The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
5/12/2020
Acting Assistant Secretary Timothy G. Massad Written Testimony Before the Congressional Oversight Panel
U.S. DEPARTMENT OF THE TREASURY
Press Center
Acting Assistant Secretary Timothy G. Massad Written Testimony Before the
Congressional Oversight Panel
3/4/2011
Introduction
Chairman Kaufman, members McWatters, Neiman, Silvers, and Troske, thank you for the opportunity to testify about the continued progress of the Troubled Asset Relief Program
("TARP").
Today is the last hearing that this Panel will hold, and your work ends as of April 3, 2011. It is therefore appropriate that you are conducting a final review of TARP. I am happy to
provide, as you have requested, Treasury's overall assessment of the impact of TARP on the U.S. economy and financial sector. But before I do so, I wish to thank this Panel, its
members, and its staff for their hard work in overseeing TARP. Your reports have provided useful insights and your questions and suggestions have helped us refine and strengthen the
programs. The success of TARP is partly due to your vigorous oversight.
I also note that there is perhaps some irony to this moment. It is your last hearing, and my first appearance before you as the Acting Assistant Secretary for Financial Stability, having
succeeded to that job as of September 30, 2010. But, I began my work on TARP with you. In December 2008, I volunteered as your special legal advisor and helped prepare the first of
your almost 30 reports on TARP. It has been an interesting journey for all of us. And I think we can fairly conclude that the journey—the program—was a successful one.
Two years after Congress created TARP through the Emergency Economic Stabilization Act ("EESA"), we can safely say that this program has been remarkably effective by any
objective measure. In the words of this Panel: "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…it eventually proved decisive enough to stop the panic and restore market confidence." We have helped bring
stability to the financial system and the economy at a fraction of the expected costs.
First, TARP helped bring our financial system back from the brink and paved the way for an economic recovery. Americans no longer fear that our major financial institutions will fail and
cause disruption and damage in the broader economy. Banks are better capitalized, and the weakest parts of the financial system no longer exist. The credit markets on which small
businesses and consumers depend—for auto loans, for credit cards and other financing—have reopened. Businesses can raise capital, and mortgage rates are at historic lows. There
is still more work ahead, of course. TARP was not a solution to all our economic problems, nor was it designed to be. Unemployment remains unacceptably high; the housing market
remains weak. But the worst of the storm has passed and our economy is on the road to recovery.
Second, we accomplished all this with fewer funds than were originally appropriated, and we are unwinding TARP faster than anyone thought possible. Congress originally authorized
$700 billion for the program. We will spend no more than $475 billion. Of the $411 billion disbursed to date, we have already received back a total of $277 billion, including $241 billion
in repayments and $36 billion in additional income. We expect to receive about $9 billion more next week. About $150 billion will then remain outstanding in various investments, and I
am hopeful that we will recover most of that amount within the next few years, market conditions permitting.
Third, the ultimate cost of TARP will be far less than ever contemplated. The total cost was initially projected to be approximately $341 billion. That number has steadily declined over
the past two years. The latest estimates, both from Treasury and from the Congressional Budget Office ("CBO"), are that the overall cost of TARP will be between $25 and $50 billion.
The TARP investment programs taken as a whole – including financial support for banks, AIG, the domestic auto industry, and targeted initiatives to restart the credit markets – are
expected to result in very little or no cost to the taxpayer.
And finally, our financial system is in better shape today than before the crisis. We have adopted the most sweeping overhaul of our regulatory structure in generations, which will give
us tools we did not have in the fall of 2008. This work is not yet completed either, but we have made great progress since this Panel began its work.
Overview of the Government's Actions
Before I review in more detail the impact of TARP and the results of our actions, I think it is helpful to go back to where we were in the fall of 2008, and to review the actions we took
then. In September 2008, we faced the risk of a second Great Depression. The forces that led to that moment had been building for years but had accelerated in the preceding six
months. We had witnessed the failures of major financial institutions. As the crisis spread, the Bush Administration and the Federal Reserve took a series of unprecedented steps to
stabilize a financial system that teetered at the edge of catastrophic collapse. These steps included:
Provision of broad-based guarantees to the financial system through programs such as the FDIC's Temporary Liquidity Guarantee Program and the Treasury Money Market
Fund guarantee program;
Initiation of extraordinary facilities through the Federal Reserve to support liquidity across the financial system; and
Support for Government-Sponsored Enterprises ("GSEs") pursuant to the Housing and Economic Recovery Act.
