conservatorship in September 2008, their mortgage-backed securities and debt issues now
enjoy the effective guarantee of the federal government.372
368 John Taylor and John Williams’ January 2009 paper, for example, examining the Federal
Reserve’s Term Auction Facility (TAF) illustrates the kind of analysis needed to assess the government’s response to the crisis. A Black Swan in the Money Market, supra note 292. This article, however, examines only one small program and is now more than a year and a half old.
If more researchers elected to perform such detailed analysis of the TARP, it would become
much easier to evaluate the efficacy of the program.
369 When it was announced, the PPIP was slated to include a sub-program dedicated to just
such purchases. This program was, however, deferred indefinitely on June 3, 2009. Federal Deposit Insurance Corporation, FDIC Statement on the Status of the Legacy Loans Program (June
3, 2009) (online at www.fdic.gov/news/news/press/2009/pr09084.html).
370 Federal Reserve Bank of New York, FAQs: MBS Purchase Program (online at
www.ny.frb.org/markets/mbs_FAQ.HTML) (accessed Sept. 14, 2010).
371 Federal Reserve Bank of New York, FAQs: Purchasing Direct Obligations of Housing-Related GSEs (online at www.newyorkfed.org/markets/gses_faq.html) (accessed Sept. 14, 2010). See
also Federal Reserve Bank of New York, Permanent Open Market Operations: Historical Search
(online at www.newyorkfed.org/markets/pomo/display/index.cfm?fuseaction=showSearchForm).
372 Under the conservatorship, Treasury makes equity purchases in the GSEs as needed to
prevent them from becoming insolvent. On December 24, 2009, Treasury announced that it
would allow the cap on the line of credit that had previously been established to support the
Continued

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By first making explicit the federal support for these GSE securities and subsequently buying up to $1.25 trillion of the same securities, Treasury and the Federal Reserve have effectively provided
substantial economic benefit to the TARP-assisted banks that goes
well beyond the amounts reflected in the accounting for the TARP
itself. They may also, in a sense, have partially implemented the
original TARP plan, i.e., the purchase of illiquid assets at government-supported prices, relieving the selling entities of the burden
of either carrying the assets on their books, or selling them at deep
discounts.
It is also impossible to determine the opportunity cost of using
several hundred billion dollars for the TARP instead of using that
money for some other purpose, or of never borrowing the money in
the first place. Ultimately, the decision to implement the TARP
was a decision in favor of short-term stability over the potential
long-term harm of market distortions and other unknown effects.
Moreover, there are many harms that the TARP was not able to
address. Unemployment remains high, and job growth is sluggish.
The housing sector remains weak. Small business lending is still
slow, despite the large sums that have been invested in the banking sector. As discussed in the Panel’s May 2010 report, most financial institutions saw their small business loan portfolios fall
substantially between 2008 and 2009.373 Nor is lending generally
strong. The latest Senior Loan Officer Loan Survey by the Federal
Reserve Board of Governors reports no noticeable increase in lending over the last quarter, which may be due either to a lack of demand for such loans, or a lack of the banks’ willingness or ability
to lend.374 It is not clear that the largest financial institutions or
the way they interact with the global economy have changed
enough—or at all—in a way that would forestall another crisis. Nor
have these banks or the government addressed how to value the illiquid assets, nicknamed early in the crisis ‘‘troubled assets,’’ whose
weight on bank balance sheets was a primary concern when EESA
was first enacted.375 While the acute crisis that wracked the financial sector in late 2008 appears to have passed, the economy continues to struggle.
Other TARP-related programs pose similar challenges. For example, it is difficult to determine what the full impact would have
been had GM, GMAC, and Chrysler been permitted to fail without
any government support. Although these companies declared bankGSEs, to ‘‘increase as necessary to accommodate any cumulative reduction in net worth over
the next three years.’’ Absent that support, the GSEs would have been unable to honor their
MBS guarantees and therefore the value of these MBS securities would have plummeted. U.S.
Department of the Treasury, Treasury Issues Update on Status of Support for Housing Programs
(Dec. 24, 2009) (online at www.financialstability.gov/latest/pr_1052010b.html) (hereinafter
‘‘Treasury HERA Update’’).
The Congressional Budget Office has estimated that as of August 2009, using the same kind
of methodology that Congress required to be used to measure the cost of the TARP, the value
of the federal government support for the GSEs stood at $389 billion. Unlike CBO, the Office
of Management and Budget does not reflect the cost of the federal rescue of the GSEs on a fair
value of the subsidy basis. Instead, it uses only traditional cash outlays to reflect budget costs.
On that basis, the latest OMB estimate shows case disbursements of $188 billion for Treasury
support of the GSEs, although OMB also projects offsetting recoveries and dividend payments
totaling $94 billion through 2010.
373 May 2010 Oversight Report, supra note 6, at 3.
374 July 2010 Senior Loan Officer Opinion Survey, supra note 29. See also May 2010 Oversight
Report, supra note 6, at 47–58.
375 For additional analysis of these assets and the difficulties in valuing them, see the Panel’s
April 2009 report. April 2009 Oversight Report, supra note 352.

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ruptcy, the process through which they passed was far from the
bankruptcy they likely would have faced without the government
and the government’s contribution to ease the process. The U.S.
Treasury has committed $85 billion in assistance to the automotive
industry through two TARP initiatives. The primary program, the
Automotive Industry Financing Program (AIFP) provided $81.3 billion in assistance to GM, Chrysler, GMAC, and Chrysler Financial
Company ($49.9, $12.8, $17.2, and $1.5 billion in assistance respectively).376 The second program, the Automotive Supplier Support
Program (ASSP), provided up to $3.5 billion to two special purpose
vehicles created to help support the automotive suppliers.377 The
likelihood that these companies would have otherwise been able to
secure such large sums in private financing in the middle of a global credit crisis appears unlikely. It is more likely that the companies would have proceeded to liquidation bankruptcies, a far more
disruptive option than the pre-pack bankruptcy re-organizations
through which the companies actually proceeded.
GM and Chrysler, as of the end of 2007, employed almost
325,000 people combined.378 The majority of the companies’ manufacturing operations are in Michigan, a state that suffers the second-highest unemployment rate in the country.379 At the time that
the Bush Administration announced its plan to assist the automotive industry, it estimated that 1.1 million jobs would have been
lost absent the government’s support.380 It is not enough to say
simply that a certain number of jobs may have been lost; these jobs
would have been tightly concentrated in a region that was already
struggling when the crisis began.381 It is impossible to determine
what ripple effects might have occurred. Local businesses may have
lost large numbers of customers as unemployed workers pulled
376 U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for
the Period Ending August 12, 2010 (Aug. 17, 2010) (online at www.financialstability.gov/docs/
transaction-reports/8-17-10%20Transactions% 20Report%20as%20of%208-13-10.pdf).
377 This program was originally allocated $5 billion in assistance with $3.5 billion being directed to the GM Supplier Receivables LLC and $1.5 billion directed to the Chrysler Receivables
LLC. On July 8, 2009, the aggregate amount available was reduced to $3.5 ($2.5 billion for GM
Supplier Receivables LLC and $1 billion for Chrysler Receivables LLC). Id.
378 General Motors Corp., Form 10–Q for the Quarterly Period Ended June 30, 2008, at 92
(July
31,
2008)
(online
at
sec.gov/Archives/edgar/data/40730/000095013708010396/
k34157e10vq.htm). At the end of 2007, Fortune magazine listed Chrysler as the fourth largest
private company in the U.S. with $49 billion in annual revenue and 72,000 employees. Fortune,
The 35 Largest U.S. Private Companies (online at money.cnn.com/galleries/2008/fortune/0805/
gallery.private_ companies.fortune/4.html) (accessed Aug. 3, 2010).
379 General Motors Co., U.S. Facilities List (online at www.gmdynamic.com/company/
gmability/environment/plants/facility_db/facilities/list) (accessed Sept. 14, 2010). At the Panel’s
Detroit field hearing held on July 27, 2009, Representative Carolyn C. Kilpatrick (D–MI) noted:
‘‘Here in Michigan, we are the epicenter of the manufacturing that is kind of eroding itself in
America.’’ Congressional Oversight Panel, Testimony of Rep. Carolyn C. Kilpatrick, COP Field
Hearing on the Auto Industry, at 7 (July 27, 2009) (online at cop.senate.gov/documents/transcript-072709-detroithearing.pdf). Bureau of Labor Statistics, Unemployment Rates for States
Monthly Rankings, Seasonally Adjusted July 2010 (online at www.bls.gov/web/laus/
laumstrk.htm) (accessed Sept. 10, 2010). See also Howard Wial, How a Metro Nation Would Feel
the Loss of the Detroit Three Automakers, Brookings Institution Metropolitan Policy Program
Paper
(Dec.
12,
2008)
(online
at
www.brookings.edu/∼/media/Files/rc/papers/2008/
1212_automakers_wial/automakers_wial.pdf) (showing the concentration of automotive-related
jobs in the Great Lakes region).
380 White House Office of the Press Secretary, Fact Sheet: Financing Assistance to Facilitate
the Restructuring of Auto Manufacturers to Attain Financial Viability (Dec. 19, 2008) (online at
georgewbush-whitehouse.archives.gov/news/releases/2008/12/20081219-6.html).
381 President Obama noted the wide-ranging effect of the automotive industry’s struggles during remarks in early 2009, while also highlighting the historic rise in unemployment in the Midwest. The White House, Remarks by the President on the American Automotive Industry (Mar.
30, 2009) (online at www.whitehouse.gov/the_press_office/Remarks-by-the-President-on-theAmerican-Automotive-Industry-3/30/09/).

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back on spending. The housing market may have suffered as borrowers defaulted on mortgages, pushing down the value of homes
throughout the region. Beyond the effect on the upper Midwest, the
complete failure of GM and Chrysler would likely have had wideranging effects on parts suppliers, dealerships, and other related
businesses. According to a recent report by the Special Inspector
General for TARP, Chrysler closed 789 dealerships by June 2009
and GM has plans to close 1,454 by October 2010.382 While it is
impossible to determine exactly how our current economy may have
been different had the government failed to support GM, Chrysler,
or GMAC, there are certain harmful outcomes that have not occurred.383
Of course, the government’s support for these companies raises
similar issues to those raised by the TARP as a whole. Has the government’s intervention skewed the market, permitting faltering
companies to limp along instead of clearing the way for more robust enterprises? Are companies’ incentives different now that
there is precedent for the government stepping in to rescue large
corporations and, even if they ended up in bankruptcy, streamlining some of the processes? Will these companies ultimately recover, or have the negative outcomes simply been deferred? Did the
government signal to the markets that in addition to banks, certain
industrial companies are too big to fail as well?384 Moreover, the
assistance to the automotive sector raises certain questions unique
to those programs. The government’s approach to this industry differed from its approach to assisting the financial sector. While the
capital injections provided to financial institutions were offered
largely without restrictions attached, the financing to the automotive industry was conditioned on the companies’ provision of certain information to the government, and the government has had,
overall, a greater role in the rebuilding of these companies. These
differences have raised questions about whether the government
inappropriately blurred the line between its role as a policy-maker
and its role as an investor.385
The economists consulted by the Panel were looking at TARP as
a whole, and not merely TARP since its extension. But in light of
their observations, the specific question of what effect extending
the TARP from December 31, 2009 to October 3, 2010 has had may
be easier to evaluate if only because, as discussed above, so little
was actually done with that extension. In his letter to Congressional leadership, while stating that the administration’s policies
were working, Secretary Geithner also listed the significant challenges facing the economy. As he stated, his decision to extend
TARP authority was, among other things, ‘‘necessary to assist
382 Office of the Special Inspector General for the Troubled Asset Relief Program, Factors Affecting the Decisions of General Motors and Chrysler to Reduce Their Dealership Networks, at
2
(July
19,
2010)
(online
at
www.sigtarp.gov/reports/audit/2010/Factors%20
Affecting%20the%20Decisions%20of%20General%20Motors%20and%20Chrysler%20to
%20Reduce%20Their%20Dealership%20Networks%207_19_2010.pdf).
383 For a thorough analysis of the government support of the automotive industry and its effects, see the Panel’s September 2009 report. September 2009 Oversight Report, supra note 6.
384 The Panel’s September 2009 report also discussed the ongoing debate about whether the
bankruptcy proceedings properly followed the U.S. Bankruptcy Code, or whether certain rules
were bent to accommodate the swift implementation of a very particular bankruptcy plan for
each company, imperiling the fair adjudication of these and future bankruptcies, especially those
in which the government has a hand. September 2009 Oversight Report, supra note 6.
385 See September 2009 Oversight Report, supra note 6, at 40–53.

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American families and stabilize financial markets because it will,
among other things, enable us to continue to implement programs
that address housing markets and the needs of small businesses.
. . .’’ He listed the challenges facing the economy as problems of
unemployment, increasing foreclosures, contraction in bank lending
leading to lack of access to credit for small businesses that had little access to alternate sources of credit, commercial real estate
losses weighing upon bank balance sheets, and uncertainty about
future economic conditions.386 And as noted above in Section E.1,
the problems that Treasury identified as requiring further assistance were three significant areas—unemployment, foreclosures,
and struggling small businesses—that continue to struggle.
Despite Treasury’s stated justification for extending the TARP—
i.e., a need to improve the unemployment and foreclosure rates,
and provide better support for small businesses, as discussed in
Section D, supra—Treasury did not use the extension to add funding beyond the amounts already allocated. To the extent that
Treasury has articulated goals for the mortgage foreclosure programs, these goals have not been met;387 small business lending
assistance is being addressed outside the TARP; and the TALF expired according to its terms. Nor has there been the kind of marked
improvement in any of these sectors that might obviate attempts
to ameliorate their condition.
In his letter, however, Secretary Geithner also cited the possibility of ‘‘near-term shocks to [the financial system] that could undermine the economic recovery we have seen to date.’’ 388 As Secretary Geithner stated, the TARP’s extension provided Treasury
with the capacity in responding to any ‘‘near-term shocks’’ to the
economy. While describing the degree of stability that had returned
to the markets by the fall of 2009, Secretary Geithner noted that
there was still uncertainty regarding its permanence, and further
stated that many of the programs created during the crisis were
shortly to end. Secretary Geithner therefore emphasized the value
of maintaining the capacity to intervene if financial markets staggered again. Such a backstop to the economy may, of course, have
simply extended the sense that Treasury was providing an implicit
guarantee to the financial sector, with its attendant moral hazard
and other negative effects. But in Treasury’s view, maintaining the
ability to intervene would bolster confidence, with positive effects
on financial stability, and thus, despite relative inaction in particular programs during 2010, Treasury believed the extension was
important for market stability.
F. Conclusion
In December 2009, as the first full year of the TARP’s existence
drew to a close, the Panel issued a report that attempted to gauge
the program’s overall effectiveness as of that date. The Panel
wrote:

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386 Letter

from Secretary Geithner to Hill Leadership, supra note 48.
387 See the Panel’s April 2010 report for a full discussion of the disconnect between Treasury’s
stated goals for the programs and data documenting actual results. April 2010 Oversight Report,
supra note 6, at 62–65.
388 Letter from Secretary Geithner to Hill Leadership, supra note 48.

