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Treas.
"J
10
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P4
v.445
Department of the Treasury
PRESS RELEASES
Numbers not used: HP-780-781, 798, and 844
753: Tl~asury Welcomes Entry ~nto Force of Three Protocols, New Tax Treaty
Page 1 of 1
January 2, 2008
hp-753
Treasury Welcomes Entry into Force of Three Protocols, New Tax Treaty
Washington, DC-- The Treasury Department announced today that three protocols
and one new tax treaty and protocol have entered into force.
Protocols amending existing tax treaties with Germany, Denmark and Finland,
along with a new income tax treaty and protocol with Belgium entered into force
December 28, 2007 upon exchanges in Washington, DC of required notifications
and instruments of ratification. All generally apply to tax years beginning on or after
January 1, 2008. Certain provisions of the protocols with both Germany and
Finland are effective, however, on or after January 1, 2007.
Provisions of the protocol with Germany include:
•
•
•
Elimination of source-country withholding taxes on certain dividends;
Modernization of the treaty's limitation of benefits provision: and
Mandatory arbitration of certain cases that cannot be resolved by the
competent authorities within a specified period.
Provisions of the protocol with Denmark include:
•
•
Elimination of source-country withholding taxes on certain dividends; and
Modernization of the treaty's limitation of benefits provisions.
ProviSions of the protocol with Fmland include
•
•
•
Elimination of source-country withholding taxes on certain dividends:
Elimmatlon of source-country withholdmg taxes on royalty payments: and
Modernization of the treaty's limitation of benefits provision.
Provisions of the new treaty and protocol with Belgium Include:
•
•
•
•
•
Elimination of source-country withholdmg taxes on interest payments;
Elimination of source-country withholding taxes on certain dividends:
Improved exchange of information between the United States and Belgium:
Modernization of the treaty's limitation of benefits provision: and
Mandatory arbitration of certain cases that cannot be resolved by the
competent authorities within a specified period
The protocol with Germany was signed in Berlin on June 1, 2006: the protocol with
Denmark In Copenhagen on May 2, 2006: the protocol with Finland in Helsinki on
May 31, 2006; and the treaty and protocol with Belgium in Brussels on November
27, 2006. The Senate approved the protocols With Denmark and with Fmland on
November 16, 2007, and the protocol with Germany and new treaty and protocol
with Belgium on December 14, 2007.
-30-
http://www treas.gov/presslreleases/hp753.htrn
2/1/2008
754: TreasiJrY Secretary Paulson to Deliver Speech on Capital Markets and Economy
Page 1 of 1
January 4, 2008
hp-754
Treasury Secretary Paulson to Deliver Speech on Capital Markets and
Economy
Washington, D,C. -- Treasury Secretary Henry M. Paulson, Jr. will deliver a
speech on Monday in New York City at an event hosted by the New York Society of
Security Analysts. He will discuss the recent developments In the capital markets
and their impact on the economy
•
•
•
•
What Speech on Capital Markets and the Economy
When 200 p.m. (EST) Monday, January 7
Where Westin Hotel 270 West 43rd, New York, NY
Note Media interested in attending should RSVP to press@nyssa.org.
-30-
http://wwwtreas.gov/presslreleases/hp754.htm
2/1/2008
755: Trea~ary
Assistant Secretary Swagel to Hold Monthly Economic Briefing
Page 1 of 1
January 3, 2008
hp-755
Treasury Assistant Secretary Swagel to Hold Monthly Economic Briefing
U.S. Treasury Assistant Secretary for Economic Policy Phillip Swagel will hold a
media briefing to review economic indicators from the last month as well as discuss
the state of the US Economy The event IS open to the media:
Who U S Treasury Assistant Secretary Phillip Swagel
What Economic Media Briefing
When Friday, January 4, 2008, 1100 a.m. EST
Where Treasury Department
Media Room (Room 4121)
1500 Pennsylvania Ave, NW
Washington, DC
Note Media without Treasury press credentials should contact Courtney Forsell at
(202) 622-2960, or Courtney.Forsell@dotreas.gov with the following information:
full name, Social Security number, and date of birth.
-30-
http://wwwtreas.gov/presslreleases/hp755.htm
211/2008
)-756: Treas~y
Economic Update 1 '-1.08
Page 1 of2
January 4, 2008
hp-756
Treasury Economic Update 1.4.08
"roday's employment report reflects the impacts of the challenges facing the
U.S. economy, including the housing downturn and the credit disruption. At
the same time, the U.S. economy remains resilient, and we expect growth to
continue. "
Assistant Secretary Phillip Swagel, January 4, 2007
Job Creation Has Slowed:
Job Growth: 18,000 new jobs were created in December, the 52 nd straight month
of job gains. The United States has added 1.3 million jobs in the past 12 months
and about 8 and a half million jobs since August 2003. Employment increased in
48 states and the District of Columbia over the year ending in November. (Last
updated January 4, 2008)
Low Unemployment: The unemployment rate rose to 5.0 percent in December
from 4.7 percent in November. Unemployment rates have declined in 23 states and
the District of Columbia over the year ending in November. (Last updated. January
4, 2008)
There Are Still Many Signs of Economic Strength:
Economic Growth: Real GOP growth was 4.9 percent in the third quarter of 2007,
supported by strong gains in business investment and exports. (Last updated
December 20, 2007)
Business Investment: Business spending on commercial structures and
equipment rose solidly in the third quarter. Healthy corporate balance sheets bode
well for continued investment growth (Last updated, December 20,2007)
Exports: Strong global growth is boosting US exports, which grew by 10.3 percent
over the past 4 quarters, (Last updated, December 20, 2007)
Inflation: Core Inflation remains contained, The consumer price index excluding
food and energy rose 2.3 percent over the 12 months ending in October, (Last
updated, December 14, 2007)
Tax Revenues: Tax receipts rose 6.7 percent in fiscal year 2007 (FY07) on top of
FY06's 11.8 percent increase. As a share of GOP, FY07 receipts exceeded their
40-year average, (Last updated. October 12, 2007)
Americans Are Keeping More of Their Hard-Earned Money:
Real after-tax income per person increased 2.1 percent over the past 12
months (ending in November) (Last updated, December 21. 2007)
Pro-Growth Policies Will Enhance Long-Term U.S. Economic Strength:
We are on track to make significant further progress on the deficit. The FY07
budget deficit was down to 1,2 percent of GOP, from 1,9 pel'cent In FY06. Much of
the improvement in the deficit reflects strong revenue growth, which In turn reflects
the continued strength of the U,S economy. Looking ahead, higher spending on
http://wwwtreas.gov/presslreleases/hP756.htm
211/2008
756: Treasury Economic Update 104.08
Page 2 of2
entitlement programs dominates the future fiscal situation, we must squarely face
up to the challenge of reforming these programs
www.lreZlS·CJov/(~COIlOlllic-pl.lll
http://wwwtreas.gov/presslreleases/hP756.htm
211/2008
Page 1 of2
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employment report reflE
of the challenges facing
S. economy, including the hou
turn and the credit disruptic
same time, the US. econom:
resilient, and we expect
continue. "
Assistant Secretary Phillip Swa
anuary 4, 2008
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Treasury Releases Social Security Papers
To build on the discussions that Secretary Paulson has had with
members of Congress in both parties, Treasury will release a series
of issue briefs that will discuss Social Security reform, focusing on
the nature of the problem and those aspects of reform that have
broad support.
•
•
•
•
RELATED OFFICES
Treasury's Office of Economil
Policy
Paulson Statement on Treasury Social Security Papers on
Common Ground
Issue Brief 1: Social Security Reform: The Nature of the
Problem
Issue Brief 2 : Social Security Reform: A Framework for
Analysis
Issue Brief 3 : Social Security Reform: Benchmarks for
Assessing Fairness and Benefit Adequacy
U.S. Economic Strength
http://www. treas. gOY/ economic- ptan!
2/112008
1ited State~ - Department of The Treasury - Economy
Page 2 of2
Job Creation Continues:
Job Growth: 18,000 new jobs were created in December, the 52nd
straight month of job gains. The United States has added 1.3 million
jobs in the past 12 months and about 8 and a half million jobs since
August 2003. Employment increased in 47 states and the District of
Columbia over the year ending in November. (Last updated:
January 18, 2008)
Low Unemployment: The unemployment rate rose to 5.0 percent
in December from 4.7 percent in November. Unemployment rates
have declined in 12 states and the District of Columbia over the year
ending in November. (Last updated: January 18, 2008)
There Are Many Signs of Economic Strength:
Economic Growth: Real GDP growth was 4.9 percent in the third
quarter of 2007, supported by strong gains in business investment
and exports. (Last updated: December 20, 2007)
Business Investment: Business spending on commercial
structures and equipment rose solidly in the third quarter. Healthy
corporate balance sheets bode well for continued investment
growth. (Last updated: December 20,2007)
Exports: Strong global growth is boosting U.S. exports, which grew
by 10.3 percent over the past 4 quarters. (Last updated: December
20,2007)
Inflation: Core inflation remains contained. The consumer price
index excluding food and energy rose 2.3 percent over the 12
months ending in October. (Last updated: December 14, 2007)
Tax Revenues: Tax receipts rose 6.7 percent in fiscal year 2007
(FY07) on top of FY06's 11.8 percent increase. As a share of GDP,
FY07 receipts exceeded their 40-year average. (Last updated:
October 12, 2007)
Americans Are Keeping More of Their Hard-Earned Money:
Real after-tax income per person increased 2.1 percent over the
past 12 months (ending in November). (Last updated: December
21,2007)
Pro-Growth Policies Will Enhance Long-Term U.S. Economic
Strength:
We are on track to make significant further progress on the
deficit.The FY07 budget deficit was down to 1.2 percent of GDP,
from 1.9 percent in FY06. Much of the improvement in the deficit
reflects strong revenue growth, which in turn reflects the continued
strength of the U.S. economy. Looking ahead, higher spending on
entitlement programs dominates the future fiscal situation; we must
squarely face up to the challenge of reforming these programs.
Last Updated January 31, 2008
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treas,gov/ecunomic-plani
2/1/2008
P-757: Rerrtsrks by Treasury Secretary Henry M. Paulson, Jr.<br>on Housing and Capital Markets <b... Page I of 5
January 7. 2008
HP-757
Remarks by Treasury Secretary Henry M. Paulson, Jr.
on Housing and Capital Markets
before the New York Society of Securities Analysts
New York City, NY-- Good afternoon. I will provide an update on the US housing
and capital markets and. at the beginning of thiS new year. an outlook for the US
economy.
As I have said for some time. the housing and credit disruptions have slowed our
economic growth. and the hOUSing downturn remains the greatest risk to our
economy. Yet. the U.S. economy remains diverse and resilient. even as it works
through these current challenges.
Foreclosure Prevention Efforts
After years of unsustainable price appreciation and lax lending practices, a housing
correction was inevitable and necessary That correction IS underway. Over the
next two years. we also face an unprecedented wave of 1.8 million subprime
mortgage resets, raising the potential of a market failure. Because the Industry does
not have the capacity to manage thiS volume, without action, unnecessary
foreclosures would result.
To meet this challenge. this Administration - without committing any taxpayer
money - helped foster an industry-wide effort to prevent this market failure. By
preventing avoidable foreclosures. we will safeguard neighborhoods and
communities, and fulfill our primary responsibility of protecting the broader U.S
economy. However, let me be clear there is no single or simple solution that will
undo the excesses of the last few years.
As part of our efforts, last fall we began working With mortgage market participants
through the HOPE NOW alliance to implement a three-point plan to avoid
preventable foreclosures. ThiS Administration and Congress have provided
significant funding for mortgage counseling, which will help organizations such as
NeighborWorks America and others to assist homeowners.
The elements of the plan are straightforward. First. the alliance IS aggressively
reaching out to homeowners who are or will be struggling with their mortgages.
Second, industry and government are developing new mortgage products that will
enable more people to stay in their homes.
Third, the Industry Ilas developed a systematic streamlining process that replicates
normal market actions to fast-track borrowers towards a solution, when possible
The industry needs this streamlining to manage the unprecedented volume of
resets that cannot be addressed through Individual, loan-by-Ioan negotiations.
This third part of the plan has received the most attention; it has also received the
most criticism due to the mistaken perception that it abrogates contracts. It does
not. Mortgage servicers have contractual obligations to their investors, who are
spread ali over the world. Servicers Will fulfill these contractual obligations by
pursuing all loss-mitigation options when it is in the best Interest of investors, as
they normally would. Investors are part of this industry-wide solution because they
recognize the benefits of avoiding preventable foreclosures.