But the severe conditions required additional resources and authorities. Therefore, the Bush Administration proposed the Emergency Economic Stabilization Act, which created TARP.
A bipartisan coalition in Congress approved the Act on October 3, 2008.
Actions Taken by the Bush Administration under TARP
The Bush Administration originally proposed TARP as a mechanism for the government to buy mortgage loans, mortgage-backed securities, and certain other "troubled assets" from
banks. By early October 2008, lending between banks had practically stopped, credit markets had shut down, and many financial institutions were under severe stress. It was clear that
there was insufficient time to implement a new program in order to buy mortgage-related assets. The Bush Administration determined that the financial system required immediate
capital injections in order to stabilize the banks and to avert a potential catastrophe. EESA provided this authority because Congress had broadened the statute during the legislative
process.
https://www.treasury.gov/press-center/press-releases/Pages/tg1091.aspx
1/5
5/12/2020
Acting Assistant Secretary Timothy G. Massad Written Testimony Before the Congressional Oversight Panel
During the fall and winter of 2008, the Bush Administration employed approximately $300 billion of TARP authority as follows:
$234 billion was invested in banks and thrifts, including $165 billion in eight of the largest financial institutions (plus commitments of additional funds to two of those banks);
$40 billion was invested in American International Group ("AIG") along with additional funds from the Federal Reserve; and
Approximately $20 billion was provided to the auto industry.
The combined effect of the actions taken by Treasury, the Federal Reserve, and the Bush Administration helped to stop the panic and to slow the financial crisis. Despite these efforts,
when President Obama took office in early 2009, the financial system remained paralyzed and the economy continued to contract at an accelerating rate.
The nation had already lost 3.5 million jobs in 2008 and was losing additional jobs at the rate of 750,000 per month. Home prices were falling and foreclosures were increasing.
Businesses were cutting back on investments and could not raise capital. For individual families who needed credit—to buy a house or a new car—it was more difficult to borrow money
than at any time since the Great Depression.
Actions Taken by the Obama Administration under TARP
Against this backdrop, the Obama Administration, working alongside the Federal Reserve, adopted a broad strategy to restore economic growth, free up credit, and return private capital
to the financial system. The Administration's strategy combined the American Recovery and Reinvestment Act ("Recovery Act"), a powerful mix of targeted tax measures and
investments, with a comprehensive plan to repair the financial system.
The Administration's Financial Stability Plan had three central components:
to recapitalize and rebuild confidence in the banking system;
to restart the credit markets that are critical to borrowing for businesses, individuals, and state and local governments; and
to stabilize the crisis in the housing market.
The Financial Stability Plan shifted the focus away from supporting individual institutions to restarting the broad markets for capital and credit that are critical for economic growth. It was
designed to maximize the chance that private capital would bear the burden of solving the crisis. We provided support for the housing market and for homeowners in order to facilitate
broader economic recovery. When we did provide extraordinary assistance to individual firms, our assistance came with tough conditions.
The first piece of our strategy was to recapitalize our financial system. Towards this end, we conducted the Supervisory Capital Assessment Program ("SCAP"), or so-called stress
tests. The goal of this program was to promote confidence in the markets by providing a greater degree of transparency and institutional accountability. Treasury worked with federal
banking regulators to develop a comprehensive, forward-looking stress test for the nineteen largest bank holding companies in order to determine which ones required more capital to
remain well-capitalized if economic conditions deteriorated more than expected. The stress test was conducted with unprecedented openness and transparency, which helped restore
market confidence in our financial system. Treasury allowed banks needing capital to reapply for further assistance under TARP, but only one did so. The test forced these banks to
disclose significant amounts of information about the risks they faced, so that private investors could differentiate among them and assess the underlying financial strength of each
institution. Banks raised $150 billion in private capital, saving hundreds of billions of TARP dollars, restoring market confidence, reopening credit markets, and laying the groundwork for
recovery and economic growth.