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There is broad consensus that the TARP was an important part of a broader government strategy that stabilized
the U.S. financial system by renewing the flow of credit
and averting a more acute crisis. Although the government’s response to the crisis was at first haphazard and
uncertain, it eventually proved decisive enough to stop the
panic and restore market confidence. Despite significant
improvement in the financial markets, however, the broader economy is only beginning to recover from a deep recession, and the TARP’s impact on the underlying weaknesses
in the financial system that led to last fall’s crisis is less
clear.389
Events since last December have largely underscored the Panel’s
analysis, yet the last 10 months have also provided new data and
allowed time for new analysis. The Panel can now expand upon its
earlier conclusions. These inquiries are critical to evaluating the
TARP, not only in order to gain perspective on the events of the
last two years but also to provide guidance to policymakers in the
future.
Any evaluation must recognize its own limitations. This report is
necessarily an interim evaluation, because the effects of the TARP
and of the financial crisis are still unfolding. Experts and observers
can use theoretical models and data available to provide estimates
and expectations, but a complete perspective comes only with time
and significant, objective data, neither of which is fully available at
this date. Further, the specific effect of the TARP will always be
difficult to isolate. The TARP was but one of an unprecedented
number of government responses, which included significant liquidity programs by the Federal Reserve, increased deposit insurance
by the FDIC, and the government absorption of Fannie Mae and
Freddie Mac.
Both now and in the future, however, any evaluation must begin
with an understanding of what the TARP was intended to do. Congress authorized Treasury to use the TARP in a manner that ‘‘protects home values, college funds, retirement accounts, and life savings; preserves homeownership and promotes jobs and economic
growth; [and] maximizes overall returns to the taxpayers of the
United States.’’ 390 But weaknesses persist. Since EESA was signed
into law in October 2008, home values nationwide have fallen.
More than seven million homeowners have received foreclosure notices. Many Americans’ most significant investments for college and
retirement have yet to recover their value. At the peak of the crisis,
in its most significant acts and consistent with its mandate in
EESA, the TARP provided critical support at a time in which confidence in the financial system was in freefall. The acute crisis was
quelled. But as the Panel has discussed in the past, and as the continued economic weakness shows, the TARP’s effectiveness at pursuing its broader statutory goals was far more limited.
389 December
390 12

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1. The TARP’s Extension Served Primarily To Extend the
Implicit Guarantee of the Financial System
When Secretary Geithner exercised his statutory authority to extend the TARP until October 3, 2010, he laid out three areas for
new commitments of TARP resources: (1) mortgage foreclosure relief; (2) providing capital to small and community banks; and (3)
increasing support for securitization markets through TALF. Despite this stated justification, and despite the creation of additional
programs—albeit using existing funds—designed to address the
foreclosure crisis, Treasury did not add any new funding to programs intended to address these economic problems during the period of the extension.
The extension did, however, serve another purpose, which Secretary Geithner referred to as the capacity to respond to an immediate and substantial threat to the economy.391 In Treasury’s view,
the extension provided Treasury with the continued authority to intervene swiftly if another systemically significant financial institution approached collapse or if the financial markets showed signs
of another meltdown. Citing continued market instability and the
need to preserve confidence, Treasury also extended its authority
to preserve its ability to deal with a new crisis.392 Treasury therefore used the TARP’s extension more to extend the government’s
implicit guarantee of the financial system than to address the specific economic problems that the Secretary cited as justification for
the extension.

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2. TARP ‘‘Stigma’’ Has Grown and May Prove an Obstacle to
Future Stability Efforts
The TARP has inspired many varied and evolving responses
among the markets and the public. At the time of the initial Capital Purchase Plan investments in the large banks, market participants reacted with relief. The LIBOR-OIS and TED spreads fell
dramatically shortly after those investments.
But the reaction of the general public has been far more skeptical. Now the TARP is widely perceived as bailing out Wall Street
banks and domestic auto manufacturers while doing little for the
millions of Americans who are unemployed, underwater on their
mortgages, or otherwise struggling to make ends meet. Treasury
acknowledges that, as a result of this perception, the TARP and its
programs are now burdened by a public ‘‘stigma.’’
Some of this stigma has arisen due to valid concerns with Treasury’s implementation of TARP programs and with its transparency
and communications. For example, Treasury initially insisted that
only healthy banks would be eligible for capital infusions under the
CPP. When it became clear that some of these banks were in fact
on the brink of failure, all participating banks—even those in comparatively strong condition—became tainted in the public eye.
Treasury’s initial statements about the health of the financial system diminished its credibility later in the crisis and have contributed to the fragility of the financial system. Questions regarding
391 Letter
392 Letter

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from Secretary Geithner to Hill Leadership, supra note 48.
from Secretary Geithner to Hill Leadership, supra note 48.

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the health of financial institutions linger, even two years after the
initial crisis.
Stigma may also arise due to deep public frustration that, whatever the TARP’s successes, it has not rescued many Americans
from suffering enormous economic pain. Treasury claims that the
pain would have been far worse if the TARP had never existed, but
this hypothetical scenario is difficult to evaluate—in part due to regrettable omissions in data collection on Treasury’s part. For example, since the Panel’s second report in January of 2009, it has
called for Treasury to make banks accountable for their use of the
funds they received. It has also urged Treasury to be transparent
with the public, in particular with respect to the health of the
banks receiving the funds. The lack of this data makes it more difficult to measure the TARP’s success and thus contributes to the
TARP’s stigmatization.
Another factor contributing to the TARP’s stigma is that the program created significant moral hazard. The TARP’s terms were, by
comparison to prior government interventions such as through the
RTC and the RFC, quite generous; financial institutions were able
to receive TARP funds with relatively few costs to their management, shareholders, or creditors. In light of this experience, financial institutions may rationally decide to take inflated risks in the
future out of a conviction that, if their gamble fails, taxpayers will
bear the price. To the extent that this implicit guarantee continues
to distort markets, it is a real and ongoing cost of the TARP.
It is possible that rigorous economic evaluations of the TARP,
based on new data and the additional perspective that comes with
time, will reverse or soften the stigma currently associated with
the program. It is equally possible, however, that future studies
will instead support and elaborate upon the negative assessments
of the program. Whatever the result, policy-makers can only benefit
from detailed data-based analysis.
The TARP program is today so widely unpopular that Treasury
has expressed concern that banks avoided participating in the CPP
program due to stigma, and the legislation proposing the Small
Business Lending Fund, a program outside the TARP, specifically
provided an assurance that it was not a TARP program. Popular
anger against taxpayer dollars going to the largest banks, especially when the economy continues to struggle, remains high. The
program’s unpopularity may mean that unless it can be convincingly demonstrated that the TARP was effective, the government
will not authorize similar policy responses in the future. Thus, the
greatest consequence of the TARP may be that the government has
lost some of its ability to respond to financial crises in the future.

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12/30/09 ...................................

12/30/09

5/21/09 .....................................

12/29/08

5/1/09
5/27/09
4/29/09

1/2/09

12/29/08–6/3/09

Original Investment Date(s)

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Original Investment Type

$5,000 Preferred stock with exercised
warrants.
$7,500 Convertible Preferred stock with
exercised warrants.
$2,540 Trust Preferred securities with
exercised warrants.
$1,250 Convertible Preferred stock with
exercised warrants.

$4,000 Debt obligation with additional
note.
$1,888
$280
$6,642

$50,745 Debt obligation with additional
note.

Original Investment
Amount

—

—

12/30/2009

12/30/2009

5/1/2009
4/29/2009
6/10/2009
6/10/2009

6/10/2009

7/10/2009
7/10/2009
7/10/2009
7/10/2009

5/29/2009

Convertible Preferred stock ......................

Debt obligation with additional note ......
Debt obligation with additional note ......
Debt obligation with additional note ......
Common equity.

Debt obligation with additional note ......

Debt obligation ........................................
Preferred stock .........................................
Debt left at Old GM .................................
Common stock .........................................

— — ............................................................

Convertible Preferred stock ......................
56.3% Common equity ........................................
— — ............................................................

xxx $4,875

xxix $5,250

GMAC/Ally

$1,888
$280
xxviii $7,142
9.9%

xxiv $3,500

Chrysler

Exchange/Restructure Investment Type

$884 Exchange for equity interest in GMAC ....
$7,072
$2,100
$986
60.8%

General Motors

Exchange/Restructure Exchange/Restructure
Date(s)
Investment Amount

[Dollars in millions] xxi

ANNEX I: AUTOMOTIVE INDUSTRY FINANCING PROGRAM FUNDS COMMITTED

($280)

xxvii ($31)

xxv ($1,900)

xxiii ($7,072)

Amount Repaid

xxvi ($1,600)

Losses

$1,250

$2,540

xxxi 56.3%

$4,875

$5,250

$1,858
$0
$7,142

$0

—
$2,100
$986
60.8%

xxii $0

Amount Outstanding as of
9/8/10

91

A023

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Original Investment Type

$1,500 Debt obligation with additional
note.

Original Investment
Amount

—

Chrysler Financial Co.

Exchange/Restructure Investment Type

— — ............................................................

Exchange/Restructure Exchange/Restructure
Date(s)
Investment Amount

[Dollars in millions] xxi

ANNEX I: AUTOMOTIVE INDUSTRY FINANCING PROGRAM FUNDS COMMITTED—Continued

$1,500

Amount Repaid

Losses

$0

Amount Outstanding as of
9/8/10

xxi For a more complete tracking of the development of the TARP’s investment in the automotive industry, please see U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8,
2010, at 18–19 (Sept. 10, 2010) (online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxii For a more complete tracking of the development of the TARP’s investment in the automotive industry, please see U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8,
2010, at 18–19 (Sept. 10, 2010) (online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxiii These repayments were made in installments from July 10, 2009 to April 20, 2010. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8, 2010, at 18–19 (Sept. 10,
2010) (online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxiv On June 10, 2009, $500 million of debt was transferred to New Chrysler. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8, 2010, at 18–19 (Sept. 10, 2010) (online
at www.financialstability.gov/docs/transaction-reports-9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxv Pursuant to a termination agreement dated May 14, 2010, Treasury agreed to accept a settlement payment of $1.9 billion as satisfaction in full of the $3.5 billion loan (including additional notes and accrued and unpaid interest) of
Chrysler Holding, and upon receipt of such payment to terminate all such obligations. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8, 2010, at 18–19 (Sept. 10, 2010)
(online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxvi Pursuant to a termination agreement dated May 14, 2010, Treasury agreed to accept a settlement payment of $1.9 billion as satisfaction in full of the $3.5 billion loan (including additional notes and accrued and unpaid interest) of
Chrysler Holding, and upon receipt of such payment to terminate all such obligations. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8, 2010, at 18–19 (Sept. 10, 2010)
(online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxvii As part of the Chrysler bankruptcy proceedings, all assets of Old Chrysler were transferred to a liquidation trust. Treasury retained the right to recover the proceeds from the liquidation from time to time of the specified collateral security attached to such loan. As of September 8, $31 million in funds have been recovered from the sale of these assets. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September
8, 2010, at 18–19 (Sept. 10, 2010) (online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxviii This $500 million increase in the amount of principal outstanding is due to New Chrysler’s assumption of $500 million in loans originally given to Chrysler Holding. U.S. Department of the Treasury, Troubled Asset Relief Program
Transactions Report for the Period Ending September 8, 2010, at 18–19 (Sept. 10, 2010) (online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxix This figure reflects the exercised warrants associated with the restructuring of Treasury’s investment in GMAC. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8,
2010, at 18–19 (Sept. 10, 2010) (online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxx This figure reflects the exercised warrants associated with the restructuring of Treasury’s investment in GMAC. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8,
2010, at 18–19 (Sept. 10, 2010) (online at www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).
xxxi Prior to December 30, 2009, Treasury owned 35.4 percent of GMAC common equity as part of its exchange of an $884 million loan to Old GM. Following the conversion of $3 billion of convertible preferred stock for common equity on
December 30, 2009, Treasury owned 56.3 percent of GMAC’s common equity. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 8, 2010, at 18–19 (Sept. 10, 2010) (online at
www.financialstability.gov/docs/transaction-reports/9-10-10%20Transactions%20Report%20as%20of%209-8-10.pdf).

1/16/09

Original Investment Date(s)

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ANNEX II: VIEWS OF ACADEMIC EXPERTS
A. Alan Blinder, Gordon S. Rentschler Memorial Professor
of Economics and Public Affairs at Princeton University
1. How would you measure the effectiveness of the TARP?
What are the appropriate measures to assess its effectiveness?
TARP is, of course, one of several measures taken to end the financial panic. Viewed as a whole, they clearly worked well; but it’s
hard to parse TARP’s specific contribution. That said, risk spreads
rose sharply before TARP passed and then fell sharply when it did,
which is highly suggestive that TARP spread a security blanket
across the financial markets. Those falling risk spreads—and, of
course, the rising bank capital—may be the best metrics for appraising TARP’s effectiveness. Both make TARP look good.
That said, the part of TARP that was supposed to buy toxic assets never really happened to any great extent; and the part that
was designed to stem the wave of foreclosures was not very effective (and, I would say, rather half-hearted).
Finally, the wisdom of the GM bailout will probably be debated
forever. (But it appears to have worked well.)

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2. Please use these or other measures to evaluate the relative effectiveness of (1) TARP’s efforts to stabilize financial institutions, such as AIG and the large stresstested banks; (2) TARP’s efforts to restore confidence to
broad financial markets by restarting the securitization
markets and buying troubled assets; and (3) TARP’s efforts to address the foreclosure crisis. What programs or
initiatives were the most effective and successful parts
of the TARP? What programs or initiatives were TARP’s
biggest failures?
I have answered this in part already. Regarding stabilizing institutions like AIG, one has to count TARP as a huge success. It and
other initiatives (like SCAP) successfully threw the above-mentioned security blanket around every large entity. This is not something you’d want to do under normal circumstances, but was appropriate at the time. And the net cost to the taxpayers for this part
of the program will, in the end, be very small. In that sense, TARP
looks like a bargain.
As to restarting securitizations, I don’t think TARP was close to
enough—or, as noted, even tried hard. The Fed’s MBS purchase
program did much more. (Outside of Fannie/Freddie mortgages,
securitization has not snapped back much.)

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3. Were there alternative uses of the TARP funds or specific
changes in actual TARP programs that might have been
superior either in terms of protecting the government’s
interest as an investor or in terms of addressing the economic and financial crisis, or both? If so, what would
they have been and why do you believe those uses might
have been superior to some of the programs Treasury
designed?
I was in the small minority who thought TARP should have been
used to buy toxic assets, though not all $700 billion of it. I still
think that. While I understand the arguments for recapitalizing
banks, I wish it had been done ‘‘in addition to’’ buying toxic assets,
not ‘‘instead of.’’ I never believed the argument that was made at
the time that each $1 of bank capital would (via normal leverage)
lead to $10 in lending.
Regarding the CPP, I thought then and think now that the
Paulson Treasury made a number of terrible tactical decisions,
such as: forcing capital on banks that didn’t want it; giving better
terms than Warren Buffett got from Goldman; not insisting on quid
pro quos such as not paying dividends and increasing lending.
Where public support is offered and taken, there should be publicpurpose strings attached. (That is one reason why I was against
forcing capital on unwilling banks.)
To repeat, I also think it was a shame that more was not done
to mitigate foreclosures.