Implementation Update
http://wwwtreas.gov/press/releases/hp757.htm
211 12008
P-757:
Rerr~rks
by Treasury Secretary Henry M. Paulson, lr.<br>on Housing and Capital Markets <b... Page 2 of 5
Now is an opportune time to provide a progress report on implementatioll efforts for
this plan.
To meet the Ileed for new mortgage products, HUD has Implemented FHASecure,
under which more borrowers can refinance into FHA mortgages. I congratulate
Congress for passing the temporary mortgage-debt tax relief bill, which President
Bush has signed into law, to help homeowners who have lost their homes from
facing another financial setback due to the tax code.
The HOPE NOW alliance has grown It represents over 90 percent of the subprime
servicing market, lI1c1uding the top 20 subprime serVlcers, as well as major nonprofit mortgage counseling organizations, trade associations and Investors.
This multilayered approach IS both a strength and a challenge. Entire industries do
not adjust easily or quickly, even in times of market calm. Individual companies
especially face resource and other limitations during times of turmoil. The alliance IS
making progress, but implementation Will not be easy, and will require sustained
effort over time
The first step has been to contact troubled borrowers. In its first two months, the
HOPE NOW alliance sent over 450,000 letters to at-risk borrowers who had not
previously contacted their servicers. Servicers eslimate that, as a result of this
effort, approximately 10 percent, or 45,000 homeowners, have called their servicers
to see If foreclosure can be avoided.
Servicers are also moving to quickly implement the framework for streamlined
refinancings and modifications announced by the American Securitization Forum
(ASF) - which represents mortgage market parlicipants, II1cluding many of the
largest IIlvestors. ThiS is not simple: there are legal, accounting and operalional
considerations. Servicing departments need to link With mortgage Originators: thiS
can be difficult for independent servicers. And they must fully implement
connections to FHA. Servlcers are collaborating to share best practices so all
borrowers and II1vestors may benefit from the ASF framework, regardless of who
their servlcer happens to be.
Last Friday over 20 HOPE NOW alliance servicers gathered to work through
implementation details, and will conlinue an intense pace in order to establish the
necessary infrastructure and processes. We expect most servicers to begin fasttracking borrowers in the next few weeks.
We are monitoring results on all aspects of the plan, to ensure participants are
fulfilling their commitments and that homeowners are being contacted and, when
possible, helped The industry IS developing definitive progress reports based on
standard definitions, standardized metrics and a central monitOring and reporting
system. In my Judgment, accurately measuring and reporting progress is absolutely
essential and time IS of the essence. I will continue to press the industry to move
quickly to fully Implement thiS program and to announce metrics that fully evaluate
their progress.
Fast-tracking will move some troubled homeowners quickly into refillancings and
interest rate freezes, which Will free up time for servicers to focus on the more
difficult cases.
Final success of thiS plan will be measured by the number of avoidable foreclosures
that are prevented, not by the number of refinanclllgs or modifications With an
Interest rate freeze.
Major challenges still lay ahead The volume of subprime mortgage resets will
increase substantially in 2008, and most of these mortgages were originated in
2006 under the most lax underwriting standards.
We need to see all servicers reporting results to HOPE NOW to measure
effectiveness and then make adjustments as needed ThiS may include using
elements of a systematic approach for adjustable-rate mortgages other than
subprime If it Will benefit homeowners and investors.
http://wwwtreas.gov/presslreleases/hp757.htm
2/1/2008
P-757: ReI.t!1lrks by Treasury Secretary Henry M. Paulson, Jr.<br>on Housing and Capital Markets <b... Page 3 of 5
Mortgage Credit Market Update
Unsustainable home price appreciation III the past few years caused a large supply
response, and it will take time for demand to catch-up. Housing starts have fallen by
nearly half since their peak in early 2006, and new home sales are down Just as
sharply. House prices are falling in many parts of the country, and elevated housing
inventories suggest that the price adjustment is not yet complete.
In this environment, buyers will be reluctant to commit to new purchases. Moreover,
until investors have confidence that prices have stabilized, they will remain cautious
about funding new mortgages This IS particularly true for new subprime mortgages,
which are not currently being securitized by Fannie Mae or Freddie Mac, and for
Jumbo mortgages which do not qualify for Government Sponsored Enterprise (GSE)
securitization. In these markets, securitization volume has fallen off significantly.
The reduced availability of non-conforming mortgages clearly has impacted the
ability of some to buy or refinance a home. I heard this concern repeatedly as I
traveled throughout the country last month We have urged Congress to move
quickly to address this Issue by passing the FHA modernization bill to provide
financing for approximately 250,000 borrowers and, as part of GSE reform
legislation, to temporarily raise the loan limit to allow the GSEs to securitize jumbo
mortgages.
Just as the HOPE NOW alliance, by preventing some foreclosures, will reduce the
supply of homes to be sold, addresslllg stress in the non-agency mortgage market
could increase the demand for homes by reducing mortgage financing costs and
increasing financing availability. Therefore, it is important that Congress act quickly.
Fortunately, creditworthy borrowers looking for a conforming mortgage will find that
Fannie Mae and Freddie Mac Ilave remained active, and traditional conforming
mortgage products are readily available. Fannie and Freddie's securitization
volumes have risen dramatically since June of 2007, even as other mortgage
markets slowed However, they are also experiencing stress due to the housing
downturn and both companies reported substantial third quarter losses. I am
pleased that Fannie and Freddie have moved quickly to raise capital and, through
their securitization activities, remain a positive force for home finance.
Another housing-related GSE, the Federal Home Loan Bank (FHLB) System, has
provided a considerable amount of liquidity to financial institutions. In the third
quarter alone, the twelve Federal Home Loan Banks provided an additional $184
billion to borrowers Within the system, funding that enables banks and thrifts to
contlllue to lend.
Capital Markets Update
Benign U.S. and global economic conditions, significant global imbalances, large
international capital flows, lax lending standards and investors' aggressive appetite
for yield extended beyond the U.S. housing market and have impacted our capital
markets more broadly.
For the last five months, markets have been comprehensively reassessing risk,
resulting in the re-pricing of securities across a number of asset classes and
sectors. This is appropriate and a healthy return to fundamentals. Given the global
nature of our markets and the compleXity of the IIlstruments Involved, it will take
additional time to work through thiS period of stress and volatility.
As markets reassess, we should not be surprised or disappointed to see financial
institutions writing down assets and strengthening balance sheets. This is market
discipline in action and should enhance market confidence over time. One thing I
have learned over my career IS that If a finanCial institution needs capital, it should
move qUickly to raise it. Moving to strengthen balance sheets better prepares
finanCial institutions to exploit new opportunities and confront lIlevitable challenges.
As Treasury Secretary, I contlllue to firmly believe in the value of this approach: It IS
a positive for financial institutions, capital markets and our economy. Our financial
institutions entered thiS period well-capitalized, and we expect them to remalll so.
There is a choice to be made here. Institutions that shrink balance sheets and
http://wwwtreas.gov/presslreleases/hp757.htm
2/1/2008
757: Renlarks by Treasury Secretary Henry M. Paulson, lr.<br>on Housing and Capital Markets <b...
Page 4 of 5
curtail financing activities could make It more difficult for businesses and consumers
to continue to finance growth. Alternatively, Institutions that strengthen balance
sheets can continue to play their vital role In financing businesses and Individuals thus minimizing the impact of market turmoil on the real economy
We have seen positive developments In this regard DUring the second half of 2007,
financial institutions raised $83 billion of equity, a more than 20 percent Increase
from the same period in 2006. Some may be concerned that much of this financing
came from overseas investors: I am not. When the world invests In the United
States, it is the ultimate vote of long-term confidence in our economy and our
companies.
Our capital markets remain reSilient and continue to show progress towards
stability. Equity markets are functioning well and finished up for the year, across a
broad range of indices. The Treasury market IS operatlllg well With elevated
volumes at much lower yields than the first half of 2007. Our high grade debt
market is performing satisfactorily and issuance has been solid with spreads in line
with the last five years' historical averages. Our high Yield market is Impaired but
operational High yield issuance volume is down significantly and spreads are
wider, but still within levels experienced just four years ago.
We did not expect markets to improve In a straight line as we worked through this
volatility. And, not surprisingly, late in the year we saw a resurgence of risk aversion
and impaired liqUidity. ThiS was felt most acutely in the inter-bank financing
markets.
In response, central banks took a multitude of actions to facilitate liquidity, including
currency swaps between central banks and the successful introduction of the
auction of funds via the Term Auction Facility, extending liquidity injections over
year-end. The short term inter-bank markets have shown signs of improvement as
these coordinated actions are having their desired effect: the spread between
LlBOR and fed funds futures has shrunk significantly.
Additionally, there has been progress in the asset-backed commercial paper
(ABCP) market. ABCP markets are important vehicles for finanCing economic
activity and enhancing liqUidity In the broader capital markets. It is encouraging that
many bank-sponsored structured Investment vehicles (SIVs) have been moved on
balance sheet and de-levered.
Non-bank-owned SIVs have sold assets, allowed assets to mature without
reinvestlllg, secured other liquidity sources or restructured. Thus, outstanding SIV
assets have been steadily reduced from a $400 billion summer peak to less than
S150 billion as of early December. Although this orderly unwind of SIVs is a positive
development, challenges remain in the ABCP market.
Markets will benefit from continued short-term credit market improvements In ABCP
and other structured products. For thiS reason, the Treasury Department has
focused on thiS market for many months. In December, I was pleased that several
Institutions announced a mechanism to provide additional liquidity and price
discovery for the ABCP market if partiCipants decide it is necessary.
Throughout thiS period of readjustment, Treasury's primary focus has been to
facilitate improvement In the financial markets In an attempt to minimize spillover
effects to the real economy.
I have great confidence In our markets. They have weathered Similar stressful
periods In the past - whether It was the Savings & Loan CriSIS, Latin American and
Asian market turbulence or the tech bubble of the late 1990s. The private and
public sectors responded and worked through these difficult periods Markets
recovered then, and they will again
Concurrently, we are also seeking to better understand the causes of current credit
market turmoil. We are stililearnlllg but we recognize some clear lessons already.
We know that contributing factors included an abundant supply of easy credit, and a
decline in lending standards in mortgage origination and other areas. Complex and
opaque financial instruments and structures, such as the use of conduits and SIVs
contributed, as did investor practices and rating agency Issues.
http://wwwtreas.gov/presslreleases/hp757.htm
2/1/2008
P-757: Rerl-arks hy Treasury Sern:>-<ary Henry M. Paulson, Jr.<br>on Housing and Capital Markets <b... Page 5 ot 5
Through the President's Working Group on Financial Markets, we are evaluating a
number of the policy Issues, including securitization - particularly accounting,
valuation and investor practices - credit rating agencies, risk management and
Over-the-Counter (OTC) market infrastructure.
Our most immediate goal is to minimize the impact on the real economy. At the
same time, we recognize the importance of addressing these poliCY Issues, and we
are This will require patience as we thoughtfully evaluate next steps. Working
through the current situation and getting the poliCY right IS more important than
getting the policy announced qUickly.
U.S. Economy
Looklllg across tile entire economic landscape, the housing downturn and credit
disruption will. as I have said for some time. weigh on our economy and impose a
penalty on our economic growth. We saw effects of thiS in last Friday's report of
slower Job growth and higher unemployment in December. It will take additional
time for markets to regain confidence. We will likely have further indications of
slower growth In the weeks and months ahead. The overhang of unsold houses Will
contribute to a prolonged adjustment, and poses by far the biggest downside risk.
At the same time, despite the housing downturn, credit market disruption and higher
energy prices, we experienced nearly 5 percent GOP growth in the third quarter of
last year. Consumer and business spending remained solid through the fall, and a
strong global economy is boosting US. exports. Moreover. core inflation remains
contained and histOrically high tax receipts have reduced the federal defiCIt. While
growth looks to have slowed considerably in the last part of 2007, our economy
remains resilient and I expect it to continue to grow.
Again, let me be clear that no single poliCY or action will undo the excesses of the
last few years. President Bush and his Administration recognize the risks we face.
and the primary importance of keeping the economy as strong as possible as we
weather this housing correction.