A second key aspect of the Financial Stability Plan was to commit resources to restart key channels of credit to households and businesses.
Through the Term Asset-Backed Securities Loan Facility ("TALF"), a joint program with the Federal Reserve, we helped to restart the asset-backed securitization markets that
provide credit to consumers and small businesses. Since TALF was launched in March 2009, new issuances of asset-backed securities have averaged $10.5 billion per month,
compared to less than $2 billion per month at the height of the crisis.
Through the Public-Private Investment Program ("PPIP") for legacy securities, we matched TARP funds with private capital to purchase legacy mortgage-related securities. This
program returned liquidity to key markets for financial assets and cleaned up the balance sheets of major financial institutions. Since the announcement of PPIP in March 2009,
prices for eligible residential and commercial mortgage-backed securities have increased by as much as 75 percent. Although the funds remain in their ramp-up phase, they
have earned a positive return for taxpayers.
Through the SBA 7(a) Securities Purchase Program, we unlocked credit for small business by purchasing securities backed by small business loans. Markets for these
securities have since returned to healthy levels.
Finally, the Obama Administration took aggressive steps to address the crisis facing many American homeowners. Our strategy has focused on providing stability to housing markets
and giving Americans who are struggling, but with a little help, can afford to stay in their homes a chance to do so. By reducing mortgage rates and by providing sensible incentives to
prevent avoidable foreclosures, these policies have put a floor under housing prices and have enabled millions of Americans to stay in their homes.
The Economic Impact of Our Policies
In any assessment of a response to a financial crisis, there are several important measures of success. What is the effect on availability of credit and economic growth? How quickly is
the government able to return the financial system to private hands? What was the direct financial cost of the interventions? Has the response left the financial system able to support
—rather than impede—economic growth?
Macroeconomic Impact
Secretary Geithner appeared before this Panel in December to review the economic impact of TARP and the other actions taken by the government in light of these questions. Let me
recap our views and then review in more detail the impact of each of the major TARP programs.
At the peak of the crisis, banks were not making new loans to businesses, or even to one another. Businesses could not get financing in our capital markets. Municipalities and state
governments could not issue bonds at reasonable rates. The asset-backed securitization markets, which provide financing for credit cards, auto loans, and other consumer financing,
had stopped functioning. And where credit was available, it was prohibitively expensive.
In response to the combined actions under TARP and the other government interventions, the cost of credit has fallen dramatically. For businesses, the cost of long-term investment
grade borrowing has fallen from a peak of approximately 570 basis points to just 125 basis points over benchmark Treasury securities today.[1] Non-investment grade corporate bond
spreads have fallen from approximately 2,200 basis points to 440 basis points over benchmark Treasuries.[2]
American families are spending less on mortgage payments. At the peak of the crisis, a family with an average 30-year, $180,000 mortgage was borrowing at approximately 6.40
percent a year.[3] Today, that family is borrowing at approximately 4.85 percent, saving approximately $2,100 each year.[4]
The securitization markets have also restarted. Although volumes have not reached pre-crisis levels, auto lending in particular have recovered, with spreads now below pre-crisis
levels.
https://www.treasury.gov/press-center/press-releases/Pages/tg1091.aspx
2/5
5/12/2020
Acting Assistant Secretary Timothy G. Massad Written Testimony Before the Congressional Oversight Panel
The economy as a whole has made substantial progress since the recession ended last summer. Real GDP has risen for six straight quarters, and GDP growth was stronger in the
fourth quarter of 2010 than in the fourth quarter of 2007. Private sector firms have started hiring again. The housing market remains weak, although certain measures are stabilizing.
Although we can never be sure where we would have been today without these emergency policies, one of the most comprehensive independent analyses of the overall impact of our
response, by economists Mark Zandi and Alan Blinder, concluded that without the Recovery Act, TARP, and other government actions, GDP would have still been contracting in 2010 at
the astonishing rate of 3.7 percent, unemployment would have reached 16.5 percent, and we would be experiencing deflation. In short, they say, "this dark scenario constitutes a
1930s-like depression."
Impact of Particular TARP programs
Let me now turn to review the status of the various programs and initiatives taken under TARP.