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4. Could TARP have been implemented in a way that would
have reduced its negative impact, particularly with regard to institutions that are now ‘‘too big to fail’’? Or are
these negative effects intrinsic to any financial rescue
program?
To start, banning dividends and insisting on a lending quid pro
quo in the CPP would have made it more effective and given it
greater political legitimacy.
But I interpret the question as asking mainly about moral hazard costs. I don’t think they were avoidable under the extreme circumstances of the fall of 2008; laissez faire would have been catastrophic, as Lehman illustrated. But the fact that the government
stepped in to save SIFIs in 2008 certainly feeds the presumption
that it will do so again, if necessary. That’s the moral hazard cost,
but I think it was unavoidable. It remains to be seen how effective
the resolution procedures in Dodd-Frank will be in dispelling the
belief in TBTF.
5. How significant was TARP relative to the efforts of the
Federal Reserve and the Treasury Department that did
not rely on EESA? Was TARP necessary or were the preEESA powers of the Federal Reserve, the Treasury Department and the bank regulators adequate for managing the crisis?
As I said at the outset, this parsing is difficult. One example:
TARP allowed the Treasury to step into the Fed’s shoes and take
over some of its risk exposures. I think that was very appropriate,
but it’s another ‘‘interaction term’’ that makes it hard to answer

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the question. Another example: The monies left in TARP were instrumental in the success of the SCAP. One thing that made the
whole stress-test exercise highly credible was the government’s
pledge to provide any capital (in return for partial ownership)
whose need was identified by the SCAP but which the banks could
not raise on their own. Without EESA, neither of these things (and
others) would have been possible.
6. What is likely to be the legacy of the TARP in terms of
the ability of government officials and policymakers to
respond to financial crises in the future?
I find this hard to answer. In the near term, the extreme
unpopularity of TARP will make it hard to do anything remotely
like it again, should the need arise. However, if what happened in
2008–09 was really a ‘‘100-year-flood,’’ it will be a long time
(though probably not 100 years!) before we need anything like
TARP again.
Also, as noted above, the moral hazard/bailout precedent has
been set, and it will not go away easily. The Dodd-Frank cure will
have to be tried (successfully) before it is believed.
B. Simon Johnson, Ronald A. Kurtz (1954) Professor of
Entrepreneurship at MIT Sloan School of Management

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1. How would you measure the effectiveness of the TARP?
What are the appropriate measures to assess its effectiveness?
In the immediate policy response to any major financial crisis—
involving a generalized loss of confidence in major lending institutions—there are three main goals:
a. To stabilize the core banking system,
b. To prevent the overall level of spending from collapsing,
c. To lay the groundwork for a sustainable recovery.
International Monetary Fund programs are routinely designed
with these criteria in mind and are evaluated (internally and externally) on the basis of: the depth of the recession and speed of the
recovery, relative to the initial shock; the side-effects of the macroeconomic policy response, including inflation; and whether the underlying problems that created the vulnerability to panic are addressed over a 12–24 month horizon.
This same analytical framework can be applied to the United
States since the inception of the Troubled Asset Relief Program
(TARP). While there were unique features to the U.S. experience
(as is the case in all countries), the broad pattern of financial and
economic collapse, followed by a struggle to recover, is quite familiar.

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96
2. Please use these or other measures to evaluate the relative effectiveness of (1) TARP’s efforts to stabilize financial institutions, such as AIG and the large stresstested banks; (2) TARP’s efforts to restore confidence to
broad financial markets by restarting the securitization
markets and buying troubled assets; and (3) TARP’s efforts to address the foreclosure crisis. What programs or
initiatives were the most effective and successful parts
of the TARP? What programs or initiatives were TARP’s
biggest failures?
The overall U.S. policy response did well in terms of preventing
spending from collapsing. Monetary policy responded quickly and
appropriately. After some initial and unfortunate hesitation on the
fiscal front, the stimulus of early 2009 helped to keep domestic
spending relatively buoyant, despite the contraction in credit and
large increase in unemployment. This was in the face of a massive
global financial shock—arguably the largest the world has ever
seen—and the consequences, in terms of persistently high unemployment, remain severe. But it could have been much worse.
In terms of more detailed approaches within the TARP framework, these can be divided into three phases.
Phase I. In September 2008, Henry Paulson asked for $700 billion to buy toxic assets from banks, as well as unconditional authority and freedom from judicial review. Many economists and
commentators suspected that the purpose was to overpay for those
assets and thereby take the problem off the banks’ hands—indeed,
that is the only way that buying toxic assets would have helped
anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved.
After the ‘‘Paulson Plan’’ was passed on October 3, 2008, it was
quickly overtaken by events. First the UK announced a bank recapitalization program; then, on October 13, it was joined by every
major European country, most of which also announced loan guarantees for their banks. On October 14, the U.S. followed suit with
a bank recapitalization program, unlimited deposit insurance (for
non-interest-bearing accounts), and guarantees of new senior debt.
Only then was enough financial force applied for the crisis in the
credit markets to begin to ease, with LIBOR finally falling and
Treasury yields rising, although they remained a long way from
historical levels.
The money used to recapitalize (buy shares in) banks was provided on terms that were excessively favorable to the banks. For
example, Warren Buffett put new capital into Goldman Sachs just
weeks before the Treasury Department invested in nine major
banks. Buffett got a higher interest rate on his investment and a
much better deal on his options to buy Goldman shares in the future.
Phase II. As the crisis deepened and financial institutions needed
more assistance, the government got more and more creative in figuring out ways to provide subsidies that were too complex for the
general public to understand. The first AIG bailout, which was on
relatively good terms for the taxpayer, was renegotiated to make
it even more friendly to AIG. The second Citigroup and Bank of
America bailouts included complex asset guarantees that essen-

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tially provided nontransparent insurance to those banks at well
below-market rates. The third Citigroup bailout, in late February
2009, converted preferred stock to common stock at a conversion
price that was significantly higher than the market price—a subsidy that probably even most Wall Street Journal readers would
miss on first reading. And the convertible preferred shares provided under the new Financial Stability Plan gave the conversion
option to the bank in question, not the government—basically giving the bank a valuable option for free.
Note that this strategy is not internally illogical: if you believe
that asset prices will recover by themselves (or by providing sufficient liquidity), then it makes sense to continue propping up weak
banks with injections of capital. However, our main concern is that
it underestimates the magnitude of the problem and could lead to
years of partial measures, none of which creates a healthy banking
system.
Phase III. The main components of the Obama administration’s
bank rescue plan included:
• Stress tests, conducted by regulators, to determine whether
major banks could withstand a severe recession, followed by recapitalization (if necessary) in the form of convertible preferred
shares 393
• The Public-Private Investment Program (PPIP) to stimulate
purchases of toxic assets, thereby removing them from bank balance sheets
The administration as much as said that the major banks will all
pass the stress tests, making it appear that the results were foreordained. Essentially, this was used to signal that the government
stood behind the 19 banks in the stress test and would not allow
any of them to fail. Effectively, the government signaled which
banks were Too Big To Fail.
The PPIP did not meet its stated objective of starting a market
for toxic assets (both whole loans and mortgage-backed securities)
and thereby moving them off of bank balance sheets. In essence,
the PPIP attempted to achieve this goal by subsidizing private sector buyers (via non-recourse loans or loan guarantees) to increase
their bid prices for toxic assets. Besides the subsidy from the public
to the private sector that this involves, the plan as outlined did not
raise buyers’ bid prices high enough to induce banks to sell their
assets. From the banks’ perspective, selling assets at prices below
their current book values would force them to take write-downs,
hurting profitability and reducing their capital cushion.
As long as the government’s strategy is to prevent banks from
failing at all costs, banks have an incentive to sit the PPIP or similar program out (or even participate as buyers) and wait for a more
generous plan. Again, the key question is how the loss currently
built into banks’ toxic assets will be distributed between bank
shareholders, bank creditors, and taxpayers. By leaving banks in
their current form and relying on market-type incentives to encourage them to clean themselves up, the administration gave the
banks an effective veto over financial sector policy.
393 James
Kwak, No, Wait! You Got It Backwards! (Feb. 26, 2009) (online
baselinescenario.com/2009/02/26/convertible-preferred-stock-capital-assistance-program).

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Ultimately, the stalemate in the financial sector is the product
of political constraints. On the one hand, the administration has
consistently foresworn dictating a solution to the financial sector,
either out of deep-rooted antipathy to nationalization, or out of fear
of being accused of nationalization. On the other hand, bailout fatigue among the public and in Congress, aggravated by the clumsy
handling of the AIG bonus scandal,394 has made it impossible for
the administration to propose a solution that is too generous to
banks, or that requires new money from Congress.

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3. Were there alternative uses of the TARP funds or specific
changes in actual TARP programs that might have been
superior either in terms of protecting the government’s
interest as an investor or in terms of addressing the economic and financial crisis, or both? If so, what would
they have been and why do you believe those uses might
have been superior to some of the programs Treasury
designed?
`
Best practice, vis-a-vis saving the banking system in the face of
a generalized panic, involves three closely connected pieces:
a. Preventing banks from collapsing in an uncontrolled manner.
This often involves at least temporary blanket guarantees for bank
liabilities, backed by credible fiscal resources. The government’s
balance sheet stands behind the financial system. In the canonical
emerging market crises of the 1990s—Korea, Indonesia, and Thailand—where the panic was centered on the private sector and its
financing arrangements, this commitment of government resources
was necessary (but not sufficient) to stop the panic and begin a recovery.
b. Taking over and implementing orderly resolution for banks
that are insolvent. In major system crises, this typically involves
government interventions that include revoking banking licenses,
firing top management, bringing in new teams to handle orderly
unwinding, and—importantly—downsizing banks and other failing
corporate entities that have become too big to manage. In Korea
after the 1997 crisis, nearly half of the top 30 pre-crisis chaebol
were broken up through various versions of an insolvency process
(including Daewoo, one of the biggest groups). In Indonesia during
the same time frame, leading banks were stripped from the industrial groups that owned them and substantially restructured. In
Thailand, not only were more than 50 secondary banks (‘‘Finance
Houses’’) closed, but around 1⁄3 of the leading banks were also put
through a tough clean-up and downsizing process managed by the
government.
c. Addressing immediately underlying weaknesses in corporate
governance that created potential vulnerability to crisis. In Korea,
the central issue was the governance of nonfinancial chaebol and
their relationship to the state-owned banks; in Indonesia, it was
the functioning of family-owned groups, which owned banks directly; and in Thailand it was the close connections between firms,
394 James Kwak, The Tipping Point? (Mar. 18, 2009) (online at baselinescenario.com/2009/03/
18/the-tipping-point).

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banks, and politicians. Of the three, Korea made the most progress
and was rewarded with the fastest economic recovery.
If any country pursued (a) unlimited government financial support, while not implementing (b) orderly resolution for troubled
large institutions, and refusing to take on (c) serious governance
reform, it would be castigated by the United States and come
under pressure from the IMF. At the heart of every crisis is a political problem—powerful people, and the firms they control, have
gotten out of hand. Unless this is dealt with as part of the stabilization program, all the government has done is provide an unconditional bailout. That may be consistent with a short-term recovery, but it creates major problems for the sustainability of the
recovery and for the medium-term. Serious countries do not do this.
Seen in this context, TARP has been badly mismanaged. In its
initial implementation, the signals were mixed—particularly as the
Bush administration sought to provide support to essentially insolvent banks without taking them over. Standard FDIC-type procedures, which are best practice internationally, were applied to
small- and medium-sized banks, but studiously avoided for large
banks. As a result, there was a great deal of confusion in financial
markets about what exactly was the Bush/Paulson policy that lay
behind various ad hoc deals.
The Obama administration, after some initial hesitation, used
‘‘stress tests’’ to signal unconditional support for the largest financial institutions. By determining officially that these firms did not
lack capital—on a forward looking basis—the administration effectively communicated that it was pursuing a strategy of ‘‘regulatory
forbearance’’ (much as the U.S. did after the Latin American debt
crisis of 1982). The existence of TARP, in that context, made the
approach credible—but the availability of unconditional loans from
the Federal Reserve remains the bedrock of the strategy.
The downside scenario in the stress tests was overly optimistic
relative to standard practice and reasonable expectations, with regard to credit losses in real estate (residential and commercial),
credit cards, auto loans, and in terms of the assumed time path for
unemployment. As a result, our largest banks remain undercapitalized, given the likely trajectory of the U.S. and global economy.
This is a serious impediment to a sustained rebound in the real
economy—already reflected in continued tight credit for small- and
medium-sized business.
Even more problematic is the underlying incentive to take excessive risk in the financial sector. With downside limited by government guarantees of various kinds, a senior financial stability official at the Bank of England (Andrew Haldane) bluntly characterizes our repeated boom-bailout-bust cycle as a ‘‘doom loop.’’ 395
Exacerbating this issue, TARP funds supported not only troubled
banks, but also the executives who ran those institutions into the
ground. The banking system had to be saved, but specific banks
could have wound down and leading bankers could and should
have lost their jobs. Keeping these people and their management
systems in place could be serious trouble for the future.
395 Piergiorgio Alessandri and Andrew G. Haldane, Banking on the State (Nov. 2009) (online
at www.bankofengland.co.uk/publications/speeches/2009/speech409.pdf).

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The implementation of TARP exacerbated the perception (and
the reality) that some financial institutions are ‘‘Too Big to Fail.’’
This lowers their funding costs, enabling them to borrow more and
to take more risk—leading presumably to future crises.
4. Could TARP have been implemented in a way that would
have reduced its negative impact, particularly with regard to institutions that are now ‘‘too big to fail’’? Or are
these negative effects intrinsic to any financial rescue
program?
TARP allowed the U.S. Treasury to make it clear that some individuals are ‘‘Too Connected to Fail’’. Financial executives with
strong connections to the current and previous leadership of the
New York Fed (e.g., through network connections of various kinds)
have great power and enormous political access in this situation.
Such issues are a concern in any financial rescue package but were
definitely allowed to get out of hand in 2008–09 in the United
States.

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5. How significant was TARP relative to the efforts of the
Federal Reserve and the Treasury Department that did
not rely on EESA? Was TARP necessary or were the preEESA powers of the Federal Reserve, the Treasury Department and the bank regulators adequate for managing the crisis?
There is no question that passing the TARP was the right thing
to do. In some countries, the government has the authority to provide fiscal resources directly to the banking system on a huge scale,
but in the United States this requires congressional approval. In
other countries, foreign loans can be used to bridge any shortfall
in domestic financing for the banking system, but the U.S. is too
large to ever contemplate borrowing from the IMF or anyone else.
6. What is likely to be the legacy of the TARP in terms of
the ability of government officials and policymakers to
respond to financial crises in the future?
The U.S. recovery strategy hinges on continued low interest rates
(and a continuation of quantitative easing). This creates risks of a
new global asset bubble, funded in dollars and driven by exuberance about prospects in emerging markets. The Fed has already
signaled clearly that it will not raise interest rates for a long while
and big banks are increasingly building their capacity to take risks
in emerging markets.
Unless bank regulators limit the direct and indirect risk exposure of U.S. financial institutions to this new supposedly low risk
‘‘carry trade’’ (from U.S. dollar funding to emerging market exposure, in dollars or local currency), we face the very real prospect
of another, even larger crisis. There is no sign yet that regulators
understand or are even willing to talk about this issue.
The power of the financial sector goes far beyond a single set of
people, a single administration, or a single political party. It is
based not on a few personal connections, but on an ideology according to which the interests of Big Finance and the interests of the
American people are naturally aligned—an ideology that assumes

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the private sector is always best, simply because it is the private
sector, and hence the government should never tell the private sector what to do, but should only ask nicely, and provide handouts
to keep the private (financial) sector alive. This is a recipe for financial and fiscal disaster.
To those who live outside the Treasury-Wall Street corridor, this
ideology is increasingly not only at odds with reality, but actually
dangerous to the U.S. economy.
C. Anil Kashyap, Edward Eagle Brown Professor of Economics and Finance and Richard N. Rosett Faculty Fellow at
the University of Chicago Booth School of Business