We will remalll vigilant and I look forward to providing timely updates as we move
through thiS period. Thank you.
http://wwwtreas.gov/presslreleases/hp/hp7.57.htm
2/1/2008
Page 1 of 4
January 9, 2008
2008-1-9-10-1-45-20164
U,S. International Reserve Position
The Treasury Department today released U.S, reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $70,684 million as of the end of that week, compared to $69,665 million as of the end of the
prior week,
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
I
IA Official reserve assets (in US millions unless otherwise specified)
II
IIDecember 28, 2007
IIEuro
IIYen
IITotal
II
11 11 ,320
11 70 ,684
I(a) Securities
II
11 14 ,466
lof which: issuer headquartered in reporting country but located abroad
II
II
11 0
I(b) total currency and deposits with
II
1(1) Foreign currency reserves (in convertible foreign currencies)
I(i) other national central banks, BIS and IMF
II
14,446
5,561
Iii) banks headquartered in the reporting country
II
11 20 ,007
11 0
11 0
lof which located abroad
1(111) banks headquartered outside ttle reporting country
11 0
11 0
lof which: located in the reporting country
1(2) IMF reserve position
11 4 ,384
1(3) SDRs
11 9 .466
1(4) gold (including gold deposits and, if appropriate, gold swapped)
11 11 ,041
I--volume in millions of fine troy ounces
11261499
1(5) other reserve assets (specify)
11 0
I--financial derivatives
II
I--Ioans to nonbank nonreSidents
II
I--other
II
lB. Other foreign currency assets (specify)
11 25 ,786
I
I--securities not included in official reserve assets
I--deposits not included in official reserve assets
I--Ioans not included in official reserve assets
1--finanCial derivatives not included in official reserve assets
I--gold not included in official reserve assets
1
I --other
II
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
I~I_ _ _ _ _ _--'IL-I_ _------lIL-1_ _--'1'--1_ _-----'1'--1_ _------ll'---I_ _-----'II
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2/112008
Page 2 of 4
I
IIMaturity breakdown (residual maturity)
II
Total
I
1. Foreign currency loans, securities, and deposits
1--outfIOWS (-)
IIPrinclpal
[
IIlnterest
[--inflows (+)
IIPrincipal
IUp to 1 mo<,th
II
I
I
More than 3
months and up to
1 year
More than 1 and
up to 3 months
II
\I
IIlnterest
1
2 Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leq of currency swaps)
I
I
(a) Short positions ( - )
(b) Long positions (+)
I
I
I
I
I
3. Other (specify)
--outflows related to repos (-)
--inflows related to reverse repos (+)
--trade credit (-)
I
--trade credit (+)
II
--other accounts payable (-)
II
--other accounts receivable (+)
II
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
I
II
IITotal
I
11
Contingent liabilities in foreign currency
II:a) Collateral guarantees on debt falling due within 1
year
II
II
II
I
IMaturity breakdown (residual maturity, where
I
applicable)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 month
II
II
j(b) Other contingent liabilities
2. Foreign currency securities issued with embedded
options (puttable bonds)
13
I
I
Undrawn, unconditional credit lines provided by:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
I
I--other national monetary authorities (+)
I--BIS (+)
I--IMF (+)
(b) with banks and other financial institutions
headquartered in the reporting country (+)
(c) with banks and other financial institutions
headquartered outside the reporting country (+)
II
JI
IUndrawn, unconditional credit lines provided to:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
I--other national monetary authorities (-)
I
http://wwwtreas.gov/presslreleases/hp2008191014520164.htm
I
I
I
II
II
I
I
II
II
2/112008
Page 3 of4
I--BIS (-)
II
II
II
II
I--IMF (-)
II
II
II
II
I
I
II
1/
II
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options in
Ilforeign currencies vis-a-vis the domestic currency
I
II
II
I(a) Short positions
II
I(i) Bought puts
II
I(ii) Written calls
I
I
I(b) Long positions
I(i) Bought calls
I(ii) Written puts
IPRO MEMORIA In-the-moneyoptions
1(1) At current exchange rate
I
I(a) Short position
I(b) Long position
I
1(2) + 5 % (depreciation of 5%)
I
I(a) Short position
I(b) Long position
I
II
1(3) - 5 % (appreciation of 5%)
I(a) Short position
I(b) Long position
II
1(4) +10 % (depreciation of 10%)
II
I(a) Short position
1/
I(b) Long position
I
1(5) - 10% (appreciation of 10%)
I(a) Short position
j(b) Long position
I
1(6) Other (specify)
II
I(a) Short pOSition
II
I(b) Long position
II
I
IV. Memo items
I
1(1) To be reported with standard periodicity and timeliness
I(a) short-term domestic currency debt Indexed to the exchange rate
(b) financial instruments denominated In foreign currency and settled by other means (e.g .. In domestic
currency)
l
I--nondellverable forwards
I --short positions
I --long pOSitions
I
[--other instruments
[(c) pledged assets
I--included in reserve assets
~-included
in other foreign currency assets
I
http://wwwtreas.gov/presslreleaSes/hp2008191014520164.htm
2/1/2008
Page 4 of 4
I(d) securities lent and on repo
I--Ient or repoed and included in Section I
I--Ient or repoed but not included in Section I
1
--borrowed or acquired and included in Section I
I--borrowed or acquired but not included in Section I
I(e) financ ial derivative assets (net. marked to market)
I--forwa rd s
I--futures
I--swaps
I--options
I--other
/I(f) derivatives (forward. futures. or options contracts) that have a residual maturity greater than one
year. which are subject to margin calls .
II;-aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I
I
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I
I(a) short positions
I(i) bought puts
I(ii) written calls
I(b) long positions
I(i) bought calls
I(ii) written puts
1(2) To be disclosed less frequently :
I(a) currency composition of reserves (by grou ps of currencies)
1170.684
I--cu rrenc ies in SDR basket
11 70 .684
I--currencies not in SOR basket
II
I--by individual currencies (optional)
II
II
I
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42 .2222 per fine troy ounce.
http://wwwtreas.gov/presslreleases/h p/200819 1014520164.htm
2/ 1/2008
Page 1 of 4
January 9, 2008
2008-1-9-9-57 -21-20082
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $69,665 million as of the end of that week, compared to $69,955 million as of the end of the
prior week.
I Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
II
IIDecember 21,2007
I
IA. Official reserve assets (in US millions unless otherwise specified)
1(1) Foreign currency reserves (in convertible foreign currencies)
Ita) Securities
lof which: issuer headquartered in reporting country but located abroad
I(b) total currency and deposits with:
/(i) other national central banks, BIS and IMF
II Euro
II
IIYen
IITotal
II
11 69 ,665
11 14 ,102
1111.215
11 25 ,317
/
II
II
II
11 0
I
II
/5,511
II
I
11 19 ,595
I
1/14,084
Iii) banks headquartered in the reporting country
11 0
I
lof which: located abroad
11 0
1
I(iii) banks headquartered outside the reporting country
11 0
lof which located in the reporting country
11 0
1(2) IMF reserve position
11 4 ,340
1(3) SDRs
11 9 ,372
1(4) gold (including gold deposits and, if appropriate, gold swapped)
11 11 ,041
I--volume in millions of fine troy ounces
11261499
I
0
1(5) other reserve assets (specify)
I--financial derivatives
I--Ioans to nonbank nonresidents
I--other
lB. Other foreign currency assets (specify)
I--securities not included in official reserve assets
--deposits not included in official reserve assets
Ji
I--Ioans not included in official reserve assets
/1
--financial derivatives not included in official reserve assets
II
I--gold not included In offiCial reserve assets
II
I --other
II
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
~'--[_ _ _ _ _ _----JIL..-I_ _----JIL..-l_ _----'II..-I------'1'---1_ _ _IL-l_ _------111
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21112008
Page 2 of 4
II
I
I
II 1. Foreign currency loans, securities, and deposits
IIMaturity breakdown (residual maturity)
IIToial
IUp 10 1 monlh
More than 1 and
up to 3 months
I
II
II
II
Ilprincipal
II
I!
I!
I!
I
t-inflows (+)
Illnterest
II
II
II
II
I!Principal
II
I!
I!
1/
[
Illnterest
II
II
II
I
[-outflows (-)
I
More than 3
months and up to
1 year
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-VIs the domestic
currency (including the forward leg of currency swaps)
II
II
(a) Short pOSitions ( - )
II
II
I
(b) Long pOSitions (+)
I
I
II
II
II
I
3. Other (specify)
II
I
II
/I
I
--outflows related to repos (-)
--inflows related to reverse repos (+)
--trade credit (-)
I
II
II
II
II
I
I!
/I
I
II
I
/I
)I
I
II
II
II
I
II
/I
/I
I
II
II
I
--trade cred it (+)
II
--other accounts payable (-)
--other accounts receivable (+)
II
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
I
II
I
11 Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falling due Within 1
year
j(b) Other contingent liabilities
2. Foreign currency securities issued with embedded
options (pultable bonds)
13 Undrawn, unconditional credit lines provided by:
I~a) other national monetary authorities, BIS, IMF, and
other international organizations
I--other national monetary authorities (+)
II
I Maturity breakdown (reSidual maturity, where
applicable)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
IIToial
IUp 10 1 monlh
/I
II
II
II
II
II
II
II
II
II
II
II
JI
II
I
I
II
II
JI
I
1/
I
I
I
[--BIS (+)
I--IMF (+)
(b) with banks and other financial institutions
headquartered in the reporting country (+)
(c) with banks and other finanCial instJtutlons
headquartered outside the reporting country (+)
I
J
[Undrawn, unconditional credit lliles provided to:
II!a) other national monetary authorities, BIS, IMF, and
other international organizations
I:
t-other national monetary authorities (-)
I
http://wwwtreas.gov/presslreleaSes/hp/2008199572120082.htm
I
II
I
II
II
II
II
II
II
211/2008
Page 3 oC4
\--BIS (-)
I--IMF (-)
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options in
foreign currencies vis-a-VIs the domestic currency
II
II
II
II
II
II
II
II
II
11
II
II
I
II
I
I
I
I
I
I
I
I(a) Short positions
I(i) Bought puts
I(ii) Written calls
I
I(b) Long positions
\I
I(i) Bought calls
I
II
I(ii) Written puts
II
II
I
II
II
I
IpRO MEMORIA In-the-money options'
1(1) At current exchange rate
I
I(a) Short position
\I
\I
\I
I
I[
II
I
I
I
I(b) Long position
II
II
II
/(2) + 5 % (depreciation of 5%)
II
II
I(a) Short position
II
II
II
/(3) - 5 % (appreciation of 5%)
II
I(a) Short position
II
I(b) Long position
II
/(4) +10 % (depreciation of 10%)
II
II
II
I(b) Long position
I
I(a) Short position
II
1(5) - 10 % (appreciation of 10%)
II
I(a) Short position
II
"
I
I(b) Long position
I
II
I
I
1(6) Other (specify)
II
II
II
II
I(a) Short pOSition
II
II
II
II
I(b) Long position
\I
II
1/
"
IV. Memo items
[
I
[1) To be reported with standard periodicity and timeliness
I
I
[(a) short-term domestic currency debt indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g ..
currency)
I
I
II
I
II
I(b) Long position
I
In
domestic
I
I--nondeliverable forwards
I
I
I --short positions
--long positions
[
[--other instruments
[(c) pledged assets
II
I
[--inCluded in reserve assets
II
I
[--included in other foreign currency assets
II
I
I
http://wwwtreas.gov/presslreleases/hp200S199572120082.htm
II
I
2/1/2008
Page 4 of 4
I(d) securities lent and on repo
[-lent or repoed an d in cluded in Section I
t-Ient or repoed but not included in Section I
I--borrowed or acquired and included in Section I
I--borrowed or acquired but not in cluded in Section I
I(e) fin ancial derivative assets (net. marked to market)
I--forwards
I--futures
I--swaps
I--options
I--other
(f) derivatives (forwa rd . futures . or options co ntracts) that have a residual maturity greater tha n one
Ilyear. which are subject to margin ca lls.