Support for the Banking System
We have moved very quickly to reduce the dependence of the financial system on emergency support and to return our financial institutions to private hands as quickly as possible.
Under the Capital Purchase Program ("CPP") and the Targeted Investment Program ("TIP"), Treasury invested $245 billion in our financial institutions, including $165 billion in eight of
the largest financial institutions and an additional $80 billion in another 700 banks. Treasury further committed to guarantee certain assets of Bank of America and Citigroup under the
Asset Guarantee Program ("AGP").
We have already recovered a total of $243 billion, including $211 billion in repayments and $32 billion in additional income from banks. From today on, practically every dollar we
recover from these financial institutions will constitute a positive return to the taxpayer, one that we estimate will ultimately total around $20 billion. When President Obama took office,
the U.S. government had made investments in financial institutions representing 75 percent of the entire banking system by assets. Today, our remaining investments in banks
represent only about 10 percent of the banking system.
The stress test in particular was critical to facilitating this recapitalization. The 19 banks subject to the stress test have raised $150 billion in new equity, and 13 of the 17 institutions that
received TARP assistance have fully repaid.
Citigroup was one of the largest recipients of TARP assistance; we invested a total of $45 billion. At the time, many doubted whether Citigroup would survive and be able to repay the
government. As of last December, we recovered the entire $45 billion, and we realized a positive return in excess of $12 billion on our overall investment. As a recent report by the
Special Inspector General for TARP concluded, the government assistance provided to Citigroup was carefully designed and achieved its primary goal of restoring market confidence.
I want to address in particular the status of the smaller banks which have received TARP funds, a subject that this Panel has focused on. While Treasury under the Obama
Administration made no further investments in the nation's largest banks, Treasury invested $11 billion in more than 400 other banks and thrifts, most of which were small and
community banks. The Obama Administration focused on small banks not only because EESA required that assistance be made available to financial institutions regardless of size,
but also because of the critical role small banks play in our nation's communities. Small banks finance small businesses, which generate a large percentage of our private sector jobs,
as well as serve the needs of many families. While it may ultimately take longer for Treasury to recoup its investment in these small banks, the fact remains that without TARP, many
more of these institutions (and the communities they serve) would have been in jeopardy.
Today, Treasury maintains investments in nearly 539 small banks and thrifts. Their track to recovery is longer because these institutions have less access to the capital markets and
greater exposure to the commercial real estate ("CRE") market. Although these institutions continue to face challenges, there are signs that the sector is strengthening. Over the past
year, the CRE market and credit conditions have shown signs of stabilization and, in some areas, modest signs of improvement. With the launch of the Small Business Lending Fund
("SBLF"), which is outside of TARP, Treasury will provide capital to qualified small banks. Treasury has received many applications from small banks across the country including from
eligible TARP recipients who wish to refinance into SBLF. Treasury plans to announce the first round of SBLF investments in the coming weeks.
Stabilizing the Auto Industry
The Bush Administration provided loans to old GM and old Chrysler in December 2008 to prevent their uncontrolled liquidations and the loss of as many as one million jobs. The Obama
Administration thereafter provided additional assistance to these entities.
The restructurings of these companies involved sacrifices from all stakeholders—shareholders, unions, auto dealers, and creditors—and they enabled the companies to become more
competitive. This assistance also helped the many suppliers and ancillary businesses that depend on the automotive industry. Our actions saved jobs across the country—as many as
one million, by one estimate—and created many new ones.
Our strategy is helping to restore the auto industry to profitability, and we have already begun to recoup our investments. Last week, General Motors reported net income of $4.7 billion
for 2010, its first annual profit since 2004. Chrysler reported four consecutive quarters of operating profit in 2010 totaling $763 million. Ford's 2010 net income reached $6.6 billion, its
best level in more than 10 years.
To date, we have recovered a total of almost $30 billion of the $80 billion invested in the auto industry (including the Ally securities sold this week). We completed a highly successful
initial public offering of General Motors in November of last year. Since the company emerged from bankruptcy in July 2009, the government has recovered almost half of its $50 billion
investment and has reduced its stake in GM from 60.8 percent to 33.3 percent. We now have a pathway to exiting the remaining investment. We also are working to exit our
investments in Chrysler and Ally Financial.