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1. How would you measure the effectiveness of the TARP?
What are the appropriate measures to assess its effectiveness?
TARP was part of a set of measures designed to head off a complete collapse of the financial system. So the package should be
judged by whether it achieved that goal. The package worked. But
figuring out the contribution of TARP, in isolation is not really possible. The problem is that TARP by itself would not have been sufficient to stave off a disaster; for instance, if the Federal Reserve
had been unwilling to act, there still would have been many problems.
Because of restrictions that the Federal Reserve faced on its options, TARP was an integral piece of the rescue efforts. Without
TARP, it would have been illegal to take some of the steps that
were needed. So TARP was a necessary part of the solution but
was not sufficient to guarantee success.
2. Please use these or other measures to evaluate the relative effectiveness of (1) TARP’s efforts to stabilize financial institutions, such as AIG and the large stresstested banks; (2) TARP’s efforts to restore confidence to
broad financial markets by restarting the securitization
markets and buying troubled assets; and (3) TARP’s efforts to address the foreclosure crisis. What programs or
initiatives were the most effective and successful parts
of the TARP? What programs or initiatives were TARP’s
biggest failures?
The biggest failure associated with TARP was the confusion over
its purpose and the misleading way in which Treasury Secretary
Paulson marketed it. The claim that it would be used for toxic
asset purchases followed by the reversal of direction so that it was
in fact used for capital injections left the public totally confused
about TARP’s mission. Buying toxic assets never made sense and
the fact that the government could not explain how this was going
to help with the crisis was a tell-tale sign that this idea was
flawed. Banks were undercapitalized and badly needed more equity, so using TARP to boost equity was appropriate. But, the confusion over the government’s intent led to the narrative that TARP
was a total bailout for the banks.
It was unfortunate that the first capital injections were done
without any clear assessments of bank solvency. It is an open ques-

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tion whether Citigroup was insolvent when it was given its first injection, yet it got the funding on the same terms as institutions
that were clearly in much, much better shape. The equality of the
terms on which capital was handed out later meant that the government was hesitant to impose many restrictions on the stronger
institutions that took the money. The subsequent lack of restrictions on dividends and compensation for some of the TARP banks
further fueled public outrage.
The public’s frustration has led to a general rise in populist political rhetoric and has polluted the policy discussion in many other
areas. Perhaps the clearest example, though, is the way that the
debate over resolution reform played out. Instead of having an intelligent debate about the technical issues associated with winding
down a large, internationally active financial institution, the discussion morphed into blame shifting about the crisis. Consequently
there are important short-comings in the rules for failing these
large institutions.
I think TARP had little effect on the foreclosure crisis. Indeed,
I would say none of the federal programs have made much of a difference regarding foreclosures.
The turning point in the crisis was the announcement of the
stress test results. We are still not certain why they were so successful in boosting confidence. My conjecture is that financial market participants concluded that they showed that nationalization of
some of the large banks was no longer going to be necessary. Instead the tests were construed to show that the government had
the resources to prop weak institutions up, even if private financing were not forthcoming. TARP provided the financial resources
that made this promise credible. So, I think the possibility of using
TARP to provide additional backstop equity was its most important
contribution. Fortunately, private sector funding for recapitalization proved possible so we never had to use the money this way.

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3. Were there alternative uses of the TARP funds or specific
changes in actual TARP programs that might have been
superior either in terms of protecting the government’s
interest as an investor or in terms of addressing the economic and financial crisis, or both? If so, what would
they have been and why do you believe those uses might
have been superior to some of the programs Treasury
designed?
All the attention and effort that went into trying to design asset
purchase programs was a waste of time; these programs have been
a side show and yet they absorbed a lot of attention. This was predictable in real time (lots of people pointed out why they were not
critical). But in fact most of the money spent on equity assistance,
except perhaps for Citigroup, has worked out well. So, the actions
were largely successful, even if the perceptions were not as positive.

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4. Could TARP have been implemented in a way that would
have reduced its negative impact, particularly with regard to institutions that are now ‘‘too big to fail’’? Or are
these negative effects intrinsic to any financial rescue
program?
The best way to have dealt with too big to fail would have been
to come up with a better resolution regime. Dodd-Frank still falls
short in this dimension. So, a threat to close down a large internationally active bank is not very credible. Without a better resolution regime, too big to fail will persist.
5. How significant was TARP relative to the efforts of the
Federal Reserve and the Treasury Department that did
not rely on EESA? Was TARP necessary or were the preEESA powers of the Federal Reserve, the Treasury Department and the bank regulators adequate for managing the crisis?
Neither the Fed nor the Treasury could have done what was
needed in the fall of 2008 without TARP. TARP was necessary.
6. What is likely to be the legacy of the TARP in terms of
the ability of government officials and policymakers to
respond to financial crises in the future?
The legacy of TARP cannot be judged without knowing how
Dodd-Frank will be implemented. If, as I fear, systemic regulation
remains weak and resolution options are poor, then the odds of a
crisis that requires bailouts reoccurring will be high. In this case,
the memory of the early, unconditional TARP assistance will linger.
If Dodd-Frank proves more effective, or if it is amended to plug
its holes, then TARP will not have much of a legacy.

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D. Kenneth Rogoff, Thomas D. Cabot Professor of Public
Policy and Professor of Economics at Harvard University
It is impossible to assess TARP outside a broader evaluation of
the government’s generalized response to the financial crisis, including explicit and implicit loan guarantees to banks, as well as
massive and diverse policy interventions by the Federal Reserve. In
many ways, TARP was simply the most transparent and straightforward component of the financial bailout. The value of the loan
guarantees and Federal Reserve support was likely much larger in
the sense that taxpayers stood to lose hundreds of billions if not
trillions of dollars in the event of a deepening of the financial crisis, a real risk even with government bailouts. Yet, despite effectively nationalizing the liabilities of the major financial institutions, the government did not wipe out the equity holders or even
the junior bondholders in most cases. A proper cost-benefit analysis
thus needs to price the risk the taxpayer took on during the financial crisis. Ex post accounting (how much did the government actually earn or lose after the fact) can yield an extremely misguided
measure of the true cost of the bailout, especially as a guide to future policy responses. For example, had a major geopolitical crisis
broken out while the banking system remained so fragile, the gov-

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ernment guarantees might well have been called in on a large
scale.
Stepping back from technical issues surrounding measuring how
the bailout was conducted, a broader question is whether ‘‘it
worked.’’ Would Americans have been worse off if TARP had never
happened, if the government had waited to reconstitute financial
institutions only after accelerated bankruptcies, if more efforts had
been made to write down mortgages? There are no simple answers
to these questions. One imagines that economic historians will debate the efficacy of the various bailout policies for decades to come.
Most economists believe that there was a palpable risk of a second
great depression, had the government not acted forcefully to stave
off panic and stabilize the financial system. It is very difficult to
disentangle the effects on short-term confidence of the various policies.
Given all the huge efforts of the government, including TARP, it
is sobering to note that in the aftermath of the crisis, the U.S.
economy has by and large been driving down the tracks of previous
deep postwar financial crises. If one uses the benchmarks for housing prices, equity prices, unemployment, government debt, and
length of recession given in Reinhart and Rogoff (2009),396 the
United States has so far been performing remarkably typically. Unfortunately, recessions marked by deep financial crises are generally followed by slow protracted recoveries in which unemployment remains elevated for many years, and housing prices remain
depressed even longer. The continuing slow recovery in the United
States is the norm.
One difference between the United States’ recent financial crisis
and many other deep financial crises is that the government retained its borrowing capacity even at the peak of the crisis. This
allowed the Treasury to cushion the economy against the crisis in
the short run, but by avoiding a rash of bankruptcies, the response
also failed to deflate the excess leverage from the system. The excess leverage, particularly in the consumer sector, implies a long
period of low consumption as consumers attempt to repair their
balance sheets, especially in light of the lower value of their
houses. Those firms and individuals that do want to borrow face
much tighter credit conditions, with the exception of very large
firms with access to capital markets. Thus, the U.S. faces a heightened risk of a Japan-type scenario with a prolonged period of subpar growth. The principle of TARP, of course, was to facilitate price
discovery and adjustment, but in practice that seems to have been
a very secondary consideration.
There are many further issues that one could take up. For example, the bailout with its huge generosity to the large ‘‘too big to fail’’
financial institutions has greatly exacerbated moral hazard problems. The Dodd-Frank financial regulation bill goes some ways to
mitigating the problem, as does the recent Basel accord, but it is
not at all clear that these go far enough. Obviously, the ‘‘too big
to fail’’ policy has put small banks at a huge disadvantage in rais396 Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Oct. 2009).

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ing funding, even banks that followed conservative policies in the
run up to the crisis.
In sum, TARP was the most visible of a multipronged approach
to subsidizing the financial sector to avoid a meltdown, but it was
by no means the only one, with Federal Reserve policy and loan
guarantees constituting arguably far larger and more important
subsidies, especially if one uses as a benchmark underlying risk-adjusted interest rates. These subsidies, however, were less transparent, and of course TARP funds covered some of the ugliest and
most painful parts of the bailout, including, for example, AIG.
Overall, the government’s bailout policy has to be given credit for
averting the second great depression that might have happened in
its absence. It has not, however, succeeded so far in giving a measurably better trajectory for the economy than has been typical after
other postwar deep financial crises.

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SECTION TWO: ADDITIONAL VIEWS
A.

J. Mark McWatters and Professor Kenneth R. Troske

We concur with the issuance of the September report and offer
the additional observations below. We appreciate the efforts the
Panel and staff made incorporating our suggestions offered during
the drafting of the report.
In these Additional Views we make the following five points:
• Repayment by TARP recipients of advances received under the
program is a misleading measure of the effectiveness of the TARP
and therefore should not serve as the standard by which the TARP
is judged.
• The unlimited bailout of Fannie Mae and Freddie Mac by
Treasury and the purchase of $1.25 trillion of GSE-guaranteed
MBS in the secondary market by the Federal Reserve benefitted
TARP recipients and other financial institutions.
• According to the Congressional Budget Office, the bailout of
Fannie Mae and Freddie Mac is projected to cost more than five
times the projected cost of the TARP, including the Capital Purchase Program employed by Treasury to bail out over 700 financial
institutions. TARP recipients and other holders of GSE-guaranteed
MBS who benefitted from the bailout of the two GSEs are not required, however, to share any of the costs incurred in the bailout.
• The bailout of Fannie Mae and Freddie Mac permitted TARP
recipients to monetize their GSE-guaranteed MBS at prices above
what they would have received without the GSE guarantee and use
the proceeds to repay their obligations outstanding under the
TARP, thereby arguably shifting a greater portion of the cost of the
TARP from the TARP recipients themselves to the taxpayers. Costs
such as this should be included when evaluating the TARP.
• The TARP created significant moral hazard risks and all but
enshrined the concept that some financial institutions and other
business enterprises are too big or too interconnected to fail.

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1. Treasury Advocates an Inappropriate Metric for Assessing TARP
As is indicated in the report, among the general public the TARP
remains one of the most vilified programs enacted by the federal
government, viewed largely as an effort by former Wall Street executives to bail out current Wall Street executives at the expense
of American taxpayers, with no measurable benefits accruing to the
taxpayers.397 In contrast, both current and former Treasury officials state over and over that the TARP was a success because it
helped avoid a much more severe financial crisis that would have
caused taxpayers to suffer even greater harm. In our view, Treas397 In our view, the TARP—acting as the financial equivalent of a hospital ER—was helpful
in returning financial stability to the markets during the last quarter of 2008 when properly
considered along with the substantial and aggressive interventions of the Federal Reserve,
Treasury, and the FDIC as well as the actions of the markets themselves. We nevertheless wonder if the Federal Reserve, Treasury, and the FDIC could not have effectively assisted the markets in achieving financial stability without additional governmental intervention. The TARP,
however, has failed as a broader public policy initiative by: (1) permitting Treasury (and not
the markets) to pick winners and losers (that is, which companies are bailed out and on what
terms); (2) injecting substantial moral hazard risk into the markets; and (3) all but enshrining
the doctrine that some financial institutions and other business enterprises are simply too big
or too interconnected to fail.

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ury is struggling to convince the American public of the TARP’s
success by advocating the acceptance of a metric—whether or not
the TARP money has been repaid—that is simply not a credible
measure of success. Professor Kenneth Rogoff addressed this issue
in his written submission to the Panel where he states:
A proper cost benefit analysis thus needs to price the
risk the taxpayer took on during the financial crisis. Ex
post accounting (how much did the government actually
earn or lose after the fact) can yield an extremely misguided measure of the true cost of the bailout, especially
as a guide to future policy responses.398

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2. The Bailout of the GSEs and Its Consequences to TARP
Recipients
One of the important ways this metric can be misleading is if
other government programs that are not part of the TARP either
directly or indirectly enhanced TARP recipients’ ability to repay the
government. One program that has potentially played a key role,
but has received relatively less attention, is Treasury’s bailout of
Fannie Mae and Freddie Mac.399 Had Fannie Mae and Freddie
Mac been allowed to fail, TARP recipients and other financial institutions holding MBS guaranteed by the two GSEs most likely
would have had little choice but to retain some of the MBS on their
books. The eventual write-down in the value of these securities
quite possibly would have resulted in many of these institutions
suffering significant financial losses.400 This in turn would have
impaired their ability to pay back their TARP funding and may
have required them to obtain additional advances from the TARP.
As it was, Treasury stepped in and provided unlimited support for
all outstanding MBS guaranteed by Fannie Mae and Freddie Mac.
In addition, the Federal Reserve has recently purchased $1.25
trillion of GSE-guaranteed MBS in the secondary market from
TARP recipients, other financial institutions and other investors
and issuers.401 Although the Federal Reserve purchased the MBS
at fair market value at the time of the transaction, it is significant
to note that the pricing reflected the value of the guarantee provided by Treasury through its unlimited bailout of Fannie Mae and
Freddie Mac.402 By returning the GSE-guaranteed MBS to Fannie
398 Kenneth Rogoff, Written Answers to Questions Posed by the Congressional Oversight
Panel (Aug. 2010). In contrast to a simple ‘‘TARP has been repaid’’ standard, OMB and CBO
measure the cost of TARP (as required by Section 123 of EESA) using discounted present value
of the cash flows involved (‘‘credit reform’’ methodology) where the discounted rate is explicitly
adjusted ‘‘for market risk.’’
399 See Treasury HERA Update, supra note 372.
400 Even if holders of the GSE-guaranteed MBS were able to avoid the recognition of their
built-in losses under the revised mark-to-market accounting rules, the holders would have been
required to recognize such losses upon the disposition of the securities.
401 Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report
on Credit and Liquidity Programs and the Balance Sheet, at 1 (Aug. 2010) (online at
www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201008.pdf).
402 Without viable GSE guarantees, the MBS most likely would have traded at fair market
value prices of well below par (due to the impairment of the underlying mortgage collateral securing the MBS), but with viable GSE guarantees, the MBS most likely would have traded at
or near par. For example, if Fannie Mae and Freddie Mac were insolvent, a $100 face value
GSE-guaranteed MBS might have traded for $40, but if Fannie Mae and Freddie Mac were solvent and hence able to perform in full under their guarantees, the same MBS might have traded
at or near par, that is, $100. By bailing out Fannie Mae and Freddie Mac, Treasury in effect
transferred $60 from the taxpayers to the holders of the GSE-guaranteed MBS. In addition, if
Continued

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Mae and Freddie Mac, or by selling them to the Federal Reserve
or third-party investors, TARP recipient holders of the MBS were
able to remove the securities from their balance sheets at prices
above what they would have received without the GSE-guarantee
and use the sales proceeds to ‘‘pay back’’ their outstanding obligations under the TARP.403 The bailout of the two GSEs by Treasury
thus had the potential to shift losses suffered under the TARP to
losses suffered by another Treasury program that has not been
subject to the same oversight or public scrutiny.404 As this example
illustrates, any evaluation of the success of the TARP has to take
into account the interaction among all government programs designed to prop up the financial system and how costs may have
been shifted among these programs.