II--aggrega te short and long pOS itio ns in forwards an d fu tures in foreign cu rrencies vis-a-v is the domestic
IIcurrency (including the forw ard leg of currency swaps)
II
II
I
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long pOSitions of options in foreig n curre ncies vis -a-vis the domestic cu rre ncy
I(a) short position s
l(i) bought puts
I(ii) written cal ls
I(b) long position s
l(i ) bought ca lls
I(ii) written puts
1(2) To be disclosed less frequently
I(a) currency composition of reserves (by groups of currencies)
1169 .665
I--currencies in SDR basket
1169.66 5
I--currencies not in SDR basket
II
II
II
I--by individual currencies (optional)
I
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
21 The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/doliar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
31 Gold stock
is valued monthly at $42.22 22 per fine troy ounce.
http://wwwtreas.gov/press/releases/hp2008199572120082.htm
2/1 /2008
January 9, 2008
2008-1-9-10-6-58-20217
U.S. International Reserve Position
The Treasury Department today released U.s. reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $71,492 million as of the end of that week, compared to $70,684 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
I
IA Official reserve assets (in US millions unless otherwise specified)
II
IIJanuary 4, 2008
IIEuro
IIYen
IITotal
II
11 14 ,596
II
11 11 ,801
11 71 .492
I(a) Securities
lof which: issuer headquartered in reporting country but located abroad
II
II
11 0
I(b) total currency and deposits with
II
1(1) Foreign currency reserves (in convertible foreign currencies)
l(i) other national central banks, BIS and IMF
II
14,523
5,795
Iii) banks headquartered in the reporting country
11 26 ,397
II
11 20 ,318
11 0
11 0
lof which: located abroad
l(iil) banks headquartered outSide the reporting country
11 0
11 0
lof which: located in the reporting country
1(2) IMF reserve position
11 4 ,249
1(3) SDRs
119.487
1(4) gold (including gold depOSits and, if appropriate, gold swapped)
11 11 ,041
I--volume in millions of fine troy ounces
11 261 .499
1(5) other reserve assets (specify)
11 0
I--financial derivatives
II
I
I--Ioans to nonbank nonresidents
I--other
lB. Other foreign currency assets (specify)
I--securities not included in official reserve assets
I--deposits not included in official reserve assets
I--Ioans not included in official reserve assets
I--financial derivatives not included in official reserve assets
I--gold not included in official reserve assets
I --other
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
[[,--_ _ _ _ _ _---'11'--_ _---'IlL.....-_ _---'iL..-l_ _---'II'"---_------'IIL..-_ _---'II
www.tre~c;.gov/press/releases/2Uffi>.191065820217.htm
2/1/2008
Page 2 of 4
[
II
[
IITotal
IUp to 1 mooth
1. Foreign currency loans, securities, and deposits
[--outflOWS (-)
I
[inflOWS (+)
I
More than 3
months and up to
1 year
More than 1 and
up to 3 months
I
II
II
II
I
I/Principal
II
Ii
II
II
I
IIlnterest
II
II
"
I
"
II
I
II
I
II
I
"
"
"
I
IIPrincipal
[
J1Maturity breakdown (residual maturity)
IIlnterest
2 Aggregate short and long positions In forwards and
futures In foreign currencies Vis-a-VIS the domestic
currency (Including the forward leg of currency swaps)
(a) Short positions ( - )
II
II
"
II
I
II
II
II
(b) Long positions (+)
II
II
3. Other (specify)
II
II
--outflows related to repos (-)
--Inflows related to reverse repos (+)
I
I
II
""
II
--trade credit (-)
II
1/
--trade credit (+)
II
II
--other accounts payable (-)
--other accounts receivable (+)
I
"
"
"
II
"
1/
I
II
I
I[
I
II
I
II
I
I[
I
I[
I
III. Contingent short-term net drainS on foreign currency assets (nominal value)
1/
I
1/
II
MatUrity breakdown (residual maturity, where
applicable)
I
I
I
ITota,
I
11 Contingent liabilities in foreign currency
I/:a) Collateral guarantees on debt falling due within 1
year
I
I(b) Other contingent liabilities
/i
13. Undrawn.
I
uncondilional credit lines provided by
(a) other national monetary authorities, BIS, IMF, and
other internallonal organizations
1!
I--other national monetary authOrities (+)
I--BIS (+)
I
/--IMF (+)
(b) with banks and other financial Institullons
headquartered In the reporting country (+)
1/
1/
I[
I
I
II
I[
I
1/
2. Foreign currency securities Issued with embedded
options (putlable bonds)
/1
I
More than 3
months and up to
1 year
More than 1 and
up to 3 months
IUp to 1 month
I
II
I
1/
I[
I[
I
I
II
II
II
II
II
II
1/
I[
I[
I[
I
I[
I
II
I
(e) With banks and other financial institutions
headquartered outside the reporting country (+)
II
/Undrawn, unconditional credit lines provided to
I
II
f
I[
I[
JI
II
II
I[
I
II
II
I[
II
II
II
I
)
(a) other national monetary authOrities, BIS, IMF, and
other international organizations
[--other national monetary authorilles (-)
I
II
II
http://wwwtreas.gov/presslreleases/hp2008191065820217.htm
I
2/112008
Page 3 of4
I--BIS (-)
II
I--IMF (-)
II
(b) banks and other financial institutions headquartered
\lin reporting country (- )
II(C) banks and other financial institutions headquartered
outside the reporting country ( - )
114. Aggregate
short and long positions of options in
foreign currenCies vis-a-VIs the domestic currency
I(a) Short positions
l(i) Bought puts
1\
I
II
II
II
I(ii) Written calls
II
I(b) Long positions
II
II
JI
II
I
II
II
II
I
II
II
II
I
II
1/
II
1/
1/
II
II
II
II
II
II
II
II
II
I
I
I
II
I
II
I
II
I
l(i) Bought calls
II
II
II
I
I(ii) Written puts
II
II
II
I
IpRO MEMORIA In-the-money options
II
I
II
I
II
II
1(1) At current exchange rate
II
/I
I(a) Short position
II
I(b) Long position
1(2) + 5 % (depreciation of 5%)
I(a) Short position
I(b) Long position
1(3) - 5 % (appreciation of 5%)
I
II
II
II
II
I
II
II
II
I
I(b) Long position
j(4) +10 % (depreciation of 10%)
II
II
II
II
I
I(a) Short position
I(b) Long position
II
1(5) - 10 % (appreciation of 10%)
I
II
I(a) Short position
II
I(b) Long position
II
1(6) Other (specify)
II
II
II
II
II
II
II
II
I(b) Long position
II
II
II
I(a) Short position
hal Short position
II
II
II
II
II
II
II
II
II
II
I
II
II
II
II
IV. Memo items
I
1(1) To be reported with standard periodicity and timeliness
[(a) short-term domestic currency debt Indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g, in domestic
currency)
II
l
I--nondeliverable forwards
I --short positions
I --long positions
1
t-other instruments
[(C) pledged assets
[--Included in reserve assets
t-included in other foreign currency assets
I
http://wwwtreas.gov/press/releases/hp2008191065820217.htm
II
2/1/2008
Page 4 01'4
II
I(d) securities lent and on repo
I--Ient or repoed and included in Section I
II
I--Ient or repoed but not included in Section I
II
II--borrowed or acquired and included in Section I
11
11
))--borrowed or acquired but not Included In Section I
he) financial derivative assets (net, marked to market)
1\
I--forwards
1\
I--futures
1\
I--swaps
II
I
I--optlons
I
I--other
I
(t) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one
year, which are subject to marglll calls.
--aggregate short and long positions in forwards and futures
currency (including the forward leg of currency swaps)
III
lI
I
I
foreign currencies vis-a-vIs the domestic
I(a) short positions ( - )
I
I(b) long positions (+)
I
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I
I(a) short positions
I
1(1) bought puts
I
I(il) written calls
I
I
I(b) long positions
1(1) bought calls
I(ii) written puts
1(2) To be disclosed less frequently:
I(a) currency composition of reserves (by groups of currencies)
[71.492
I--currencies in SDR basket
11 71 .492
I--currencies not in SDR basket
II
I--by individual currencies (optional)
I
I
Notes:
"
"
I
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://wwwtreas.gov/presslreleases/hp2008191065820217.htm
2/1/2008
758: Issu~ Brief No. 3: Social Security Reform: Benchmarks for Assessing Fairness and Benefit Ade... Page 1 of 1
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January 9, 2008
hp-758
Issue Brief No.3: Social Security Reform: Benchmarks for Assessing
Fairness and Benefit Adequacy
Washington, DC - Treasury today released the third in a series of papers on Social
Security. Issue Brief No.3 is entitled Social Security Reform· Benchmarks for
Assessing Fairness and Benefit Adequacy.
REPORTS
•
Issue Brief No.3 Social Security Reform: Benchmarks for Assessing
Fairness and Benefit Adequacy
http://wwwtreas.gov/presslreleases/hp758.htm
211/2008
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ISSUE BRIEF NO. 3
SOCIAL SECURITY REFORM:
BENCHMARKS FOR ASSESSING
FAIRNESS AND BENEFIT ADEQUACY
INTRODUCTION
Thi s is the third in a series o f issue briefs that the Treasury w ill release on Social Security refo rm . This
brief focuses on w ays to assess the fairn ess of re forms and the adequacy of benefits in a financ ially
sustainable Social Security system. 1 The appropriate level of ben efits, degree of progressivity, and distribution across generations of the fina ncial burden associated w ith achieving a solvent system inherently
involve vo lue judgments that must be made in deciding how to refo rm Social Security. Thi s issue brief
provides a practical illustration of how to assess th e implications of a potential reform plan along these
important dimensions .
The first brief explained that achieving a financia lly sustainable Social Security system requires that the
birth cohorts who w ill bear the financial consequences of reform must receive benefits whose presen t
va lue is lower than the presen t va lue of the Social Secu rity taxes they pay by more th an $13 .6 trillion . (Th is is the result of earlier birth cohorts having received or been promised benefits that exceed
their lifetime contributions by this same amount) That brief also noted that refo rm can be fairer to future
generations the soon er that it is initiated because the burden of reform wi ll be spread over mo re people
than in the case where reform is delayed. Generational fairness therefore provides an important reason
to refo rm Socia l Security sooner rather than later.
Th e seco nd brief introduced a framework for desi gn ing and evalua ting reform plans that identifies reform
options and weighs them with respect to the goals of allocating the burden of Social Security reform
fairl y and ensuring that total retirement resources incl usive of Social Security benefits w ill allow individu·
als to maintain a decent standard of living in retirement. Wh ile the second brief o ffered metrics to help
assess fairness and benefit adequacy, it d id not opine on wha t is fair or what represents an adequate
level of benefits As these are value-laden questions, reasonable people may disagree on their an·
swers. Nevertheless, to provide concrete demonstrations of how this framew ork can be used to d esign
and evaluate Social Secu rity reform plans, thi s is sue brief proposes speci fic benchmarks for assessing
fairness a nd benefit adequa cy. These benchmarks can be interpreted either as targets or simply as
referen ce points to help formulate a target And im portantly, altern a tive benchmarks o r ta rgets can be
developed and compared to those presented here .
Th e framewor k described in Trea sury's second issue brief yiel ds a three·step decision hierarchy for Social
Security reform.
As in ea rlier brie fs, the current brief focuses on poten ttOi re forms 10 the ret iremen t income po rt ion of SOCio l Security, not
the disobility in surance portion . Hence, the benefi t an d tax ca lcula tions that foll ow do not includ e d isobil ity benef its
and taxes, no r do they include the ta xes tha t a re pa id on Socio l Security ben efi ts.
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Decision 1. Decide how the burden of the changes required to close Sacial Security's $13.6 trillion
financing gap shauld be distributed across generations.
Decision 2. For a given allocation across birth cohorts, decide how the burden should be distributed
across income groups within each birth cohort
Decision 3.
Decide how lorge the level of benefits (and hence taxes) should be
After these decisions have been made, a set of reforms can be developed that are consistent with them.
As discussed in Treasury's second issue brief, a critical question is whether contributions to Social Security in excess of benefits paid (attempted pre-funding) are truly set aside to help pay future benefits (in
which case true pre-funding results) If attempted pre-funding does not result in true pre-funding, then the
advantage to future generations from running a Social Security surplus today would be offset by a fiscal
policy outside of Social Security that is less fair to future generations ThiS brief assumes that such attempted pre-funding is in fact real. While there is considerable reason to believe that the current Social
Security surplus does not represent true pre-funding, future reforms could usefully include mechanisms
aimed at ensuring that true pre-funding occurs. Treasury's fourth issue brief investigates this topic.
The remainder of this third issue brief discusses these three decisions in sequence, offering benchmarks
either to help decide the question or to help assess the choices made by a particular reform plan.