Restructuring AIG
One of the most controversial actions taken by the Government in response to the crisis in the fall of 2008 was the assistance provided to AIG. That assistance was provided because
the failure of AIG, in September of 2008, would have been catastrophic to our financial system and our economy. Many doubted whether we would ever recover those funds. Now,
barely two and a half years later, we have not only helped restructure the company but the Government is potentially in position to recover every dollar we invested.
Over the last two years, Treasury and the Federal Reserve have worked with AIG as it has taken aggressive steps to stabilize its business and sell non-core assets. As part of this
effort, Treasury and the Federal Reserve worked with AIG to recruit an almost entirely new board of directors and several new members of senior management, including the Chief
Executive Officer. The management team, in turn, has taken a variety of steps to reduce risk and to focus on AIG's core insurance businesses.
In January, AIG, the Treasury and the Federal Reserve Bank of New York closed a major restructuring plan, which represented the culmination of two years of efforts to "resolve" AIG.
This plan will accelerate the repayment of U.S. taxpayer funds and puts us in a position to recover our entire investment. AIG has since repaid the Federal Reserve $47 billion and
converted Treasury's preferred stock investment into common shares, providing Treasury a pathway to exit as well.
https://www.treasury.gov/press-center/press-releases/Pages/tg1091.aspx
3/5
5/12/2020
Acting Assistant Secretary Timothy G. Massad Written Testimony Before the Congressional Oversight Panel
Since market prices will fluctuate, there is no guarantee of what the ultimate returns will be. However, if we are able to sell our investments in AIG at current market values, including the
AIG shares that Treasury received from the trust established by the Federal Reserve, taxpayers will get back every dollar put into AIG and will realize a positive return. This is a dramatic
turnaround, and a result that stands in sharp contrast to what most observers expected in the fall of 2008.
Helping Responsible but Struggling Homeowners
We acknowledge that the TARP housing programs have been the most criticized component of TARP and it is an area where there is still much work to be done. It should be
remembered, however, that the forces that created this housing crisis had been building for practically a decade. In particular, when the Obama Administration took office in January
2009, home prices had fallen for 30 consecutive months. Home values had fallen by nearly one-third and were expected to fall by another five percent by the end of 2009. Stresses in
the financial system had reduced the supply of mortgage credit and crippled the ability of Americans to buy homes. Fannie Mae and Freddie Mac had been in conservatorship for over
four months. Millions of American families could not make their monthly mortgage payments – having lost jobs or income – and were unable to sell, refinance, or find meaningful
modification assistance.
The Obama Administration took several actions to confront this situation, including the purchase of agency mortgage-backed securities in order to help keep mortgage rates low, efforts
to provide refinancing opportunities to homeowners, and the launch under TARP of the Making Home Affordable © ("MHA") Program to help responsible homeowners avoid foreclosure.
The Home Affordable Modification Program SM ("HAMP SM"), the largest MHA program, to date, has helped over 600,000 struggling homeowners secure permanent modifications of their
mortgages and thereby stay in their homes. These homeowners have reduced their mortgage payments by a median of over $500 each month, and their total savings to date are
approximately $5 billion. On average, about 25,000 to 30,000 additional homeowners are getting assistance from HAMP permanent modifications each month. Moreover, many more
homeowners have been helped indirectly as a result of the standards that HAMP has catalyzed across mortgage modifications industry-wide.
As the housing crisis evolved, Treasury responded with additional actions, including several at the suggestion of this Panel. The Panel's suggestions that we focus more on the
problems of unemployed homeowners and negative equity were particularly valuable. We expanded MHA to address the problem of second liens, to provide incentives for other
alternatives to foreclosure such as short sales, to provide additional help to the unemployed, and to encourage targeted principal reduction. In addition:
Treasury launched the Housing Finance Agency Hardest Hit Fund SM to help state housing finance agencies provide additional relief to homeowners in the states hit hardest by
unemployment and house price declines.
Treasury and the Department of Housing and Urban Development created the FHA Short Refinance program to enable homeowners whose mortgages exceed the value of their
homes to refinance into more affordable mortgages.