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3. Analysis of CBO Subsidy Cost of the TARP and Bailout of
the GSEs
The Congressional Budget Office (CBO) estimates that Treasury’s bailout of Fannie Mae and Freddie Mac will cost the taxpayers approximately $291 billion through fiscal year 2009 and
$389 billion through fiscal year 2019.405 If only 25 percent 406 of
the CBO cost of the bailouts ultimately inures to the benefit of
TARP recipients and other financial institutions, Treasury will
have provided a subsidy to these institutions of approximately $100
billion.407 This non-TARP government sponsored support—unlike
obligations incurred under the TARP itself 408—remains cost-free to
the recipients. That is, holders of GSE-guaranteed MBS are not required to share any of the cost incurred by the taxpayers arising
from Treasury’s bailout of Fannie Mae and Freddie Mac.409
The cost to the taxpayers of the bailout of the two GSEs is all
the more remarkable when compared to the most recent CBO cost
estimate for the entire TARP program of ‘‘only’’ $66 billion.410 The
TARP recipients and other financial institution sellers had previously written down their MBS,
a sale to the Federal Reserve or another investor at or near par might have permitted the institutions to book an accounting gain.
403 Some of the funds employed to bail out the two GSEs most likely followed a round-trip
from Treasury to Fannie Mae/Freddie Mac to TARP recipient sellers of GSE-guaranteed MBS
and back to Treasury as the repayment of TARP advances. Since money is fungible, it is possible
that the proceeds received from the sale of GSE-guaranteed MBS freed up other funds—including proceeds received from the sale of equity and debt securities—that were actually used to
repay amounts outstanding under the TARP.
404 The bailout of Fannie Mae and Freddie Mac by Treasury arguably permitted TARP recipients to extinguish part of their outstanding TARP obligations with the proceeds received from
the disposition of their GSE-guaranteed MBS at prices subsidized by the bailout of the two
GSEs. Without the bailout, TARP recipients quite possibly would have been stuck with their
illiquid, severely depressed GSE-guaranteed MBS as well as with a greater portion of their outstanding TARP obligations.
405 Congressional Budget Office, Budgetary Treatment of Fannie Mae and Freddie Mac, at 8
(Jan. 2010) (online at www.cbo.gov/ftpdocs/108xx/doc10878/01-13-FannieFreddie.pdf).
406 Since the CBO estimates that the bailout of Fannie Mae and Freddie Mac will cost the
taxpayers approximately $400 billion, Treasury should disclose the amount of the subsidy cost
that will inure to the benefit of TARP recipients and other financial institutions.
407 $389 billion CBO subsidy cost estimate for the bailout of Fannie Mae and Freddie Mac
multiplied by 25 percent, equals $97.25 billion.
408 Participants in the Capital Purchase Program (the financial institution bailout program included in the TARP) are required to repay all funds advanced thereunder, together with interest
or dividends (as applicable) thereon, and to grant Treasury warrants to purchase equity interests in the recipients.
409 Presumably, Treasury could have underwritten, for example, only 50 percent of the unfunded guarantee obligations of Fannie Mae and Freddie Mac and required the holders of the
GSE-guaranteed MBS to absorb the remaining loss.
410 CBO Report on the TARP—March 2010, supra note 67, at 3 (noting a subsidy cost for the
TARP of $109 billion as of March 2010). See also CBO’s Latest Projections for the TARP, supra
note 68 (noting a subsidy cost for the TARP of $66 billion as of August 20, 2010).

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CBO also estimates that the financial institution bailout component of TARP—the Capital Purchase Program (CPP)—will return
a profit of approximately $2 billion.411 While TARP has been vigorously debated throughout the country over the past two years and
has served as a lightning rod for those who question governmentsanctioned bailout programs, it is indeed ironic that the relatively
obscure bailout of Fannie Mae and Freddie Mac is projected to
carry a cost to the taxpayers of more than five times the projected
cost of the much maligned TARP.412 It is also ironic that the original plan proposed by Secretary Paulson under the TARP to purchase distressed GSE-guaranteed MBS and other ‘‘toxic assets’’ was
at least partially implemented outside of the TARP by the Federal
Reserve through its quantitative easing program and by Treasury
through its unlimited bailout of Fannie Mae and Freddie Mac, both
at no cost to TARP recipients and other holders of GSE-guaranteed
MBS but at significant long-term expense to the taxpayers.

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4. Moral Hazard and Too-Big-To-Fail Risks Enhanced by the
TARP
Other potential costs of the TARP that we feel deserve more attention are the future costs resulting from the use of TARP funds
to bail out systemically important financial and other firms. By targeting much of the TARP funding towards large firms such as
Citigroup, Bank of America, A.I.G., Chrysler, GM, and Ally Financial (formerly GMAC),413 which solidified the market’s belief in an
implicit guarantee from the government for these firms, the TARP
has exacerbated the ‘‘too big to fail’’ phenomenon.414 This in turn
411 See CBO Report on the TARP—March 2010, supra note 67, at 3. See also CBO Budget and
Economic Outlook, supra note 68, at 70.
412 $389 billion CBO projected subsidy cost for the bailout of Fannie Mae and Freddie Mac
through 2019, divided by $66 billion CBO projected subsidy cost for the TARP, equals 5.89.
413 It is worth noting that while markets seemed to recognize the existence of the ‘‘too big to
fail’’ guarantee for large financial firms, by using the TARP to bail out Chrysler and GM, Treasury appears to have extended Too-Big-To-Fail to large non-financial firms.
414 The Additional Views issued by J. Mark McWatters and former Panel member Paul S. Atkins with respect to the Panel’s January 2010 report on ‘‘Exiting TARP and Unwinding Its Impact on the Financial Markets’’ describes some of the challenges presented by the TARP:
The January report analyzes the difficulties that may arise when the United States government directly or indirectly undertakes to prevent certain systemically significant institutions from failing. Although the government does not generally guarantee the assets and obligations of private entities, its actions and policies may nevertheless send
a clear message to the market that some institutions are simply too big or too interconnected to fail. Once the government adopts such a policy it is difficult to know how
and where to draw the line. With little public debate, automobile manufacturers were
recently transformed into financial institutions so they could be bailed out with TARP
funds and an array of arguably non-systemically significant institutions—such as
GMAC—received many billions of dollars of taxpayer funded subsidies. In its haste to
restructure favored institutions, the government may assume the role of king maker—
as was surely the case in the Chrysler and GM bankruptcies—and dictate a reorganization structure that arguably contravenes years of well-established commercial and corporate law precedent. The unintended consequences of these actions linger in the financial markets and legal community long after the offending transactions have closed and
adversely—yet subtly—affect subsequent transactions that carry any inherent risk of
future governmental intervention. The uninitiated may question why two seemingly
identical business transactions merit disparate risk-adjusted rates of return or why
some transactions appear over-collateralized or inexplicably complicated. The costs of
mitigating political risk in private sector business transactions are seldom quantified
or even discussed outside the cadre of business persons and their advisors who structure, negotiate and close such transactions, yet such costs certainly exist and must be
satisfied.
Congressional Oversight Panel, Additional Views of J. Mark McWatters and Paul S. Atkins—
January Oversight Report: Exiting TARP and Unwinding Its Impact on the Financial Markets
Continued

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provides these large firms with a substantial cost advantage over
their smaller, less systemically important competitors, which will
lead to a more concentrated financial sector and higher prices paid
by customers of banks and other financial companies. In addition,
creating larger, more systemically important financial firms increases the likelihood of future financial crises because these firms
have an incentive to invest in riskier projects as a result of the
guarantee provided by the government. The additional costs borne
by consumers in the form of higher prices for financial services and
the additional costs that result from additional financial crises
need to be included in any accounting of the costs of the TARP.

at 157–158 (Jan.
atkinsmcwatters.pdf).

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SECTION THREE: TARP UPDATES SINCE LAST REPORT
A. Financial Update
Each month, the Panel summarizes the resources that the federal government has committed to economic stabilization. The following financial update provides: (1) an updated accounting of the
TARP, including a tally of dividend income, repayments and warrant dispositions that the program has received as of July 31, 2010;
and (2) an updated accounting of the full federal resource commitment as of September 1, 2010.
1. The TARP
a. Program Updates 415
Since the enactment of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Treasury’s commitments for TARP programs totaled $475 billion.416 Of this amount, $394.8 billion had
been spent under the $475 billion ceiling and $204.1 billion in
TARP funds have been repaid. There have also been $5.8 billion in
losses, leaving $185 billion in TARP funds currently outstanding.
During the month of August, Citizens & Northern Corporation
and Columbia Banking System, Inc. fully repaid their CPP investments. Treasury received $26.4 million and $76.9 million, respectively, in repayments from these two institutions. To date, a total
of 91 institutions have redeemed their CPP preferred shares.
Among those institutions that have repaid CPP funds, nine
banks exchanged their CPP investments for an equivalent investment amount under the Community Development Capital Initiative (CDCI) in August. After qualifying banks complete the exchange, Treasury records its CPP investment in these banks as repaid. Since the first exchanges took place in July, 11 banks have
exchanged $110.2 million in CPP investments. Of the $780 million
Treasury committed to spend under the CDCI program, $143.2 million has been invested, which includes additional investments in
University Financial Corp, Inc. ($10.2 million) and Southern
Bancorp, Inc. ($22.8 million).
b. Income: Dividends, Interest, Repayments, and Warrant Sales
As of September 1, 2010, 41 institutions have repurchased their
warrants for common shares that Treasury received in conjunction
with its preferred stock investments; Treasury sold the warrants
for common shares for 13 other institutions at auction. On Sep-

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415 Sept.

3 TARP Transactions Report, supra note 26.
416 The original $700 billion TARP ceiling was reduced by $1.3 billion as part of the Helping
Families Save Their Homes Act of 2009. The authorized total commitment level was later reduced to $475 billion as part of the Frank-Dodd Financial Reform Bill that was signed into law
on July 21, 2010. 12 U.S.C. § 5225(a)–(b); Helping Families Save Their Homes Act of 2009, supra
note 2, § 40 (reducing by $1.26 billion the authority for the TARP originally set under EESA
at $700 billion). On June 30, 2010, the House-Senate Conference Committee agreed to reduce
the amount authorized under the TARP from $700 billion to $475 billion as part of the DoddFrank Wall Street Reform and Consumer Protection Act. See Dodd-Frank Wall Street Reform
and Consumer Protection Act, supra note 15, § 335. On July 21, 2010, President Obama signed
the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. The White House,
Remarks by the President at Signing of Dodd-Frank Wall Street Reform and Consumer Protection Act (July 21, 2010) (online at www.whitehouse.gov/the-press-office/remarks-president-signing-dodd-frank-wall-street-reform-and-consumer-protection-act).

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112
tember 1, 2010, Citizens & Northern Corporation and Columbia
Banking System, Inc. repurchased their warrants for $400,000 and
$3.3 million, respectively.
On September 7, 2010, Treasury announced its plans to sell its
warrants for The Hartford Financial Services Group, Inc. and Lincoln National Corporation through public auctions. Details regarding the pricing of the warrants and dates of the offering have yet
to be announced. Deutsche Bank Securities Inc. will act as the auction agent and sole bookrunning manager for both warrant auctions.417
Treasury also receives dividend payments on the preferred
shares that it holds, usually five percent per annum for the first
five years and nine percent per annum thereafter.418 In total,
Treasury has received approximately $23 billion in net income from
warrant repurchases, dividends, interest payments and other considerations deriving from TARP investments.419 For further information on TARP profit and loss, see Figure 35.

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c. TARP Accounting

417 U.S. Department of the Treasury, Treasury Announces Intent To Sell Warrant Positions In
Public Dutch Auctions (Sept. 7, 2010) (online at financialstability.gov/latest/pr_09072010.html).
418 U.S. Department of the Treasury, Securities Purchase Agreement for Public Institutions
(online at www.financialstability.gov/docs/CPP/spa.pdf) (accessed Sept. 14, 2010).
419 U.S. Department of the Treasury, Cumulative Dividends and Interest Report as of July 31,
2010 (Aug. 17, 2010) (online at www.financialstability.gov/docs/dividends-interest-reports/
July%202010%20Dividends%20and%20Interest%20Report.pdf) (hereinafter ‘‘Cumulative Dividends and Interest Report’’); Sept. 3 TARP Transactions Report, supra note 26. Treasury also
received an additional $1.2 billion in participation fees from its Guarantee Program for Money
Market Funds. U.S. Department of the Treasury, Treasury Announces Expiration of Guarantee
Program for Money Market Funds (Sept. 18, 2009) (online at www.ustreas.gov/press/releases/
tg293.htm).

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$204.9
40.0
5.0
xxxvi 49.1
81.3
0.4
xli 0.1
xliii 13.1
xlv 0.29
0.4
xlvii 0.04
0
0.14
394.77

Actual
Funding

Total
Losses
xxxiv ($2.3)

Total
repayments/
reduced
Exposure

0
0
0
xxxvii (3.5)
0
0
0
0
0
0
0
0
(5.8)

(40.0)
0
(10.8)
(0.4)
0
xliv (0.4)
0
0
0
0
0
(204.1)

xxxv (5.0)

xxiii ($147.5)

$55.1
0
0
49.1
xxxviii 67.1
0
0.1
12.7
0.29
0.4
0.04
0
0.14
184.97

Funding
Currently
Outstanding

$0
0
0
20.7
0
0
4.2
9.3
0.11
30.1
4.06
11
0.66
80.13

Funding
Available

xxxii Figures affected by rounding. Unless otherwise noted, data in this table are from the following source: U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010
(Sept. 3, 2010) (online at financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
xxxiii Total amount repaid under CPP includes $8.5 billion Treasury received as part of its sales of Citigroup common stock. As of September 1, 2010, Treasury has sold 2.6 billion Citigroup common shares for $10.5 billion in gross proceeds. In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion shares of the company’s common stock at $3.25 per share. Therefore, Treasury received $2 billion in net proceeds from the sale of Citigroup
common
stock.
U.S.
Department
of
the
Treasury,
Troubled
Asset
Relief
Program
Transactions
Report
for
the
Period
Ending
September
1,
2010
(Sept.
3,
2010)
(online
at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf). Total CPP repayments also include amounts repaid by institutions that exchanged their CPP investments for investments under the
CDCI. For more details on the companies who are now participating in the CDCI, see footnote 229, supra.
xxxiv On the Transactions Report, Treasury has classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as losses. Therefore, Treasury’s net current CPP investment is
$55.1 billion due to the $2.3 billion in losses thus far. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3, 2010) (online at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
xxxv Although this $5 billion is no longer exposed as part of the AGP and is accounted for as available, Treasury did not receive a repayment in the same sense as with other investments. Treasury did receive other income as consideration for the guarantee, which is not a repayment and is accounted for in Figure 36.
xxxvi AIG has completely utilized the $40 billion made available on November 25, 2008. It has also drawn down $7.5 billion of the $29.8 billion made available on April 17, 2009. This figure also reflects $1.6 billion in accumulated but
unpaid dividends owed by AIG to Treasury due to the restructuring of Treasury’s investment from cumulative preferred shares to non-cumulative shares. American International Group, Inc., Form 10–K for the Fiscal Year Ended December 31,
2009, at 45 (Feb. 26, 2010) (online at www.sec.gov/Archives/edgar/data/5272/000104746910001465/a2196553z10-k.htm); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending July 30, 2010, at
20 (Aug. 3, 2010) (online at www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf).
xxxvii On May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion loan to Chrysler Holding. The payment represented a $1.6 billion loss from the termination of the debt obligation. U.S. Department of the
Treasury, Chrysler Financial Parent Company Repays $1.9 Billion in Settlement of Original Chrysler Loan (May 17, 2010) (online at www.financialstability.gov/latest/pr-05172010c.html). Also, following the bankruptcy proceedings for Old Chrysler, which extinguished the $1.9 billion debtor-in-possession (DIP) loan, Treasury retained the right to recover the proceeds from the liquidation of specified collateral. To date, Treasury has collected $30.5 million in proceeds from the sale of
collateral, although it ultimately does not expect a significant recovery from the liquidation proceeds. Treasury includes these proceeds as part of the $10.8 billion repaid under the AIFP. U.S. Department of the Treasury, Troubled Assets Relief
Program Monthly 105(a) Report—August 2010 (Sept. 10, 2010) (online at financialstability.gov/docs/105CongressionalReports/August%202010%20105(a)%20Report-final-9%2010%2010.pdf); Treasury conversations with Panel staff (Aug. 19,
2010).
xxxviii The $1.9 billion Chrysler debtor-in-possession loan, which was extinguished April 30, 2010, was deducted from Treasury’s AIFP investment amount; however, it is not regarded as a loss since there is an opportunity for Treasury to
recover a portion of the loan from the sale of collateral. See Endnote xxxvii supra, for details on losses from Treasury’s investment in Chrysler.