DECISION 1: DECIDE HOW SOCIAL SECURITY'S ABSOLUTE BURDEN
SHOULD BE ALLOCATED ACROSS BIRTH COHORTS SUBJECT TO REFORM
Treasury's first issue brief demonstrated that Social Security must impose a lorge burden on birth cohorts that
will be subiect to reform, cohorts that this brief refers to as the "reform cohorts" Relative to current-law scheduled benefits and taxes, the reform cohorts must experience some combination of cuts to scheduled benefits
and tax increases that ore currently estimated to equal $13.6 trillion in present value (alternatively, 3,5 percent
of future taxable payrolls), This, in addition to the fact that Social Security's current-law scheduled benefits
and taxes imply that the reform cohorts are already paying more into the system than they will receive in benefits means that Social Security will impose an absolute burden on reform cohorts that exceeds $13,6 trillion,
Importantly, reform cohorts are certain to either receive lower benefits or pay higher taxes than under current low even if no reforms ore mode, As pointed out in Treasury's first issue brief, current law mandates that
benefits be scaled back to a level that is consistent with then-current payroll tax income when the trust fund is
exhausted, Moreover, even if the program were reformed so as to draw on general revenues, those revenues
would derive primarily from taxes paid by the reform cohorts, In short, there is no way to avoid the conclusion that the Social Security program will impose a significant burden on the reform cohorts
A Social Security reform might be partial in the sense that it explicitly allocates only a portion of the
$136 trillion in benefit and tax adlustments that must ultimately be imposed For example, a reform
might be enacted that makes Social Security solvent for 75 years but not beyond, Such a reform is
Virtually certain to be followed up later with additional measures that close the remaining financing gap
through further benefit cuts and/or tax increases, As it can be difficult to assess the fairness of a partial reform without knowing the particulars of the reforms that will follow, this brief focuses on complete
reforms that close the entire $136 trillion finanCing gap,
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To help assess the fairness with which a full reform allocates the reduced benefits and higher taxes (the
increase in "net taxes") between and within reform cohorts, Treasury's second issue bflef introduced the
concept of the lifetime net benefit rote. For an individual, the lifetime net benefit rate is defined as the present value of net lifetime Social Security benefits (benefits less taxes) as a percentage of the present value
of the individual's lifetime wages The lifetime net benefit rate for a birth cohort is the same as that for an
individual except that the numerotor (net Social Security benefits) and the denominator (lifetime wages) are
sums computed over all members of the birth cohort.
Because reform cohorts must pay a net tax exceeding $13.6 trillion, lifetime net benefit rates must be negative on average for reform cohorts-that is, reform cohorts must on average receive benefits whose present
value is less than the present value of the taxes they pay into the system. A negative lifetime net benefit
rate in most contexts will be referred to as a "lifetime net tax rate." For example, a negative 3 percent
lifetime net benefit rate is the same as a positive 3 percent lifetime net tax rate.
One candidate for a fair allocation of Social Security's net taxes across reform cohorts is a reform that imposes the same net tax rate on 011 reform cohorts; such a reform might be viewed as sharing the burden of
lower benefits and/or higher taxes equally across generations For example, suppose the reform cohorts
are those born in 1953 and later (that is, those aged 55 or younger in 20081, and that a net tax rate of
35 percent on those cohorts is lust sufficient to yield $13.6 trillion in lower benefits and/or higher revenues (This is merely on illustration, In practice, the Congressional Budget Office and/or SOCIal Security
Administration could estimate net benefit rate profiles that would result in permanent solvency) The lifetime
net benefit profile in this case is labeled "Immediate Reform" in Figure 1. Also included in the figure is the
lifetime net benefit profile under current-law scheduled benefits and taxes (as well as a third profile showing net benefits under a gradual reform that will be discussed later) It is important to keep in mind that
current-law scheduled benefits and taxes cannot actually come to pass; Indeed, current prOJections indicate
that only about 75 percent of scheduled benefits would be paid starting in 2041 absent a change in the
program, so that current-low scheduled benefits are attainable only with higher taxes. While comparing
benefits under a reformed system to those scheduled under current law IS misleading in one sense, the
lifetime net benefit profile implied by current-law scheduled benefits and taxes still prOVides a useful benchmark for gauging the relative magnitude of each generation's required sacrifice
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Figure 1: Lifetime Net Benefit Rates by Birth Cohort:
Gradual Versus Immediate Reform
Percent
o
~---
,----------------------------~
Current-Law Scheduled Benefits and Taxes
-1
...
-2
...
. . . ...
. . . ...
..
-3
Immediate Reform
-----------------------
-4
Gradual Reform
1940
1960
1980
2000
2020
2040
2060
2080
2100
Year of Birth
Source: Department of the Treasury
Figure 1 indicates that the immediate reform causes the lifetime net benefit rate to fall to -2.1 percent
for the 1950 birth cohort and to -3.5 percent for the 1953 birth cohort. (The chart gives figures for
every fifth birth cohort, so the 1953 cohort is not octually shown) Many people would regard such
an abrupt change in Social Security's promises so close to retirement as unfair: The ability to ad lust to
an unexpected change in Social Security's provisions is more limited the older one is at the time that the
change occurs.
For this reason, reform plans typically phase in required benefit cuts and/or tax increases gradually.
Figure 1 therefore also gives the lifetime net benefit rate profile associated with a reform that reduces
lifetime net benefit rates more gradually before leveling off (the dashed line labeled "Gradual Reform")
What is noteworthy is the relationship between the profiles for immediate and gradual reforms Relative
to the immediate reform, the gradual approach is more generous to cohorts born between 1953 and
1970, and it therefore must be less generous to cohorts born after 1970. Again, because Social Security must levy a net tax on reform cohorts exceeding $13.6 trillion, the smaller is the burden imposed on
early reform cohorts, the greater is the required burden for later reform cohorts. As a result, the eventual
long-run lifetime net benefit rate is lower under the gradual phose-in (-40 percent) than for the immediate phose-in (-35 percent).
If one accepts that it is fair to have a lifetime net benefit rate that eventually levels off and stays constant,
then the pertinent question is how fast a reform should be phased in. The gradual reform shown in
Figure 1 phases in fully with the 1975 birth cohort, a cohort that is 33 years old at the time the reform is
initiated in 2008 Many would regard that as providing sufficient warning Giving even more warning would place a higher burden on future generations; for example, delaying full phase-in to the 1988
birth cohort (those aged 20 in 2008) would require cohorts in the far future to bear a larger burden
than if the full phase-in were to occur with the 1975 birth cohort.
An alternative approach to reform would depart from having a constant lifetime net benefit rate for
reform cohorts after a possible phase-in. SpeCifically, it might be argued that future generations will
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benefit from higher reo I wages that w ill come about beca use of productivity growth, and that lifetime
net benefit ra tes should therefore trend downward for successive birth cohorts. (The ideo is that Social
Security's net taxes should be progressive across birth cohorts as well as w ithin birth cohorts) This possibil ity is il lustrated by the lifetime net benefit rate profile labeled "Forever Declining Rate" in Figure 2 .
Tha t profile is equal to the gradual phose-in profile up to the 1955 birth cohort and then commences a
more gradual descent tha t never stops . Relative to the gradual phase-in case, the forever declining case
is more generous to birth cohorts born between 1955 and 2055, and is less generous to cohorts born
after 2055.
Percent
Figure 2: Lifetime Net Benefit Rates by Birth Cohort:
Alternative Assumed Long-Run Rates
o .---------------------------------------------~
-1
Forever Dec lini ng Rate
-3
Ph ase-In to Flat l ong-Run Ra te
-5
1940 1960 1980 2000 2020 2040 2060 2080 2 100 2 120 2 140 2160
Year of Birth
Source: Department of the Treasury
When considering the proposition that Social Security's net taxes should be progressive across birth cohorts as well as within birth cohorts, it is worth noting that the ethics of imposing progressive taxes between
birth cohorts is different than the ethics of imposing progressive taxes w ithin birth cohorts . In the latter case,
everyone affected by the policy has direct political representation In the former case, current generations
decide that future generations will contribute disproportionately to making Social Security solvent, but those
fu ture generations have no direct influence on the decision . This is the case as well with a partial reform
(such as a plan that only attains 75-year solvency), since this puts a larger share of the reform burden on
future cohorts.
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Work incentive considerations are also important when considering how to allocate Sociol Security's net
laxes across generations Social Security's nel taxes discourage work effort. The work disincentive effecls
of raising a given amount of tax revenue generally will be smallest if everyone faces the some tax rate
rather than if lox rates differ, and this result applies to people living at different times as well as to people
living at the some time 2 Hence, taxing different generations 01 different rates generally has greater work
disincentive effects Ihan taxing all generalions 01 Ihe some rate . Thi s consideration argues for a flat lifelime
net benefit role in the long run, rather than one that forever declines (and therefore results in work disincentives that grow larger for fulure generalions) . If il were believed that a forever-declining net benefit role is
fairer than one that eventua lly flattens out, then deciding the speed at which the net benefit rate should
decline involves a familiar tradeoff between equity and efficiency No such tradeoff is required if the eventually flat profile for the net benefit rate is viewed as fairest.
In this framework, the relevant decisions are : (1) at what rate should reforms be phased in so as to give
people sufficient time to adjust their saving and retirement plans; and, (2) at w hat rate should lifetime net
benefit rates decline because of expected increases in the real wages of successive birth cohorts The
precise tradeoffs involved can be estimated. For example, if it were decided that the long-run lifetime net
tax rate should be flat, one cou ld estimate the tradeoff between phase-in speed and the eventual level of
the lifetime net benefit rate.
As fairness is subjective, there are no rig ht or wrong answers to these questions
ful, however, to quantify the tradeoffs involved.
A common framework is use-
AN EXAMPLE
Figure 3 gives estimates of the lifetime net benefit rate by birth cohort for on illustrative reform that reduces the
lifetime net benefit gradually before leveling off and staying constant thereafter (again, this is on illustration,
not a policy recommendation) The reform is simple and has two components. The first component involves
a gradual benefit reduction (compared to promised benefits) for the 1947 to 1972 birth cohorts (those aged
62 between 2009 and 2036) so that the real benefit levels for a person at a given pOint in the relative distribution of lifetime wages would stay roughly constant for successive birth cohorts, rather than growing with the
overage level of real wages people earn 3 The second component, w hich applies to cohorts bo rn in 1973
and later, keeps the benefit formula the some as for the 1972 birth cohort except that benefits are reduced
proportionately in accordance with changes in life expectancy; this results in a constant lifetime net benefit
rate even though people applying for benefits at the normal retirement age are receiving benefits for longer
and longer periods of time. (The second component is often referred to as "longevity indexing.") In formulating this plan, on informed guess was mode that starting longevity indexing with the 1973 birth cohort wou ld
result in a permanently solvent system; this is only a guess, though, wh ich is another reason why this example
should be viewed as illustrative only.
2
If some individuals' work effort (either within a cohor t or across cohorts) were relatively less sensitive to ta xes, imposing
higher taxes on th is group wou ld enhance efficiency It is unlikely, though, that such individuals could in practice be
identified, or that doing so would be desira ble on other grounds
3
Such benefit cu ts are often referred to as "price indeXing" of benefi ts, but this policy would not ac tual ly price-index
the indivi dual components of the benefit formula Unde r such a poliCY, all aspects of current lo w that rely on wage
indexation ore unchanged except for the fina l PIA computation . What does change is tha t benefits are set equal to cu r·
rent-low benefits multiplied by the ratio o f economy-wide overage real wages in the year refo rm is in itiated to economywide overage real wages in the year th e individua l turns 62 . Current projectio ns are tha t economY-Wide overage real
wages w ill grow at about 1 1 perce nt per year; thus, in thi s case price IndeXing reduces benefits from current·law leve ls
by 1.1 percent for the first birth cohort affected, by 22 percent for the second birth coh or t affected, and so on .
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--
Figure 3: Lifetime Net Benefit Rates by Birth Cohort for
Sample Reform Plan ("Plan X")
o ,--------------------------------------------------,
Current-Law Scheduled Benefits and Taxes
-1
-2
-3
......
......
-4
1940
1960
......
Plan X
,----------------------
1980
2000
2020
2040
2060
2080
2100
Year of Birth
Source: Deportment of the Treasury
This reform, which will be referred to as Plan X, is merely an example, and Treasury does not endorse or
reject it Indeed, as will be seen, this plan arguably has some undesirable features.
Figure 3 shows that the Plan X lifetime net benefit rate is the same as current-law scheduled benefits and
taxes for cohorts born prior to 1947, and commences a slow and steady decline both absolutely and
relative to current-law scheduled benefits and taxes for subsequent birth cohorts, reaching -4.1 percent
for the 1972 birth cohort and then remaining roughly constant. Thus, under this plan, cohorts born after
1972 will pay about four percent of their taxable wages to honor the promises made by Social Security
to current and past retirees.