Many, including this Panel, have criticized HAMP because it will not achieve 3-4 million permanent modifications. It is important to remember that the program was not intended to help
all homeowners or stop all foreclosures. Today, there are approximately 5 million delinquent mortgages. Yet only about 1.4 million are currently eligible for HAMP because the
program's eligibility requirements exclude:
high cost mortgages in excess of $729,750;
mortgages on vacation, second homes or investor-owned properties;
mortgages on vacant homes;
homeowners who can afford to pay their mortgage without government assistance; and
homeowners with mortgages that are unsustainable even with government assistance.
In addition to these strict eligibility criteria, and to further protect taxpayer resources, HAMP and most of the other housing initiatives have pay-for-success incentives: funds are spent
only when transactions are completed and continue only for as long as those modifications remain in place. Accordingly, most of the funds have not yet been disbursed.
Beyond those immediately helped, TARP housing programs have also had a positive impact on mortgage servicing. At the outset of the crisis, we were faced with a mortgage industry
that was ill-equipped and unwilling to respond to the foreclosure crisis. Mortgage servicers lacked sufficient resources to meet the needs of a market reeling from increasing
foreclosures. In addition, we had to address the fact that their servicing expertise and infrastructure were focused on overseeing collections and foreclosing on those who failed to pay.
HAMP provided servicers with standards that could be applied to all modifications, such as the need to make modifications affordable for the homeowner. As a result, these standards
soon became national, industry-wide models that have been applied to many servicers' own proprietary modifications as well.
Over the past two years, we have developed policies and procedures in the MHA program to ensure that responsible homeowners who meet the eligibility criteria are offered meaningful
modifications, or where appropriate, other alternatives to foreclosure. To address servicer shortcomings, we have urged servicers to increase staffing and to improve customer service.
We have developed specific guidelines and certifications on how and when homeowners must be evaluated for HAMP and other options before foreclosure. We developed a defined
process for escalating homeowner complaints to be resolved promptly and fairly. We also have a comprehensive compliance program to ensure that homeowners are fairly evaluated
for HAMP and that servicer operations comply with Treasury guidance.
We have faced many challenges in developing and implementing these programs. We often have to balance conflicting policy goals—such as how to design programs that encourage
the participation of struggling borrowers and help them get back on their feet, while minimizing the cost to the government, moral hazard, adverse selection, and operational and
financial risks and complexity. Implementation has been difficult, and much work remains to ease the housing crisis. But that should not obscure the importance of what has been
accomplished, nor the fact that these programs can continue to help ease the pain of this terrible crisis. Millions of families have avoided the intense pain, cost, and disruption of losing
their homes because of these programs. Their neighbors and their local communities have benefited as well since a vacant home is dangerous and costly to a neighborhood.
We will continue to help as many eligible homeowners as possible, in a manner that safeguards taxpayer resources, and we hope that the Panel supports that effort.
Reform
It is important to also take stock of the fact that our financial system is stronger today. Our response to the crisis has brought about a fundamental restructuring of the system. The
weakest parts of the financial system no longer exist. The large firms that remain were subjected to a stress test that demonstrated their viability without government assistance. Our
financial system today has substantially higher levels of capital relative to risk than before the crisis and is also better capitalized than its international competitors. And the Dodd-Frank
Act has provided the government with critical tools it did not have during the crisis – including the ability to wind down firms that pose a significant threat to our financial system.
TARP Achieves Results at Fraction of Anticipated Costs
In terms of direct financial cost, TARP will rank as one of the most effective crisis response programs ever implemented. Independent observers, such as the CBO, initially estimated
that TARP would cost $350 billion or more. Now, because of the success of the program, TARP is likely to cost only a fraction of that amount. Most recently, CBO estimated that the
cost of the program would be as little as $25 billion.