$204.9
40.0
5.0
69.8
81.3
0.4
xl 4.3
22.4
0.4
30.5
xlvi 4.1
11.0
xlviii 0.8
$475

Current
maximum
amount
available

[Dollars in billions] xxxii

FIGURE 35: TARP ACCOUNTING (AS OF SEPTEMBER 1, 2010)

Capital Purchase Program (CPP) ............................................................................................................
Targeted Investment Program (TIP) ........................................................................................................
Asset Guarantee Program (AGP) .............................................................................................................
AIG Investment Program (AIGIP) .............................................................................................................
Auto Industry Financing Program (AIFP) ................................................................................................
Auto Supplier Support Program (ASSP) xxxix .........................................................................................
Term Asset-Backed Securities Loan Facility (TALF) ...............................................................................
Public-Private Investment Program (PPIP) xlii ........................................................................................
SBA 7(a) Securities Purchase .................................................................................................................
Home Affordable Modification Program (HAMP) .....................................................................................
Hardest Hit Fund (HHF) ..........................................................................................................................
FHA Refinance Program ..........................................................................................................................
Community Development Capital Initiative (CDCI) ................................................................................
Total ...............................................................................................................................................

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xxxix On April 5, 2010, Treasury terminated its commitment to lend to the GM SPV under the ASSP. On April 7, 2010, it terminated its commitment to lend to the Chrysler SPV. In total, Treasury received $413 million in repayments from
loans provided by this program ($290 million from the GM SPV and $123 million from the Chrysler SPV). Further, Treasury received $101 million in proceeds from additional notes associated with this program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3, 2010) (online at financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
xl For the TALF program, one dollar of TARP funds was committed for every $10 of funds obligated by the Federal Reserve. The program was originally intended to be a $200 billion initiative, and the TARP was responsible for the first $20
billion in loan-losses, if any were incurred. The loan is incrementally funded. As of September 1, a total of $43 billion in loans was outstanding under the TALF program, and TARP’s commitments constituted $4.3 billion. The Federal Reserve
Board of Governors agreed that it was appropriate for Treasury to reduce TALF credit protection to $4.3 billion. Board of Governors of the Federal Reserve System, Federal Reserve Announces Agreement with the Treasury Department Regarding
a Reduction of Credit Protection Provided for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100720a.htm).
xli As of September 1, Treasury provided $105 million to TALF LLC. This total includes accrued payable interest. Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) (Sept. 2, 2010) (online at
www.federalreserve.gov/releases/h41/20100902/).
xlii On July 19, 2010, Treasury released its third quarterly report on the Legacy Securities Public-Private Investment Partnership (PPIP). As of June 30, 2010, the total value of assets held by the PPIP managers was $16 billion. Non-agency
Residential Mortgage-Backed Securities represented 85 percent of the total, CMBS represented the balance. U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program, Program Update—Quarter Ended June 30, 2010
(July 19, 2010) (online at www.financialstability.gov/docs/111.pdf).
xliii U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—July 2010, at 6 (Aug. 10, 2010) (online at www.financialstability.gov/docs/105CongressionalReports/July%202010%20105(a)%20Report—Final.pdf).
xliv As of September 1, 2010, Treasury has received $368 million in capital repayments from two PPIP fund managers. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1,
2010 (Sept. 3, 2010) (online at financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
xlv In July, Treasury made $48 million in additional purchases under the SBA 7(a) Securities Purchase Program. As of September 1, 2010, Treasury’s purchases totaled $261.7 million. U.S. Department of the Treasury, Troubled Asset Relief
Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3, 2010) (online at financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
xlvi As part of the Dodd-Frank Act, an additional $2 billion in TARP funds was committed to mortgage assistance for unemployed borrowers through the Hardest Hit Fund. U.S. Department of the Treasury, Obama Administration Announces
Additional Support for Targeted Foreclosure-Prevention Programs to Help Homeowners Struggling with Unemployment (Aug. 11, 2010) (online at www.ustreas.gov/press/releases/tg823.htm).
xlvii This figure represents the total amount paid to date to state Housing Finance Agencies (HFAs). The Panel previously reported the actual funding amount for the Hardest Hit Fund as the total amount approved by the Administration. As
of September 10, 2010, four state HFAs have drawn out funds from their total investment amount. Data provided by Treasury (Sept. 10, 2010).
xlviii During the month of August, nine institutions exchanged their CPP investments for an equivalent investment amount under the CDCI. On August 6, 2010, Treasury made an additional $22.8 million investment in Southern Bancorp, Inc.
as part of the institution’s exchange. As of September 1, 2010, Treasury’s total current investment under the CDCI is $143.2 million. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending September 1, 2010 (Sept. 3, 2010) (online at financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).

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115
FIGURE 36: TARP PROFIT AND LOSS
[Dollars in millions]

TARP Initiative

Total .............................................
CPP ...............................................
TIP ................................................
AIFP ..............................................
ASSP .............................................
AGP ...............................................
PPIP ..............................................
Bank of America Guarantee ........

Dividendsx xlix
(as of
7/31/2010)

$15,906
9,431
3,004
liv 3,060
—
411
—
—

Warrant
Disposition
Proceeds li
(as of
9/1/2010)

Interest l
(as of
7/31/2010)

$893
39
—
802
15
—
38
—

$7,217
5,946
1,256
15
—
0
—
—

Other
Proceeds
(as of
7/31/2010)

$4,739
liii 2,026

—
—
lv 101
lvi 2,234
lvii 102
lviii 276

Losses lii
(as of
9/1/2010)

($5,792)
(2,334)
....................
(3,458)
....................
....................
....................
....................

Total

$22,963
15,108
4,260
419
116
2,645
139
276

xlix U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of July 31, 2010 (Aug. 17, 2010) (online at
www.financialstability.gov/docs/dividends-interest-reports/July%202010%20Dividends%20and%20Interest%20Report.pdf).
l U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of July 31, 2010 (Aug. 17, 2010) (online at
www.financialstability.gov/docs/dividends-interest-reports/July%202010%20Dividends%20and%20Interest%20Report.pdf).
li U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3,
2010) (online at financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
lii On the Transactions Report, Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast
National Bancorp ($4.1 million), as losses. Two TARP recipients, UCBH Holdings, Inc. ($298.7 million) and a banking subsidiary of Midwest
Banc Holdings, Inc. ($89.4 million), are currently in bankruptcy proceedings. Finally, Sonoma Valley Bancorp, which received $8.7 million in
CPP funding, was placed into receivership on August 20, 2010. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions
Report
for
the
Period
Ending
September
1,
2010
(Sept.
3,
2010)
(online
at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf); Federal Deposit Insurance Corporation, Westamerica Bank, San Rafael, California, Assumes All of the Deposits of Sonoma Valley Bank, Sonoma, California (Aug. 20, 2010)
(online at www.fdic.gov/news/news/press/2010/pr10196.html).
liii This figure represents net proceeds to Treasury from the sale of Citigroup common stock to date. The net proceeds account for Treasury’s exchange in June 2009 of $25 billion in Citigroup preferred shares for 7.7 billion shares of the company’s common stock at $3.25 per
share. On May 26, 2010, Treasury completed the sale of 1.5 billion shares of Citigroup common stock at an average weighted price of $4.12
per share. On June 30, 2010, Treasury announced the sale of approximately 1.1 billion of additional shares of Citigroup stock at an average
weighted price of $3.90 per share. Treasury opened a third selling period on July 23, 2010, with plans to sell another 1.5 billion shares by
September 30, 2010. As of September 1, 2010, Treasury has received $10.5 billion in gross proceeds from these sales. U.S. Department of the
Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3, 2010) (online at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
liv This figure includes $815 million in dividends from GMAC preferred stock, trust preferred securities, and mandatory convertible preferred
shares. The dividend total also includes a $748.6 million senior unsecured note from Treasury’s investment in General Motors. Data provided
by Treasury.
lv This represents the total proceeds from additional notes. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report
for
the
Period
Ending
September
1,
2010
(Sept.
3,
2010)
(online
at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
lvi As a fee for taking a second-loss position of up to $5 billion on a $301 billion pool of ring-fenced Citigroup assets as part of the AGP,
Treasury received $4.03 billion in Citigroup preferred stock and warrants. Treasury exchanged these preferred stocks for trust preferred securities in June 2009. Following the early termination of the guarantee, Treasury cancelled $1.8 billion of the trust preferred securities, leaving
Treasury with a $2.2 billion investment in Citigroup trust preferred securities. At the end of Citigroup’s participation in the FDIC’s TLGP, the
FDIC may transfer $800 million of $3.02 billion in Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to
Treasury. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010, at 20
(Sept. 3, 2010) (online at financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf); U.S.
Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Citigroup Inc., Termination
Agreement,
at
1
(Dec.
23,
2009)
(online
at
www.financialstability.gov/docs/Citi%20AGP%20Termination%20Agreement%20-%20Fully%20Executed%20Version.pdf); Federal Deposit Insurance
Corporation, 2009 Annual Report, at 87 (June 30, 2010) (online at www.fdic.gov/about/strategic/report/2009annualreport/AR09final.pdf).
lvii As of July 31, 2010, Treasury has earned $80.9 million in membership interest distributions from the PPIP. Additionally, Treasury has
earned $20.6 million in total proceeds following the termination of the TCW fund. U.S. Department of the Treasury, Cumulative Dividends, Interest
and
Distributions
Report
as
of
July
31,
2010
(Aug.
17,
2010)
(online
at
financialstability.gov/docs/dividends-interest-reports/July%202010%20Dividends%20and%20Interest%20Report.pdf); U.S. Department of the
Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3, 2010) (online at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
lviii Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America regarding a similar guarantee, the parties never
reached an agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as though the guarantee
had been in place during the negotiations period. This agreement resulted in payments of $276 million to Treasury, $57 million to the Federal
Reserve, and $92 million to the FDIC. U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Bank of America Corporation, Termination Agreement, at 1-2 (Sept. 21, 2009) (online at
www.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-%20executed.pdf).

d. CPP Unpaid Dividend and Interest Payments 420
As of July 31, 2010, 97 institutions have missed at least one dividend payment on preferred stock issued under CPP.421 Among
these institutions, 72 are not current on cumulative dividends,
which amount to $137.1 million in missed payments, while another
25 banks have not paid $6.3 million in non-cumulative dividends.
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420 Cumulative

Dividends and Interest Report, supra note 419.
not include banks with missed dividend payments that have either repaid all delinquent dividends, exited TARP, gone into receivership, or filed for bankruptcy.
421 Does

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116
Of the $55.1 billion currently outstanding in CPP funding, Treasury’s investments in banks with non-current dividend payments
total $3.6 billion. A majority of the banks that remain delinquent
on dividend payments have under $1 billion in total assets on their
balance sheets.
To date, there are 15 institutions that previously deferred dividend payments, but have repaid all delinquent dividends. One
bank, thus far, has failed to make six dividend payments. Under
the terms of CPP, after a bank fails to pay dividends for six periods, Treasury has the right to elect two individuals to the company’s board of directors.422 Figure 37 below details the number of
institutions that have missed dividend payments.
In addition, 6 CPP participants have missed at least one interest
payment, totaling $2.4 million in non-current interest payments.
Treasury’s investments in these institutions represent less than $1
billion in CPP funding.
FIGURE 37: CPP MISSED DIVIDEND PAYMENTS (AS OF JULY 31, 2010) 423
Number of Missed Payments

1

Cumulative Dividends
Number of Banks, by asset size ...............................................
Under $1B .........................................................................
$1B–$10B .........................................................................
Over $10B .........................................................................
Non-Cumulative Dividends
Number of Banks, by asset size ...............................................
Under $1B .........................................................................
$1B–$10B .........................................................................
Over $10B .........................................................................

2

3

4

5

6

Total

20
15
5
0

18
12
4
2

16
9
7
0

14
7
6
1

4
1
3
0

0
0
0
0

72
44
25
3

6
5
1
0

5
4
1
0

4
4
0
0

5
5
0
0

4
4
0
0

1
1
0
0

25
18
1
0

423 Cumulative Dividends and Interest Report, supra note 419. Data on total bank assets compiled using SNL Financial data service
(accessed Sept. 8, 2010).

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e. Rate of Return
As of September 2, 2010, the average internal rate of return for
all public financial institutions that participated in the CPP and
fully repaid the U.S. government (including preferred shares, dividends, and warrants) was 9.9 percent. The internal rate of return
is the annualized effective compounded return rate that can be
earned on invested capital.
Since the Panel’s last report, Citizens & Northern Corporation
and Columbia Banking System repurchased their warrants for
common shares for $400,000 and $3.3 million, respectively. These
represent 85- and 50-percent, respectively, of the Panel’s best valuation estimate at the disposition date. To date, Treasury has received $7.2 billion in proceeds from CPP and TIP warrant dispositions.

422 U.S. Department of the Treasury, Frequently Asked Questions Capital Purchase Program
(CPP): Related to Missed Dividend (or Interest) Payments and Director Nomination (online at
www.financialstability.gov/docs/CPP/CPP%20Directors%20FAQs.pdf) (accessed Sept. 14, 2010).

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117
f. Warrant Disposition
FIGURE 38: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY
REPAID CPP FUNDS (AS OF SEPTEMBER 2, 2010)
Investment
Date

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Institution

Old National Bancorp
Iberiabank Corporation .......................
Firstmerit Corporation
Sun Bancorp, Inc ......
Independent Bank
Corp. .....................
Alliance Financial
Corporation ...........
First Niagara Financial Group ............
Berkshire Hills
Bancorp, Inc. ........
Somerset Hills
Bancorp ................
SCBT Financial Corporation ................
HF Financial Corp .....
State Street ..............
U.S. Bancorp .............
The Goldman Sachs
Group, Inc. ...........
BB&T Corp. ...............
American Express
Company ..............
Bank of New York
Mellon Corp ..........
Morgan Stanley .........
Northern Trust Corporation ................
Old Line Bancshares
Inc. .......................
Bancorp Rhode Island, Inc. ..............
Centerstate Banks of
Florida Inc. ...........
Manhattan Bancorp ..
CVB Financial Corp ..
Bank of the Ozarks ..
Capital One Financial
JPMorgan Chase &
Co. ........................
TCF Financial Corp ...
LSB Corporation ........
Wainwright Bank &
Trust Company .....
Wesbanco Bank, Inc.
Union First Market
Bankshares Corporation (Union
Bankshares Corporation) ...............
Trustmark Corporation .......................
Flushing Financial
Corporation ...........