The Plan X lifetime net benefit rate profile accords with the flat long-run benchmark shown in Figures 1
and 2. Assuming that is the desired result, the next question that arises is whether the program changes
should be phased in more rapidly. If the plan were announced in 2008, the first cohort to be subject
to the long-run lifetime net benefit rate would be 36 years old at the time the plan was announced.
Would it be fair to subject 40-year-olds in 2008 to the full reform? If so, the program changes could
be phased in faster, in which case the long-run lifetime net benefit rate that makes Social Security
permanently solvent would be higher (that is, less negative) than -4.1 percent.
PARTIAL REFORMS AND INTERGENERATIONAL FAIRNESS
Treasury's first issue brief emphaSized the importance of reforming Social Security sooner rather than
later so that the burden of reform can be distributed as fairly as possible across generations. The longer
reform is delayed, the fewer the generations that will share the burden of reform and hence the larger
the burden that must be imposed on the generations that do contribute toward making Social Security
permanently solvent.
A similar point can be made with respect to reforms that close only part of Social Security's financial imbalance, for example, the 75-year actuarial deficit While such partial reforms would delay the trust fund's
insolvency dote, they must ultimately be followed up with additional reforms that make Social Security
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permanently solvent (lower benefits and/or higher taxes) This two- (or more) stage approach to achieving
solvency can have implications for the distribution of the reform burden across generations. This point is
illustrated in Figure 4, which starts with a full reform that has a lifetime net benefit rate profile shown by the
solid line in the figure. If the partial reform implies a profile that starts on the solid line and continues on the
dashed line, then the partial reform phases in as quickly as the full reform and there is time to implement a
follow-on reform that achieves the desired ultimate outcome. But if the partiol reform phases in more slowly
than the full reform (following the dotted line in the figure), this means that by postponing full reform there
will be an additional, larger burden on future cohorts relative to the outcome with the full reform.
Figure 4: Lifetime Net Benefit Rates by Birth Cohort
Under Partial Reforms
Percent
o
-1
Partial Reform: Cannot Achieve
Desired Reform After Delay
.1
-2
Partial Reform: Desired
Reform Achievable After Delay
...
.........
..
...
......
"
-3
--- --- ---
-4
t
1940
1960
1980
--- ---
. . . . . . . .. . . .....
--- --- ---
--"
Desired Ultimate Reform
2000
2040
2020
2060
2080
2100
Year of Birth
Source: Department of the Treasury
It is qUite likely that a partial reform-a reform that closes lust the 75-year financial shortfall, for
example-would phase in less rapidly than a full reform and would therefore result in an unfair burden being
imposed on future generations. This can be seen by considering what might motivate a partiol reform. In
particular, if it were motivated by a desire to push off difficult or unpopular decisions into the future while
downploying the fact that the reform is partial, then the reform would almost certainly be too generous to the
early birth cohorts (whose political clout is strongest), and too harsh toward future generations.
Alternatively, if the partial reform were motivated by the belief that Social Security's finances in the distant
future are too uncertain to plan for, then at best the reform attempts to allocate a too-small burden fairly, which
ogain implies a reform that is too generous to early birth cohorts (and too punitive to future cohorts). Moreover, this concern over the uncertainty of Infinite-horizon prolections misses an important point regarding the
nature of Social Security's long-run imbalance As explained in Treasury's first issue brief, the system's infinitehorizon financial imbalance is more than accounted for by scheduled benefits and taxes for people aged 16
and above in 2007 Hence, the difference between Social Security's estimated infinite-horizon imbalance
and its estimated 75-year imbalance is not due to speculative projections of the far-distant future. Instead, the
difference obtains because the 75-yeor projections include relatively more of the taxes paid than the
benefits received by the individuals who are included in the 75-year calculation.
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DECISION 2: FOR A GIVEN ALLOCATION OF SOCIAL SECURITY'S NET
LIFETIME BENEFITS ACROSS BIRTH COHORTS, DECIDE HOW TO ALLOCATE
THEM ACROSS INCOME GROUPS WITHIN BIRTH COHORTS
Once a decision is made as to how Social Security's net lifetime benefits should be distributed across
reform cohorts, the natural next question is how they should be distributed across income groups within
birth cohorts. More precisely, how should the lifetime net benefit rate differ across income groups within
a birth cohort?
A natural place to begin thinking about this question is with reference to current-law scheduled benefits
and taxes. (Although those benefits and taxes will certainly not come to pass, a reform could match the
same pattern of relative net benefit rates by income level as would occur under current-law scheduled
benefits and taxes.) Treasury's second issue brief reported estimates of the lifetime net benefit rate profile
by birth cohort for each of four composite workers whose wages were denoted as low, average, high,
and very high. Those estimates showed that current-law scheduled benefits and taxes are progressive
for wage levels below the maximum taxable amount; that is, in this range of lifetime wage levels, the
lifetime net benefit rate is higher the lower are lifetime wages. For wages above the taxable maximum,
the lifetime net benefit rate rises with lifetime earnings, implying that Social Security is regressive in that
earnings range.
Under the current-law Social Security program and many proposed reforms, progressivity derives almost
entirely from how the program treats each individual worker as opposed to how it treats households. Each
worker's primary benefit is computed as if the person had been single all their life, and "auxiliary" benefits for relatively low-earning spouses and survivors are proportional to that primary benefit. Only Social
Security's primary benefits are explicitly linked to wage income. Hence, this section develops a progressivity benchmark for Social Security's primary benefits; that is, benefits paid to a worker if he or she were
unmarried. Issues concerning how Social Security treats married couples vis-a-vis unmarried individuals
are discussed in Box 1.
BOX 1
THE SOCIAL SECURITY MARRIAGE BENEFIT
While this series of issue briefs does not explicitly discuss reform of Social Security's spouse's and survivors' benefits,
this is not meant to suggest that those benefits are unimportant or that they cannot be improved. Indeed, an important
question that Social Security reform must address is the extent to which the program should continue to give relatively
advantageous terms to married couples with unequal earnings. Those advantageous terms are illustrated in the table
below for seven hypothetical couples with unequal earnings, all from the 1965 birth cohort. The first four columns of
figures are for one-earner couples, and the last three are for two-earner couples. For each couple, the first row of figures gives the lifetime net benefit rate applying to the couple and the second row gives the lifetime net benefit rate that
would apply if the couple were instead two single individuals. The difference in those lifetime net benefit rates is the
marriage benefit as a percent of lifetime earnings, the lost row of figures. All estimates are for current-law scheduled
benefits and taxes.
L ___ . _______________. _____. __.
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I
I
II
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_ _ • _ _ _... _
•••• _ _ . . . . . . . . . . . . . N . . . . . . . . . . " ' · · · _ _ ••• ·'~···· . . . . . . . . . . . . . . . " . . . . . . . . . . . . . . . . . . . . " •••••••••••
lifetime Net Tax Rates for Married Couples with Unequal Earnings
(Current-law Scheduled Benefits and Taxes, 1965 Birth Cohort*)
Item
Steady Earnings Level, Percent of Average, Primary/Secondary**
45/0
100/0
-6.5
1.2
77
160/0
240/0
100/45
160/100
240/160
-2.0
0.1
2.2
l.l
3.1
38
3.7
5.7
4.8
4.8
6.0
3.8
1.9
0.8
3.6
0.4
4.4
06
lifetime Net Tax Rate
Actual
If Twa Singles
Marriage Benefit, Percent
of Lifetime Earnings
'Survivors' benefits other than to elderly spouses are not included in the calculations. One-earner couples benefit from the
spouse's benefit (equal to 50 percent of the primary earner's benefit) and the widow's benefit (equal to 100 percent of the primary
earner's benefitl. The two-earner couples shown benefit only from the widow's benefit.
• 'Calculations assume the primary earner is male and the secondary. earner is female. (A specific assumption is required because mortality probabilities are gender specific.)
The table shows that the marriage benefit is large for one-earner couples, and more modest for two-earner couples with unequal earnings. First, consider the one-earner couples. One-earner couples benefit from the fact that indiViduals can collect
benefits based on their own earnings, or they can elect to receive a spouse's benefit equal to 50 percent of their spouse's
primary benefit. In addition, individuals can elect to receive a widow's or widower's benefit equal to 100 percent of the
primary earner's benefit in lieu of their own retirement benefit So a stay-ot-home spouse receives a retirement benefit half as
large as the primary earner while the primary earner is alive, and 100 percent as large as the primary earner after the primary earner dies. A nonworking single person, in contrast, would receive no Social Security benefits. This is the source of
the marriage benefit, which ranges from 3.8 percent to 77 percent of household lifetime earnings for the one-earner couples
depicted in the table. While the absolute size of this marriage benefit rises with the earnings level of the primary earner, the
marriage benefit as a share of lifetime wages falls with the earnings level. (The estimates in the table do not include marriage benefits deriving from survivors' benefits for children and young dependent spouses.)
Two-earner couples with unequal earnings receive more modest marriage benefits. All the two-earner couples shown in
the table receive initial retirement benefits based on their own earnings. Hence, all of the marriage benefit derives from
the ability of the low-earning spouse to collect higher benefits if and when he or she survives the high-earning spouse.
Social Security's spouse's benefits also reduce work incentives. To the extent that a secondary earner might receive
the spouse's benefits in lieu of a benefit based on his or her own earnings, the primary earner's marginal net tax rate
is reduced and the secondary earner's marginal net tax rate is increased. To see this, consider a couple that is certain
to receive a spouse's benefit. Then each additional dollar of primary earnings results in additional accruals of the
spouse's benefit, implying a reduced marginal tax rate for the primary earner. By contrast, each additional dollar of
secondary earnings results in no additional benefit accruals, implying an increased marginal net tax rate for the secondary earner. Because secondary earners tend to be more responsive to taxes than primary earners when deciding
how much to work, the spouse's benefit tends on average to reduce work incentives.
When thinking about Social Security's marriage benefit, it is critical to recognize that Social Security is essentially a
zero-sum transfer program: The more generous Social Security is to one-earner couples, for example, the less generous
it must be to others on average.
Figure 5 shows how Social Security's lifetime net tax rate for unmarried workers varies with lifetime
wages for the 1965 birth cohort. That cohort is one of the first cohorts for which the normal retirement
age is 67 and the current 10_6 percent OASI tax rate applies for nearly all of their working life. The figure shows lifetime net tax rates rather than lifetime net benefit rates because progressivity is most naturally
discussed in the context of net taxes rather than net benefits. The net lifetime tax rates are computed
under the assumption that a worker's wages are proportional to economy-wide average wages in every
year between the ages of 22 and 64, and that retirement occurs at age 65.
u.s.
DEPARTMENT OF THE TREASURY
SOCIAL SECURITY REFORM
Figure 5: Lifetime Net Tax Rates for Unmarried Earners
Retiring at Age 65, 1965 Birth Cohort
Percent
7
BENCHMARKS FOR ASSESSING FAIRNESS AND BENEFIT ADEQUACY. ISSUE BRIEF NO 3
,-----------------------------------------------~
Benchmark That Eliminates Regressivity
6
5
4
3
2
Current-Law Scheduled Taxes and Benefits
1
o r--.~------------------------------------------~
-1
-2
-3
-4
-5~--~--_,--_,----~--~--~----~--~--_,--~----~
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Steady Earnings Level Expressed as Multiple of Average Earnings
Source: Department of the Treasury
The figure shows that the average lifetime net tax rate (the solid line) rises with lifetime wages up to
the taxable maximum level (about 2.4 times average wages) and then declines. This rate starts at
-4.3 percent for wages between zero and 0.2 times average wages (implying a wage subsidy for
workers at the very bottom of the earnings distribution), then steadily rises, reaching zero percent at
about 0.4 times average wages and peaking at a net tax rate of 5.6 percent at 2.4 times average
wages. In this income range, Social Security is progressive because lifetime net tax rates are rising with
wages. But the lifetime net tax rate falls as wages rise beyond 2.4 times average wages. As was
explained in Treasury's second issue brief, this occurs because wages above the maximum taxable earnings level (2.4 times average wages) have no effect on Social Security taxes paid or benefits received.
Hence, Social Security's absolute lifetime net tax stays constant as earnings rise above maximum taxable
earnings, implying that lifetime net taxes as a shore of lifetime wages (ie., the lifetime net tax rate) fall
with wages as wages exceed the taxable maximum level. In effect, the absolute lifetime net tax that
Social Security assesses is capped because the tax base is capped.