The cost of TARP is likely to be no greater than the amount spent on the program's housing initiatives—expenditures that were necessary to prevent even greater losses and hardships
to American families and local communities and that were never intended to be returned. The remainder of the programs under TARP—the investments in banks, AIG, credit markets,
and the auto industry—likely will result in very little or no cost.
https://www.treasury.gov/press-center/press-releases/Pages/tg1091.aspx
4/5
5/12/2020
Acting Assistant Secretary Timothy G. Massad Written Testimony Before the Congressional Oversight Panel
Furthermore, the cost of the government's broader response efforts is remarkably low when compared to past systemic crises. An IMF study found that the average net fiscal cost of
resolving roughly 40 banking crises since 1970 was 13 percent of GDP. The GAO estimates that the cost of the U.S. Savings and Loan Crisis was 2.4 percent of GDP. In contrast, the
direct fiscal cost of all our interventions, including the actions of the Federal Reserve, the FDIC, and our efforts to support the GSEs, is likely to be less than one percent of GDP. The
true cost of this crisis to the economy, however—the jobs, wealth and growth that it erased—is much higher than previous crises, but that damage would have been far worse without
the government's emergency response.
Robust and Effective Oversight
TARP has been subjected to unprecedented oversight since its inception. Treasury welcomes this oversight. This Panel has issued nearly 30 reports on all aspects of TARP and its
component programs. These reports have made important contributions to the development, strength, and transparency of TARP programs.
This Panel also encouraged transparency as a tool to maximize the effectiveness of TARP programs and Treasury has taken many steps which we believe have made TARP one of the
most transparent programs in the federal government
EESA required that there be separate, audited financial statements for TARP. In its first two years of operations, TARP's financial statements received unqualified ("clean") audit
opinions from the GAO, and separate reports on internal control over financial reporting found no material weaknesses—unprecedented achievements for a start-up operation with an
extraordinary emergency mission. As a result of these efforts, the Office of Financial Stability received a Certificate of Excellence in Accountability Reporting ("CEAR") from the
Association of Government Accountants.
Treasury has also published hundreds of comprehensive reports and other information about TARP so that the public knows how its money was spent, who received it, and on what
terms. This includes:
A monthly report to Congress that details how TARP funds have been used, the status of recovery of such funds by program, and information on the estimated cost of TARP;
A monthly housing report containing detailed metrics on the housing programs;
A quarterly report on the PPIP program that provides detailed information on the funds, their investments, and returns;
A report on each transaction (such as an investment in or repayment by an institution) within two business days of completing the transaction;
A quarterly report that details all dividend and interest payments;
Periodic reports on the sale of warrants, which includes information on auctions as well as on how the sale price was determined in the case of any repurchase of warrants by a
TARP recipient;
Monthly lending and use-of-capital surveys that contain detailed information on the lending and other activities of banks that have received TARP funds;
A list of all the institutions participating in TARP programs and of all the investments Treasury has made; and
Releasing every contract and financial agency agreement it has entered into.
Treasury also agrees with this Panel that it is in the public interest to provide periodic disclosure of the estimated value of the TARP portfolio so that the public knows the value of the
investments that Treasury has made. Treasury publishes valuations of the TARP investments in its annual financial statements and periodically during the year. Treasury has recently
prepared new disclosures in its monthly reports that make it easier to track TARP funds and the current cost of the programs.
Conclusion
TARP succeeded in what it was designed to do: it brought stability to the financial system and laid the foundation for economic recovery. And it did so at a fraction of the expected
cost. TARP was not designed to solve all our economic problems. The damage from this financial crisis has not yet been completely repaired, and many American families are still
struggling in its aftermath. We will continue to manage our exit from our remaining investments in the interest of the taxpayer and the recovery. Nevertheless, today, thanks to a
comprehensive and careful strategy to address the financial crisis, we are in a much stronger position to address remaining economic challenges.
[1] Based upon 10-year Treasury yield and FINRA/Bloomberg Investment Grade U.S. Corporate Bond Index yield as of February 25, 2011 according to Bloomberg LP.
[2] Based upon 10-year Treasury yield and FINRA/Bloomberg High Yield U.S. Corporate Bond Index yield as of February 25, 2011 according to Bloomberg LP.
[3] The U.S. average mortgage balance was $181,225 in 2007 according to the Federal Reserve Bank of Kansas City.
[4] The U.S. 30-year fixed mortgage average rate was 4.85% as of February 25, 2011 according to BankRate (www.bankrate.com).
https://www.treasury.gov/press-center/press-releases/Pages/tg1091.aspx
5/5
@FedFRASER