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Warrant
Repurchase
Date

Panel’s Best
Valuation
Estimate at
Disposition
Date

Warrant
Repurchase/
Sale Amount

Price/
Estimate
Ratio

IRR
(Percent)

12/12/2008

5/8/2009

$1,200,000

$2,150,000

0.558

9.3

12/5/2008
1/9/2009
1/9/2009

5/20/2009
5/27/2009
5/27/2009

1,200,000
5,025,000
2,100,000

2,010,000
4,260,000
5,580,000

0.597
1.180
0.376

9.4
20.3
15.3

1/9/2009

5/27/2009

2,200,000

3,870,000

0.568

15.6

12/19/2008

6/17/2009

900,000

1,580,000

0.570

13.8

11/21/2008

6/24/2009

2,700,000

3,050,000

0.885

8.0

12/19/2008

6/24/2009

1,040,000

1,620,000

0.642

11.3

1/16/2009

6/24/2009

275,000

580,000

0.474

16.6

1/16/2009
11/21/2008
10/28/2008
11/14/2008

6/24/2009
6/30/2009
7/8/2009
7/15/2009

1,400,000
650,000
60,000,000
139,000,000

2,290,000
1,240,000
54,200,000
135,100,000

0.611
0.524
1.107
1.029

11.7
10.1
9.9
8.7

10/28/2008
11/14/2008

7/22/2009
7/22/2009

1,100,000,000
67,010,402

1,128,400,000
68,200,000

0.975
0.983

22.8
8.7

1/9/2009

7/29/2009

340,000,000

391,200,000

0.869

29.5

10/28/2008
10/28/2008

8/5/2009
8/12/2009

136,000,000
950,000,000

155,700,000
1,039,800,000

0.873
0.914

12.3
20.2

11/14/2008

8/26/2009

87,000,000

89,800,000

0.969

14.5

12/5/2008

9/2/2009

225,000

500,000

0.450

10.4

12/19/2008

9/30/2009

1,400,000

1,400,000

1.000

12.6

11/21/2008
12/5/2008
12/5/2008
12/12/2008
11/14/2008

10/28/2009
10/14/2009
10/28/2009
11/24/2009
12/3/2009

212,000
63,364
1,307,000
2,650,000
148,731,030

220,000
140,000
3,522,198
3,500,000
232,000,000

0.964
0.453
0.371
0.757
0.641

5.9
9.8
6.4
9.0
12.0

10/28/2008
1/16/2009
12/12/2008

12/10/2009
12/16/2009
12/16/2009

950,318,243
9,599,964
560,000

1,006,587,697
11,825,830
535,202

0.944
0.812
1.046

10.9
11.0
9.0

12/19/2008
12/5/2008

12/16/2009
12/23/2009

568,700
950,000

1,071,494
2,387,617

0.531
0.398

7.8
6.7

12/19/2008

12/23/2009

450,000

1,130,418

0.398

5.8

11/21/2008

12/30/2009

10,000,000

11,573,699

0.864

9.4

12/19/2008

12/30/2009

900,000

2,861,919

0.314

6.5

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118
FIGURE 38: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY
REPAID CPP FUNDS (AS OF SEPTEMBER 2, 2010)—Continued
Investment
Date

Institution

OceanFirst Financial
Corporation ...........
Monarch Financial
Holdings, Inc. .......
Bank of America .......

Warrant
Repurchase
Date

Panel’s Best
Valuation
Estimate at
Disposition
Date

Warrant
Repurchase/
Sale Amount

Price/
Estimate
Ratio

IRR
(Percent)

1/16/2009

2/3/2010

430,797

279,359

1.542

6.2

12/19/2008

2/10/2010
3/3/2010

260,000
1,566,210,714

623,434
1,006,416,684

0.417
1.533

6.7
6.5

11/14/2008
12/12/2008

3/9/2010
3/10/2010

15,623,222
11,320,751

10,166,404
11,458,577

1.537
0.988

18.6
32.4

1/16/2009

3/11/2010

6,709,061

8,316,604

0.807

30.1

11/14/2008

3/31/2010

4,500,000

5,162,400

0.872

6.6

11/21/2008

4/7/2010

18,500,000

24,376,448

0.759

8.5

12/12/2008

4/7/2010

1,488,046

1,863,158

0.799

15.9

12/31/2008
11/14/2008

4/29/2010
5/4/2010

324,195,686
183,673,472

346,800,388
276,426,071

0.935
0.664

8.7
10.8

11/14/2008
10/28/2008

5/18/2010
5/20/2010

5,571,592
849,014,998

5,955,884
1,064,247,725

0.935
0.798

8.3
7.8

12/23/2008

6/2/2010

3,116,284

3,051,431

1.021

8.2

12/12/2008
12/12/2008

6/9/2010
6/16/2010

3,007,891
6,820,000

5,287,665
7,884,633

0.569
0.865

10.8
7.7

3/13/2009

7/7/2010

172,000,000

166,182,652

1.035

17.1

1/16/2009

7/28/2010

250,000

518,511

0.482

6.2

1/16/2009

8/4/2010

400,000

468,164

0.854

5.9

11/21/2008

8/11/2010

3,301,647

6,582,658

0.502

7.3

................................

....................

$7,202,029,864

$7,314,904,102

0.985

9.9

424 10/28/2008
425 1/9/2009
426 1/14/2009

Washington Federal
Inc./Washington
Federal Savings &
Loan Association ..
Signature Bank .........
Texas Capital Bancshares, Inc. ..........
Umpqua Holdings
Corp. .....................
City National Corporation ................
First Litchfield Financial Corporation ...
PNC Financial Services Group Inc. .....
Comerica Inc. ...........
Valley National
Bancorp ................
Wells Fargo Bank .....
First Financial
Bancorp ................
Sterling Bancshares,
Inc./ Sterling Bank
SVB Financial Group
Discover Financial
Services ................
Bar Harbor Bancshares ..................
Citizens & Northern
Corporation ...........
Columbia Banking
System, Inc. .........
Total ................
424 Investment

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date for Bank of America in CPP.
425 Investment date for Merrill Lynch in CPP.
426 Investment date for Bank of America in TIP.

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FIGURE 39: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF SEPTEMBER 1, 2010)
[Dollars in millions]
Warrant Valuation
Stress Test Financial Institutions with
Warrants Outstanding

Low
Estimate

High
Estimate

Best
Estimate

Citigroup, Inc. .........................................................................................................
SunTrust Banks, Inc. ..............................................................................................
Regions Financial Corporation ................................................................................
Fifth Third Bancorp .................................................................................................
Hartford Financial Services Group, Inc. .................................................................
KeyCorp ...................................................................................................................
AIG ...........................................................................................................................
All Other Banks .......................................................................................................

$13.20
9.79
7.85
71.42
347.70
17.29
196.52
607.55

$1,076.60
320.18
203.49
357.19
702.95
165.54
1687.29
1,694.33

$125.49
123.84
79.27
173.27
472.22
72.07
772.09
1,108.93

Total ...............................................................................................................

$1,271.31

$6,207.56

$2,927.19

2. Federal Financial Stability Efforts
a. Federal Reserve and FDIC Programs
In addition to the direct expenditures Treasury has undertaken
through the TARP, the federal government has engaged in a much
broader program directed at stabilizing the U.S. financial system.
Many of these initiatives explicitly augment funds allocated by
Treasury under specific TARP initiatives, such as FDIC and Federal Reserve asset guarantees for Citigroup, or operate in tandem
with Treasury programs, such as the interaction between PPIP and
TALF. Other programs, like the Federal Reserve’s extension of
credit through its Section 13(3) facilities and SPVs and the FDIC’s
Temporary Liquidity Guarantee Program, operate independently of
the TARP.

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b. Total Financial Stability Resources
Beginning in its April 2009 report, the Panel broadly classified
the resources that the federal government has devoted to stabilizing the economy through myriad new programs and initiatives as
outlays, loans, or guarantees. With the reductions in funding for
certain TARP programs, the Panel calculates the total value of
these resources to be over $2.6 trillion. However, this would translate into the ultimate ‘‘cost’’ of the stabilization effort only if: (1) assets do not appreciate; (2) no dividends are received, no warrants
are exercised, and no TARP funds are repaid; (3) all loans default
and are written off; and (4) all guarantees are exercised and subsequently written off.
With respect to the FDIC and Federal Reserve programs, the
risk of loss varies significantly across the programs considered
here, as do the mechanisms providing protection for the taxpayer
against such risk. As discussed in the Panel’s November report, the
FDIC assesses a premium of up to 100 basis points on TLGP debt
guarantees.427 In contrast, the Federal Reserve’s liquidity programs are generally available only to borrowers with good credit,
and the loans are over-collateralized and with recourse to other assets of the borrower. If the assets securing a Federal Reserve loan
realize a decline in value greater than the ‘‘haircut,’’ the Federal
427 November

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120
Reserve is able to demand more collateral from the borrower. Similarly, should a borrower default on a recourse loan, the Federal Reserve can turn to the borrower’s other assets to make the Federal
Reserve whole. In this way, the risk to the taxpayer on recourse
loans only materializes if the borrower enters bankruptcy.
FIGURE 40: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF SEPTEMBER 1, 2010) lix
[Dollars in billions]
Treasury
(TARP)

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Program

Total ...............................................................................
Outlays lx ...............................................................
Loans .....................................................................
Guarantees lxi ........................................................
Repaid and Unavailable TARP Funds ...................
AIG lxii ............................................................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Citigroup ........................................................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Capital Purchase Program (Other) ..............................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Capital Assistance Program .........................................
TALF ................................................................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
PPIP (Loans) lxxi ...........................................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
PPIP (Securities) ...........................................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Making Home Affordable Program/Foreclosure Mitigation ........................................................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Automotive Industry Financing Program .....................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Auto Supplier Support Program ...................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
SBA 7(a) Securities Purchase ......................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Community Development Capital Initiative .................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Temporary Liquidity Guarantee Program ....................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................

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Federal
Reserve

FDIC

Total

$475
231.2
24.2
4.3
215.3
69.8
lxiii 69.8
0
0
16.5
lxvi 16.5
0
0
32.4
lxvii 32.4
0
0
N/A
4.3
0
0
lxix 4.3
0
0
0
0
lxxii 22.4
7.5
14.9
0

$1,445.4
1,285.4
160
0
0
84.7
lxiv 25.7
lxv 59
0
0
0
0
0
0
0
0
0
0
38.7
0
lxx 38.7
0
0
0
0
0
0
0
0
0

$697.9
188.4
0
509.5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

$2,618.3
1,705
184.2
513.8
215.3
154.5
95.5
59
0
16.5
16.5
0
0
32.4
32.4
0
0
lxviii N/A
43
0
38.7
4.3
0
0
0
0
22.4
7.5
14.9
0

45.6

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
509.5
0
0
lxxviii 509.5

45.6
45.6
0
0
67.1
59.0
8.1
0
0.4
0
0.4
0
0.4
0.4
0
0
0.78
0
0.78
0
509.5
0
0
509.5

lxxiii 45.6

0
0
lxxiv 67.1
59.0
8.1
0
0.4
0
lxxv 0.4
0
lxxvi 0.4
0.4
0
0
lxxvii 0.78
0
0.78
0
0
0
0
0

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121
FIGURE 40: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF SEPTEMBER 1,
2010) lix—Continued
[Dollars in billions]
Treasury
(TARP)

Program

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Deposit Insurance Fund ...............................................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Other Federal Reserve Credit Expansion ....................
Outlays ..................................................................
Loans .....................................................................
Guarantees ............................................................
Repaid and Unavailable TARP Funds ...........................

0
0
0
0
0
0
0
0
lxxxii 215.3

Federal
Reserve

0
0
0
0
1,322
lxxx 1,259.7
lxxxi 62.3
0
0

FDIC

Total

188.4
lxxix 188.4

0
0
0
0
0
0
0

188.4
188.4
0
0
1,322
1,259.7
62.3
0
215.3

lix All data in this figure is as of September 1, 2010, except for information regarding the FDIC’s Temporary Liquidity Guarantee Program
(TLGP). That data is as of July 31, 2010.
lx The term ‘‘outlays’’ is used here to describe the use of Treasury funds under the TARP, which are broadly classifiable as purchases of
debt or equity securities (e.g., debentures, preferred stock, exercised warrants, etc.). These values were calculated using (1) Treasury’s actual
reported expenditures, and (2) Treasury’s anticipated funding levels as estimated by a variety of sources, including Treasury statements and
GAO estimates. Anticipated funding levels are set at Treasury’s discretion, have changed from initial announcements, and are subject to further change. Outlays used here represent investment and asset purchases—as well as commitments to make investments and asset
purchases—and are not the same as budget outlays, which under section 123 of EESA are recorded on a ‘‘credit reform’’ basis.
lxi Although many of the guarantees may never be exercised or exercised only partially, the guarantee figures included here represent the
federal government’s greatest possible financial exposure.
lxii AIG received an $85 billion credit facility from the Federal Reserve Bank of New York (FRBNY) (reduced to $60 billion in November
2008, to $35 billion in December 2009, and then to $34 billion in May 2010). A Treasury trust received Series C preferred convertible stock in
exchange for the facility and $0.5 million. The Series C shares amount to 79.9 percent ownership of common stock, minus the percentage
common shares acquired through warrants. In November 2008, Treasury received a warrant to purchase shares amounting to 2 percent ownership of AIG common stock in connection with its Series D stock purchase (exchanged for Series E noncumulative preferred shares on
4/17/2009). Treasury also received a warrant to purchase 3,000 Series F common shares in May 2009. Warrants for Series D and Series F
shares represent 2 percent equity ownership, and would convert Series C shares into 77.9 percent of common stock. However, in May 2009,
AIG carried out a 20:1 reverse stock split, which allows warrants held by Treasury to become convertible into 0.1 percent common equity.
Therefore, the total benefit to the Treasury would be a 79.8 percent voting majority in AIG in connection with its ownership of Series C convertible shares. U.S. Government Accountability Office, Troubled Asset Relief Program: Status of Government Assistance Provided to AIG (Sept.
2009) (GAO–09–975) (online at www.gao.gov/new.items/d09975.pdf). Additional information was also provided by Treasury in response to Panel
inquiry.
lxiii This number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November 25, 2008, and a $30 billion investment made on April 17, 2009 (less a reduction of $165 million representing bonuses paid to AIG Financial Products employees). As
of August 31, 2010, AIG had utilized $47.5 billion of the available $69.8 billion under the AIGIP/SSFI. U.S. Department of the Treasury, Troubled
Assets
Relief
Program
Monthly
105(a)
Report—August
2010
(Sept.
10,
2010)
(online
at
www.financialstability.gov/docs/105CongressionalReports/August%202010%20105(a)%20Report_final_9%2010%2010.pdf).
lxiv As part of the restructuring of the U.S. government’s investment in AIG announced on March 2, 2009, the amount available to AIG
through the Revolving Credit Facility was reduced by $25 billion in exchange for preferred equity interests in two special purpose vehicles, AIA
Aurora LLC and ALICO Holdings LLC. These SPVs were established to hold the common stock of two AIG subsidiaries: American International
Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO). As of September 1, 2010, the book value of the Federal Reserve
Bank of New York’s holdings in AIA Aurora LLC and ALICO Holdings LLC was $16.5 billion and $9.3 billion in preferred equity, respectively.
Hence, the book value of these securities is $25.7 billion, which is reflected in the corresponding table. Federal Reserve Bank of New York,
Factors Affecting Reserve Balances (H.4.1) (Sept. 1, 2010) (online at www.federalreserve.gov/releases/h41/).
lxv This number represents the full $30.0 billion that is available to AIG through its Revolving Credit Facility (RCF) with the FRBNY ($20.1
billion had been drawn down as of September 1, 2010) and the outstanding principal of the loans extended to the Maiden Lane II and III
SPVs to buy AIG assets (as of September 1, 2010, $13.9 billion and $15.1 billion, respectively). The maximum amount available through the
RCF decreased from $34 billion over the past two months, as a result of the sale of two AIG subsidiaries, as well as the company’s sale of
CME Group, Inc. common stock. The reduced ceiling also reflects a $3.95 billion repayment to the RCF from proceeds earned from a debt offering by the International Lease Finance Corporation (ILFC), an AIG subsidiary.
The amounts outstanding under the Maiden Lane II and III facilities do not reflect the accrued interest payable to FRBNY. Income from the
purchased assets is used to pay down the loans to the SPVs, reducing the taxpayers’ exposure to losses over time. Federal Reserve Bank of
New York, Factors Affecting Reserve Balances (H.4.1) (Sept. 2, 2010) (online at www.federalreserve.gov/releases/h41/); Board of Governors of
the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 15 (July
2010) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201007.pdf); Board of Governors of the Federal Reserve System,
Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 16 (Aug. 2010) (online at
www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201008.pdf); American International Group, Inc., Press Release: AIG Reduces Principal Balance on Federal Reserve Bank of New York Revolving Credit Facility by Nearly $4 Billion (Aug. 23, 2010) (online at
ir.aigcorporate.com/External.File?t=2&item=
g7rqBLVLuv81UAmrh20Mp2D/jbuMQX0JWf4oGazjlIxeJq2b5l2D3jdQlccQVaAZCaOmzP8
Hukewe3TB4pawgQ==).
lxvi This figure represents Treasury’s $25 billion investment in Citigroup, minus $8.5 billion applied as a repayment for CPP funding. The
amount repaid comes from the $10.5 billion in gross proceeds Treasury received from the sale of 2.6 billion Citigroup common shares. Treasury is currently in the process of selling another 1.5 billion shares of Citigroup common equity. The selling period is expected to end on September 30, 2010. See Endnote lii, supra (discussing the details of the sales of Citigroup common stock to date). U.S. Department of the
Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3, 2010) (online at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
lxvii This figure represents the $204.9 billion Treasury disbursed under the CPP, minus the $25 billion investment in Citigroup identified
above, $147.5 billion in repayments that are in ‘‘repaid and unavailable’’ TARP funds, and losses under the program. This figure does not
account for future repayments of CPP investments and dividend payments from CPP investments. U.S. Department of the Treasury, Troubled
Asset Relief Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3, 2010) (online at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
lxviii On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC, was in need of further capital
from Treasury. GMAC, however, received further funding through the AIFP. Therefore, the Panel considers CAP unused and closed. U.S. Department of the Treasury, Treasury Announcement Regarding the Capital Assistance Program (Nov. 9, 2009) (online at
www.financialstability.gov/latest/tg_11092009.html).