Treasury's first issue brief explained that imposing additional net taxes on cohorts subject to reform is necessary in order to service a debt exceeding $13.6 trillion that was incurred by earlier generations. One
way to examine the progressivity of a plan to service that debt is to use a benchmark that eliminates
the system's historic regressivity above the cap on taxable wages (as measured by net benefit rates)
SpeCifically, this reference point assumes the lifetime net tax rate is the same as current-law scheduled
benefits and taxes up to what a steady earner's wages equal to 2.4 times average wages would be,
and is then flat at higher wage levels (see the dashed line in Figure 5)
To develop a progressivity benchmark against which to assess reforms, it is useful to imagine how one
would match the progressivity of the benchmark lifetime net tax rate profile shown in Figure 5 (the dashed
line) if the amount of lifetime net taxes collected from the cohort had to be higher than what is implied under current-law scheduled benefits and taxes. For example, the 1965 birth cohort faces an overall lifetime
net tax rate of 3.3 percent under current-law scheduled benefits and taxes. Suppose it were decided to
double that rate to 6.6 percent through benefit cuts and/or tax increases. How could this be done while
maintaining the same degree of progressivity$ One possibility would be to double the lifetime net tax rate
U S
DEPARTMENT OF THE TREASURY
12
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BENCHMARKS FOR ASSESSING FAIRNESS AND BENEFIT ADEQUACY. ISSUE BRIEF NO 3
------------------------
at all earnings levels. But that strategy would also double the wage subsidy given to workers with steady
earnings less than 0.4 times average wages. If the subsidy to low earners was already at a level that society deemed appropriate if it were possible to maintain current-law scheduled benefits and taxes, it would
not make sense to boost it further when other members of the cohort were being made to bear a larger
lifetime net tax burden.
Hence, the proposed progressivity benchmark assumes that workers receiving subsidies under currentlaw scheduled benefits and taxes are held harmless by reform, and that all other workers' lifetime net
tax rates are proportional to those under current-law scheduled benefits and taxes. In this benchmark,
the relative lifetime net tax burdens at different earnings levels for persons who pay positive lifetime net
taxes do not vary with the amount of total lifetime net taxes paid by the cohort. Again, this is merely
one of many possible benchmarks (albeit a relatively straightforward and intuitive one) For example, an
alternative would be to compute a summary measure of within-cohort progressivity, and then attempt to
apportion the cohort's net tax burden so as to preserve this measured degree of progressivity
The upshot of this reasoning is the benchmark progressivity index profile shown in Figure 6. It is the
benchmark lifetime net tax rate schedule shown in Figure 5 for earnings above 0.4 times average
wages divided by the lifetime net tax rate for workers with average wages. For example, the lifetime
net tax rates in Figure 5 for wages equal to 10 times average wages and 1.4 times average wages
are 3.15 percent and 3.76 percent; hence, the progressivity index at 1.4 times average wages shown
in Figure 6 equals 1.2 (computed as 3.76 divided by 3.15) If a reform yields a progressivity index
profile that is identical to the one shown in Figure 6, then it is maintaining the same relative lifetime net
tax burdens at different earnings levels (for persons paying positive lifetime net taxes) as do current-law
scheduled benefits and taxes for the 1965 birth cohort.
Figure 6: Progressivity Index: Ratio of Lifetime Net
Tax Rate to That For Average Earner (Single Earners
Retiring at Age 65, 1965 Birth Cohort)
Percent
2.0
r-------------------------,
(= 1.8 at all higher wage levels as well) - +
"1.5
"-
""
" "-
i
1.0
"-"-,,-
Actual Under Current-Law
Scheduled Taxes and Benefits
--
--
0.5
O.O-L-~-~--~--~--~~--~------,_~--~--~~
0.4
0.8
1.2
1.6
2.0
2.4
2.8
3.2
3.6
4.0
4.4
4.8
Steady Earnings Level Expressed as Multiple of Average Earnings
Source: Department of the Treasury
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13
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-----------------------------------
SOCIAL SECURITY REFORM
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BENCHMARKS FOR ASSESSING FAIRNESS AND BENEFIT ADEQUACY. ISSUE BRIEF NO 3
To summarize, the full progressivity benchmark has two elements. First, the benchmark assumes that the
lifetime net tax rate for workers born in 1965 or earlier with lifetime wages less than 0.4 times overage
wages is equal to what obtains under current-low scheduled benefits and taxes; for later birth cohorts,
the net tax rate for these workers is held fixed at its level for the 1965 birth cohort. Second, the benchmark assumes that relative lifetime net tax rates for workers with lifetime wages above 0.4 times overage
wages are as given by the solid line in Figure 6.
AN EXAMPLE
Figures 7 and 8 assess progressivity under Plan X First, Figure 7 compares the lifetime net tax rate
under Plan X for workers whose wages equal 0.4 times overage wages with the benchmark that keeps
this rate the some as current-low scheduled benefits and taxes up to the 1965 birth cohort and then
holds it constant for later cohorts. Plan X raises the lifetime net tax rate rapidly for these workers; starting
from a -0.64 percent lifetime net tax rate for the 1945 birth cohort, the some rate as under the benchmark, the lifetime net tax rate rises to 1.5 percent for the 1960 birth cohort and 2.5 percent for the
1975 birth cohort. For later birth cohorts, the lifetime net tax rate trends down slightly because longevity
indexing is approximate.
Figure 7: Lifetime Net Tax Rate for Unmarried Worker with Steady
Earnings at 40 Percent of Economy-Wide Average Earnings
Percent
3.0 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ,
2.5
/
/
2.0
/
/
1.5
(
I
I
I
1.0
0.5
I
-1. 0
Benchmark: Current-Law Scheduled Taxes and Benefits
/
0.0
-0.5
Plan X
---------- ------------
Through to 1965 Birth Cohort, Flat Thereafter
/
/
-J----,----,---r-..,--~-_,__,.___,-__,___.____,--~__,-__,__,___,__,_-,__,_--,--_r_,--,-_I
1945
1965
1985
2005
2025
2045
2065
Year of Birth
Source: Department of the Treasury
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DEPARTMENT OF THE TREASURY
14
2085
SOCIAL SECURITY REFORM
BENCHMARKS FOR ASSESSING FAIRNESS AND BENEFIT ADEQUACY. ISSUE BRIEF NO 3
----------------
- - - - - - - - -
Figure 8: Plan X Progressivity Index For Selected Birth
Cohorts: Lifetime Net Tax Rate As Percent of That for
Average Earner
Percent
200r---------------------------------------.
Benchmark: Current-Law Scheduled Taxes
175
and Benefits For 1965 Birth Cohort
1955 Birth Cohort
1
150
125
. . .
... ...
...
"
""
1972+
Birth Cohorts
100
""
""
75
50
.."" "
~--------~----------~----------,_--------~
0.7
1.7
1.0
2.4
4.8
Steady Earnings Level Expressed as Multiple of Average Earnings
Source: Deportment of the Treasury
Figure 8 shows how the degree of progressivity changes across selected birth cohorts for those earning
more than 0.4 times average wages. (The profile far the 1972 birth cohort also applies to later birth
cohorts.) Recall that Plan X had two components The first component essentially amounts to a proportionate reduction in the present value of lifetime benefits for cohorts born between 1947 and 1972.
These benefit reductions cause Social Security to become increaSingly less progressive for successive
birth cohorts. For lower-wage workers, who have a relatively high ratio of lifetime benefits to lifetime
wages, a proportionate reduction In the present value of benefits will have a relatively large effect on
the lifetime net tax rate they face In addition, because Plan X continues to base benefits and payroll
taxes on earnings up to the current-law taxable maximum-again, roughly 2.4 times average wagesthe plan actually becomes regressive (like current law) for earnings above this level.
The second component of Plan X, longevity indexing for cohorts born after 1972, keeps benefits from
becoming more generous as people live longer. This component of the plan has no effect on Social
Security's progressivity under the assumption that longevity is not related to income. 4 Thus, the profile is
the same for all cohorts born after 1972.
PROGRESSIVITY AND INCENTIVES TO WORK
An informed choice of how progressive to make Social Security must also address concerns about work
incentives. In general, for a given amount of revenue raised, more progressive taxes carry larger work
disincentive effects Hence, the choice of how progressive to make Social Security involves a tradeoff
between possible distributional obiectives and the cost of reduced work incentives.
4
In practice, progressivity would be affected, since disparities In longevity between higher and lower earners appear to
be increasing
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DEPARTMENT OF THE TREASURY
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BENCHMARKS FOR ASSESSING FAIRNESS AND BENEFIT ADEQUACY. ISSUE BRIEF NO 3
Figure 9: Average and Marginal Lifetime Net Tax Rates
(Unmarried Earners Retiring at Age 65, 1965 Birth Cohort)
Percent
10
Special Weighted Average of Marginal
Net Tax Rates Between Age 22 and 65
.J
5
.,-
.....
-
.....
..... .....
;"
/
--- --- -t
..... .....
--- -
Average Lifetime Net Tax Rate
,/
o
- - - ---
I
I
I
.....I
-5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Steady Earnings Level Expressed as Multiple of Average Earnings
Source: Department of the Treasury
Figure 9 helps explain the effect Social Security's progressivity has on work incentives. The figure
reproduces the lifetime net tax rate schedule under current-low scheduled benefits and taxes from
Figure 5 (the dashed line), and shows the associated "marginal lifetime net tax rate" schedule (the solid
line) The marginal lifetime net tax rate is defined os the change in lifetime net taxes that results from a
small change in the steady earnings level, divided by the change in lifetime wages It can be thought of
as the increase in lifetime net to xes that results from a one-dollar increase in wages-the marginal net tax
rote-in a typical work year 5
The degree to which Social Security discourages work effart is determined by marginal net tax rates.
For example, a member of the 1965 birth cohort with steady earnings equal to 1.5 times overage
wages faces on 8.2 percent marginal lifetime net tax rate. This means that in a typical work year this
earner pays 82 cents net Social Security tax on on additional dollar of earnings-a 10.6 cent gross tax
that is offset at the margin by additional benefits with a value of 2.4 cents. Economic theory suggests
that, when a person decides on whether and how much to work, what matters is this marginal net tax
rate 6
Figure 9 demonstrates that the marginal lifetime net tax rate is higher than the (overage) lifetime net tax
rate at wage levels where the overage rate is rising-that is, where the tax rate schedule is progressive.
This is a basic arithmetic fact-on overage can be rising only if the marginal addition is above the current overage. Hence, the more progressive is Social Security, the higher are its marginal net tax rates
and the degree to which it discourages work effort.
5
Because Increasing the steady wage level Increases earnings by a small multiple of the overage wages in each year
of work, the marginal lifetime net tax rate is a particular weighted overage of the marginal net tax rates on earnings in
the various years of working life SpeCifically, if overage real wages are growing at rate 9 and the real discount factor
for computing net taxes and lifetime wages is r, and If the marginal net tax rate at age a IS denoted MTR , then the
marginal lifetime net tax rate is I:~n w MTR where the weights satisfy I:~n W = 1 and are given by
Wo
6
=[(1+91/(1+r1]021
I::"
a
[l1+91/(1+r1\22
a
a
This assumes that the individual actually expects to receive the future benefit
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BENCHMARKS FOR ASSESSING FAIRNESS AND BENEFIT ADEQUACY. ISSUE BRIEF NO 3
---
-
-- --
-
-------------
Figure 10: Marginal Tax Rates on Wages By Age (1965 Birth Cohort
Under Current-Law Scheduled Taxes and Benefits, Unmarried Workers)
Percent
15
10
...,
Steady Wages Between
"""""\.
130 and 240 Percent of Average
~\~~--------~---------- - - - - -----
5
.\..-
0
--- --
t
Steady Wages Between
20 and 130 Percent of Average
....... . . . ...
-5
t
-10
.. ...
Steady Wages Between
.. ..
o and 20 Percent of Average
-15
-20
-25
22
26
30
34
38
42
46
50
54
58
62
Age
Source: Department
of the Treasury
The marginal lifetime net tax rate shown in Figure 9 is a measure of the marginal net tax rate a worker
faces in a typical work year. As shown in Figure 10, marginal net tax rates actually vary over an
individual's working life. The figure displays three schedules, each applying to the 1965 birth cohort
and to different parts of the lifetime wage distribution. All workers face marginal net tax rates equal to
the gross payroll tax between ages 22 and 30 because work in those years does nat affect benefits
(only 35 years of earnings matter for the determination of benefits)? Beginning at age 31, earnings do
count toward the benefit computation and the marginal net tax rate is less than the gross payroll tax rate
Because of the progressivity of the benefit formula, the marginal net tax rates are negative for the lowest
earners (these workers pay negative lifetime taxes) and are positive and progressively larger (a positive
and growing net tax rate) for the two higher-earning categories shown.