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lxix This figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as of July 28, 2010, TALF LLC had drawn only
$105 million of the available $4.3 billion. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Sept.
2, 2010) (online at www.federalreserve.gov/releases/h41/); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report
for
the
Period
Ending
September
1,
2010
(Sept.
3,
2010)
(online
at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf). On June 30, 2010, the Federal
Reserve ceased issuing loans collateralized by newly issued CMBS. As of this date, investors had requested a total of $73.3 billion in TALF
loans ($13.2 billion in CMBS and $60.1 billion in non-CMBS) and $71 billion in TALF loans had been settled ($12 billion in CMBS and $59
billion in non-CMBS). Earlier, it ended its issues of loans collateralized by other TALF-eligible newly issued and legacy ABS on March 31,
2010. Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Terms and Conditions (online at
www.newyorkfed.org/markets/talf_terms.html) (accessed Aug. 10, 2010); Term Asset-Backed Securities Loan Facility: CMBS (online at
www.newyorkfed.org/markets/cmbs_operations.html) (accessed Aug. 10, 2010); Federal Reserve Bank of New York, Term Asset-Backed Securities
Loan Facility: non-CMBS (online at www.newyorkfed.org/markets/talf_operations.html) (accessed Aug. 10, 2010).
lxx This number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the value of Federal Reserve loans
under the TALF. U.S. Department of the Treasury, Fact Sheet: Financial Stability Plan (Feb. 10, 2009) (online at
www.financialstability.gov/docs/fact-sheet.pdf) (describing the initial $20 billion Treasury contribution tied to $200 billion in Federal Reserve
loans and announcing potential expansion to a $100 billion Treasury contribution tied to $1 trillion in Federal Reserve loans). Since there was
only $43 billion in TALF loans outstanding when the program closed, Treasury is currently responsible for reimbursing the Federal Reserve
Board up to $4.3 billion in losses from these loans. Thus, the Federal Reserve’s maximum potential exposure under the TALF is $38.7 billion.
lxxi It is unlikely that resources will be expended under the PPIP Legacy Loans Program in its original design as a joint Treasury-FDIC program to purchase troubled assets from solvent banks. See also Federal Deposit Insurance Corporation, FDIC Statement on the Status of the
Legacy Loans Program (June 3, 2009) (online at www.fdic.gov/news/news/press/2009/pr09084.html); Federal Deposit Insurance Corporation,
Legacy Loans Program—Test of Funding Mechanism (July 31, 2009) (online at www.fdic.gov/news/news/press/2009/pr09131.html). The sales
described in these statements do not involve any Treasury participation, and FDIC activity is accounted for here as a component of the FDIC’s
Deposit Insurance Fund outlays.
lxxii This figure represents Treasury’s final adjusted investment amount in PPIP. As of September 1, 2010, Treasury reported commitments
of $14.9 billion in loans and $7.5 billion in membership interest associated with PPIP. On January 4, 2010, Treasury and one of the nine
fund managers, TCW Senior Management Securities Fund, L.P. (TCW), entered into a ‘‘Winding-Up and Liquidation Agreement.’’ Treasury’s final
investment amount in TCW totaled $356 million. Following the liquidation of the fund, Treasury’s initial $3.33 billion obligation to TCW was
reallocated among the eight remaining funds on March 22, 2010. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions
Report
for
the
Period
Ending
September
1,
2010
(Sept.
3,
2010)
(online
at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
lxxiii Of the $30.5 billion in TARP funding for HAMP, $28.8 billion has been allocated as of September 1, 2010. However, as of September
14, 2010, only $395.4 million in non-GSE payments has been disbursed under HAMP. U.S. Department of the Treasury, Troubled Asset Relief
Program
Transactions
Report
for
the
Period
Ending
September
1,
2010
(Sept.
3,
2010)
(online
at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf). Disbursement information provided by Treasury staff in response to a Panel inquiry.
lxxiv A substantial portion of the total $81.3 billion in loans extended under the AIFP has since been converted to common equity and preferred shares in restructured companies. $8.1 billion has been retained as first lien debt (with $1 billion committed to old GM and $7.1 billion to Chrysler). This figure ($67.1 billion) represents Treasury’s current obligation under the AIFP after repayments and losses. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending September 1, 2010 (Sept. 3, 2010) (online at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
lxxv This figure represents Treasury’s total adjusted investment amount in the ASSP. U.S. Department of the Treasury, Troubled Asset Relief
Program
Transactions
Report
for
the
Period
Ending
September
1,
2010
(Sept.
3,
2010)
(online
at
financialstability.gov/docs/transaction-reports/9-3-10%20Transactions%20Report%20as%20of%209-1-10.pdf).
lxxvi U.S. Department of the Treasury, Troubled Assets Relief Program (TARP) Monthly 105(a) Report—August 2010 (Sept. 10, 2010) (online
at www.financialstability.gov/docs/105CongressionalReports/August%202010%20105(a)%20Report_final_9%2010%2010.pdf).
lxxvii U.S. Department of the Treasury, Troubled Assets Relief Program (TARP) Monthly 105(a) Report—August 2010 (Sept. 10, 2010) (online
at www.financialstability.gov/docs/105CongressionalReports/August%202010%20105(a)%20Report_final_9%2010%2010.pdf).
lxxviii This figure represents the current maximum aggregate debt guarantees that could be made under the program, which is a function
of the number and size of individual financial institutions participating. $292.6 billion of debt subject to the guarantee is currently outstanding, which represents approximately 57.4 percent of the current cap. Federal Deposit Insurance Corporation, Monthly Reports on Debt
Issuance Under the Temporary Liquidity Guarantee Program: Debt Issuance Under Guarantee Program (July 31, 2010) (online at
www.fdic.gov/regulations/resources/TLGP/total_issuance07-10.html). The FDIC has collected $10.4 billion in fees and surcharges from this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity Guarantee Program: Fees Under TLGP Debt Program (July 2010) (online at www.fdic.gov/regulations/resources/tlgp/fees.html).
lxxix This figure represents the FDIC’s provision for losses to its deposit insurance fund attributable to bank failures in the third and fourth
quarters of 2008, the first, second, third, and fourth quarters of 2009, and the first quarter of 2010. Federal Deposit Insurance Corporation,
Chief Financial Officer’s (CFO) Report to the Board: DIF Income Statement (Fourth Quarter 2008) (online at
www.fdic.gov/about/strategic/corporate/cfo_report_4qtr_08/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO)
Report
to
the
Board:
DIF
Income
Statement
(Third
Quarter
2008)
(online
at
www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_08/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO)
Report
to
the
Board:
DIF
Income
Statement
(First
Quarter
2009)
(online
at
www.fdic.gov/about/strategic/corporate/cfo_report_1stqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO)
Report
to
the
Board:
DIF
Income
Statement
(Second
Quarter
2009)
(online
at
www.fdic.gov/about/strategic/corporate/cfo_report_2ndqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s
(CFO)
Report
to
the
Board:
DIF
Income
Statement
(Third
Quarter
2009)
(online
at
www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO)
Report
to
the
Board:
DIF
Income
Statement
(Fourth
Quarter
2009)
(online
at
www.fdic.gov/about/strategic/corporate/cfo_report_4thqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO)
Report
to
the
Board:
DIF
Income
Statement
(First
Quarter
2010)
(online
at
www.fdic.gov/about/strategic/corporate/cfo_report_1stqtr_10/income.html). This figure includes the FDIC’s estimates of its future losses under
loss-sharing agreements that it has entered into with banks acquiring assets of insolvent banks during these seven quarters. Under a
loss-sharing agreement, as a condition of an acquiring bank’s agreement to purchase the assets of an insolvent bank, the FDIC typically
agrees to cover 80 percent of an acquiring bank’s future losses on an initial portion of these assets and 95 percent of losses of another portion of assets. See, e.g., Federal Deposit Insurance Corporation, Purchase and Assumption Agreement—Whole Bank, All Deposits—Among
FDIC, Receiver of Guaranty Bank, Austin, Texas, Federal Deposit Insurance Corporation and Compass Bank, at 65–66 (Aug. 21, 2009) (online
at www.fdic.gov/bank/individual/failed/guaranty-tx_p_and_a_w_addendum.pdf). In information provided to Panel staff, the FDIC disclosed that
there were approximately $132 billion in assets covered under loss-sharing agreements as of December 18, 2009. Furthermore, the FDIC estimates the total cost of a payout under these agreements to be $59.3 billion. Since there is a published loss estimate for these agreements,
the Panel continues to reflect them as outlays rather than as guarantees.
lxxx Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance sheet accounts for these facilities under Federal agency debt securities and mortgage-backed securities held by the Federal Reserve. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Sept. 2, 2010) (online at www.federalreserve.gov/releases/h41/) (accessed Sept. 8,
2010). Although the Federal Reserve does not employ the outlays, loans, and guarantees classification, its accounting clearly separates its
mortgage-related purchasing programs from its liquidity programs. See Board of Governors of the Federal Reserve, Credit and Liquidity Programs and the Balance Sheet, at 2 (Nov. 2009) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport200911.pdf).

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On September 7, 2008, Treasury announced the GSE Mortgage Backed Securities Purchase Program (Treasury MBS Purchase Program). The
Housing and Economic Recovery Act of 2008 provided Treasury with the authority to purchase Government Sponsored Enterprise (GSE) MBS.
Under this program, Treasury purchased approximately $214.4 billion in GSE MBS before the program ended on December 31, 2009. As of August 2010, there was $164.1 billion still outstanding under this program. U.S. Department of the Treasury, MBS Purchase Program: Portfolio
by Month (online at www.financialstability.gov/docs/August%202010%20Portfolio%20by%20month.pdf) (accessed Sept. 8, 2010). Treasury has
received $56.6 billion in principal repayments and $13.2 billion in interest payments from these securities. U.S. Department of the Treasury,
MBS
Purchase
Program
Principal
and
Interest
Received
(online
at
www.financialstability.gov/docs/August%202010%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.pdf) (accessed Sept. 8,
2010).
lxxxi Federal Reserve Liquidity Facilities classified in this table as loans include primary credit, secondary credit, central bank liquidity
swaps, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, loans outstanding to Commercial Paper Funding Facility
LLC, seasonal credit, term auction credit, the Term Asset-Backed Securities Loan Facility, and loans outstanding to Bear Stearns (Maiden Lane
LLC). Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Sept. 2, 2010) (online at
www.federalreserve.gov/releases/h41/).
lxxxii Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, TARP resources cannot be allocated to programs that
were not established prior to June 25, 2010. Also, any TARP funds that have been repaid may not be used to fund additional TARP commitments. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203, at § 1302 (2010).

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SECTION FOUR: OVERSIGHT ACTIVITIES
The Congressional Oversight Panel was established as part of
the Emergency Economic Stabilization Act (EESA) and formed on
November 26, 2008. Since then, the Panel has produced 22 oversight reports, as well as a special report on regulatory reform,
issued on January 29, 2009, and a special report on farm credit,
issued on July 21, 2009.

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Upcoming Reports and Hearings
The Panel will release its next oversight report in October on
TARP contracting.
The Panel is planning a hearing in Washington on September 22,
2010, to discuss the topic of the October report. The Panel intends
to hear testimony from Treasury officials as well as TARP contractors and other financial agents.

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SECTION FIVE: ABOUT THE CONGRESSIONAL
OVERSIGHT PANEL

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In response to the escalating financial crisis, on October 3, 2008,
Congress provided 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
Stability (OFS) within Treasury to implement the TARP. At the
same time, Congress created the Congressional Oversight Panel 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, the Panel 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 instructed the Panel to produce
a special report on regulatory reform that analyzes ‘‘the current
state of the regulatory system and its effectiveness at overseeing
the participants in the financial system and protecting consumers.’’
The Panel issued this report in January 2009. Congress subsequently expanded the Panel’s mandate by directing it to produce a
special report on the availability of credit in the agricultural sector.
The report was issued on July 21, 2009.
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, Director of Policy and Special 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, 2008, 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.
Effective August 10, 2009, Senator Sununu resigned from the
Panel, and on August 20, 2009, Senator McConnell announced the
appointment of Paul Atkins, former Commissioner of the U.S. Securities and Exchange Commission, to fill the vacant seat. Effective
December 9, 2009, Congressman Jeb Hensarling resigned from the
Panel and House Minority Leader John Boehner announced the appointment of J. Mark McWatters to fill the vacant seat. Senate Minority Leader Mitch McConnell appointed Kenneth Troske, Sturgill
Professor of Economics at the University of Kentucky, to fill the vacancy created by the resignation of Paul Atkins on May 21, 2010.

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102