To conclude, it is important to recognize that Social Security's progressivity comes at the cost of higher
marginal net tax rates and reduced work incentives. As with Decision 1, which dealt with intergenerational fairness, any decision about progressivity is intrinsically a value judgment. But it should take this
tradeoff into account.
7
For the steady earners considered In Figure 10, it would not mailer which of the 39 earnings years between ages 22 and 60 are Included for purposes of computing benefits The figure assumes that the hrst nine years are excluded (which would be the case If earnings in these years were slightly below a steady earner's) Note that these calculations Involve steady earners, so a given individual
will reasonably expect to eventually have 40 quarters of creditable earnings [and so Will be eligible for Social Securrty benehts)
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DEPARTMENT OF THE TREASURY
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SOCIAL SECURITY REFORM
BENCHMARKS FOR ASSESSING FAIRNESS AND BE~JEFIT ADEQUACY. ISSUE BRIEF NO 3
DECISION 3: DECIDE HOW LARGE BENEFITS (AND THE TAXES TO SUPPORT
THEM) SHOULD BE
Treasury's second issue brief explained that so long as true pre-funding occurs and its implications are
understood by workers, the question of how the Social Security reform burden should be allocated
across and within birth cohorts is a separate question from how large to make benefits This is due to
the fact that Social Security's payroll taxes on cohorts subject to reform can be divided into two components, net taxes that finance the more than $136 trillion in net lifetime benefits paid to early birth cohorts
not subject to reform, and forced savings that determine the level of benefits.
Whether a higher benefit level (higher forced saving) reduces work incentives depends on whether the
forced savings are truly set aside to help pay future benefits, and whether individuals understand that the
forced saving component of their payroll taxes will eventually be returned to them in the form of benefits.
These issues were discussed extensively in Treasury's second issue brief
Treasury's second Issue brief introduced the benefit replacement rate as a metric for assessing the adequacy of Social Security benefits The benefit replacement rate measures the extent to which Social Security
benefits alone would allow individuals to sustain their living standards in retirement in the event that the individual entered retirement with no other source of income and with no net worth, including equity in homes
and other durables. A replacement rate of 60 percent, for example, indicates that such an individual
could on overage consume 60 percent as much per year in retirement as he or she did while workingS
The benchmark for assessing benefit adequacy that will be considered here is benefit replacement rates by
earnings level under current-low scheduled benefits and taxes for the 1965 birth cohort. As with the other
benchmarks, this is a reference point, not necessarily a target outcome; indeed, some might object to it on
the grounds that maintaining the benchmark benefit levels would require higher revenues relative to current
law. (In addition, the benchmark assumes the some degree of reliance in the future on Social Security
benefits to finance retirement; it might be desirable instead to have Americans save more on their own)
Nevertheless, this benchmark is useful for assessing the impact of any proposed benefit changes.
AN EXAMPLE
Figure 11 compares benefit replacement rates under Plan X with the benchmark. The figure assumes that
people work an additional year for each two years' increase in life expectancy beginning in 2008 9
Despite the assumed increase in work, benefit replacement rates fall continuously for successive birth
cohorts (the replacement rate profiles shift down relative to the benchmark) as benefits are reduced for
the 1947 to 1972 birth cohorts under the first component of the plan Then, when longevity indexing
takes effect (for the post-1972 cohorts), benefit replacement rates remain about constant as the effect on
the replacement rate of longevity indexing of benefits is offset by the assumed increases in the age at
which people choose to retire.
Figure 1 1 illustrates an important fact For benefit replacement rates to remain at levels scheduled under
current low, additional revenues must be brought into the system. Because Plan X brings in no new revenues, benefit replacement rates necessarily fall relative to the benchmark. This is true despite the
assumption that people work longer as life expectancies increase. Again, Plan X is intended to serve
only as an illustration; it is not a policy recommendation
8
SpeCifically, the measure uses the constant level of real consumption that would be posslb[e between the ages of 21
and 65 if 0[[ pre-tax wages earned during those years were consumed This measure overstates possible [Ifetime consumption inasmuch as some wage income is taxed
9
The benchmark assumption that people work one additional year for every two years of oddltiona[ [Ife expectancy
imp[les that the portion of life spent in retirement would continue to rise as life expectancy Increases
U S
DEPARTMENT OF THE TREASURY
18
---------------------
SOCIAL SECURITY REFORM
--
BENCHMARKS FOR ASSESSING FAIRNESS AND BENEFIT ADEQUACY. ISSUE BRIEF NO 3
----
-
--------------------
-
Figure 11: Benefit Replacement Rates For
Selected Birth Cohorts Under plan X
Percent
80
-
r--------------------------------------------------,
Benchmark: Current-Law Scheduled
60
Benefits For 1965 Birth Cohort
J
-- --
40
... ... ...
1955
1972+
Birth Cohort
...
... . . . . . .
Birth Cohorts
. ..
20
o-~--------,_------------------_,--------~--------~
0.4
0.7
1.0
1.7
2.4
4.8
Steady Earnings Level Expressed as Multiple of Average Earnings
Source: Department of the Treasury
It is important to understand that while benefit replacement rates fall for successive birth cohorts under
Plan X, absolute real benefit levels nevertheless rise for successive birth cohorts if people work longer as
they live longer. This is shown in Figure 12, which compares Plan X absolute real benefit levels with those
for the 1965 birth cohort under current-law scheduled benefits and taxes. Plan X's benefit levels start
out lower than the benchmark, but a slow increase in the age at which people choose to retire steadily
boosts real benefits, causing them to surpass the benchmark starting with roughly the 1995 birth cohort.
Figure 12: Real Annual Benefit Levels For Selected
2006 Dollars Birth Cohorts Under Plan X
SO,OOO,--------------------------------,
2065 Birth Cohort
70,000
...........
Benchmark: Current-Law Scheduled
60,000
Benefits For 1965 Birth Cohort
50,000
2015 Birth Cohort
40,000
--
30,000
20,000
10,000
b.::::..:.::"'::-;.-~-~---==--:-::-:::-:
-
--
---
---------
--- --
1965 Birth Cohort
o +---------,--------~--------_r--------~------~
0.4
1.7
1.0
0.7
2.4
Steady Earnings Level Expressed as Multiple of Average Earnings
Source: Department of the Treasury
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4.S
SOCIAL SECURITY REFORM
BENCHMARKS FOR ASSESSING FAIRNESS AND BENEFIT ADEQUACY. ISSUE BRIEF NO J
If it is decided that it is sufficient to have real benefit levels stay constant for successive birth cohorts while
cohorts' lifetime earnings become ever larger as a result of increasing real wage levels, then implicit in
that decision is the belief that as real wage levels increase, individuals should rely on saurces autside of
Social Security for an increasing share of their retirement income needs. 10
CONCLUSION
This third issue brief prOVides specific benchmarks for assessing the fairness and benefit adequacy of
a Social Security reform proposal, thus demonstrating that the framework for designing and evaluating
reform pions that was introduced in Treasury's second issue brief can be used in a practical way.
(Importantly-and as was discussed in the second brief-the framework is useful for evaluating fairness
only if near-term Social Security contributions in excess of benefits paid are truly set aside to help finance
future benefits)
What one cansiders fair, and what amount of benefits one deems sufficient to provide adequate resources for retirement, will necessarily involve value iudgments. Nevertheless, decisions about these questions
can be usefully informed by quantitative benchmarks. The benchmarks discussed here can be interpreted
either as targets or simply as reference points that can be used to help formulate a target; in either case,
the hope is that others will propose their own benchmarks or targets and a dialogue among policy makers and concerned citizens can develop that is informed by a common framework
10
Relatedly, if attempted pre-funding is not real, then it is questionable whether constant replacement rates should be maintained In the traditional portion of the program, since on absence of true pre-funding will imply that higher benefits for
one generation will come from impOSing greater costs on fulure cohorls. AllOWing replacement rates 10 decline In that
portion of the program would require indiViduals to rely more and more on other sources of retirement income (either
savings outside of Social Security or a funded component within the program)
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20
P-759: Treasury Designates Individuals, Entity Fueling Iraqi Insurgency
Page 1 of4
January 9, 2008
HP-759
Treasury Designates Individuals, Entity Fueling Iraqi Insurgency
The US Department of the Treasury today designated four individuals and one
entity under Executive Order 13438 for threatening the peace and stability of Iraq
and the Government of Iraq. The IIldivlduals and entity designated today commit,
direct, support, or pose a significant risk of committing acts of violence against Iraqi
citizens, Iraqi government officials, and Coalition Forces.
"Iran and Syna are fueling violence and destruction in Iraq. Iran trains, funds, and
provides weapons to violent Shla extremist groups, while Syria provides safe-haven
to Sunni insurgents and financiers," said Stuart Levey, Under Secretary for
Terrorism and Financial Intelligence. "Today's action brings to light the lethal
actions of these IIldividuals, and we calion the IIlternational community to stand
with us in isolating them from the global economy."
By committing, directing, and supporting violent attacks in Iraq, these extremists
threaten peace and stability and undermine efforts to promote economic
reconstruction In Iraq.
Today's action follows President Bush's Issuance of E.O. 13438 on July 17, 2007,
which targets IIlsurgent and militia groups and their support. Designations under
E.O. 13438 are administered by Treasury's Office of Foreign Assets Control and
prohibit all transactions·between the designees and any U.S. person and freeze any
assets the deSignees may have under US Jurisdiction
Identifying Information
AHMED FORUZANDEH
AKAs: Ahmad Foruzandeh
Ahmad Fruzandah
Ahmad Fayruzi
Jafari
Ahmad Foroozandeh
Abu Shahab
Abu Ahmad Ishab
Title: Brigadier General, Commanding Officer of the Iranian Islamic
Revolutionary Guard Corps-Oods Force (IRGC-OF) Ramazan Corps
Former Title: Deputy Commander of the Ramazan Headquarters and Chief of
Staff of the Iraq Crisis Staff
POB: Kermanshah, Iran
OOB: Circa 1958-1963
Alt. OOB: 1957
Alt. OOB: Circa 1955
Education: Husayni Political University
Location: Oods Force Central Headquarters in the former U.S. Embassy
Compound in Tehran, Iran
Iran-based Ahmed Foruzandeh, a Brigadier General in the IRGC-OF, leads terrorist
operations against Coalition Forces and Iraqi Security Forces, and directs
assassinations of Iraqi figures The Oods Force, designated under E.O. 13224 for
providing matenal support to terrorists, IS the regime's primary mechanism for
cultivatlllg and supporting terrorists and Islamic militants to advance Iranian national
interests. The Oods Force provides training, weapons, and financial support to
surrogate groups and terrorist organizations including: Lebanese Hizballah;
Palestinian terrorists; Iraqi Shia militant groups: the Tallban and Islamic militants III
Afghanistan, the Balkans and elsewhere. The Oods Force plays a central - yet
often hidden - role in security interests, including Iraq and Afghanistan. Oods Force
http://wwwtreas.gov/presslreleases/hp759.htm
2/1/2008
P-759: Treacury Designates Individuals, Entity Fueling Iraqi Insurgency
Page 2 of 4
officers often use various cover mechanisms - including diplomatic, nongovernmental organization, humanitarian, and media - for conducting operational
activity. belYing their military affiliation
As of mid-February 2007, Foruzandeh ordered his Iranian intelligence officers to
continue targeting Shia and Sunnis to further sectarian violence within Iraq.
Foruzandeh is also responsible for planning training courses in Iran for Iraqi militias,
including Sayyld ai-Shu had a and Iraqi Hlzballah, to Increase their ability to combat
Coalition Forces. The training includes courses in guerilla warfare, light arms.
marksmanship, planting Improvised explosive deVices (IEDs). and firing anti-aircraft
miSSiles.
Foruzandeh and his subordinates prOVide financial and material support for acts of
Violence against Coalition Forces and Iraqi Security Forces In early-April 2007.
Foruzandeh prOVided $25,000 USD to help fund military operations against
Coalition Forces in Salah Ad 0111 Province. Iraq Foruzandeh prOVided the funds to
two men claimlllg to be members of a Sunni terrorist organization In Iraq. promising
the men additional funds If they would deliver Videos of attacks against Coalition
Forces. Foruzandeh also offered to deliver weapons to the border, if the two men
could transport the weapons into Iraq in order to fight Coalition Forces. Previously.
in August 2004, Foruzandeh drove explosives and associated materials into Iraq
from Iran for use in suiCide bombings.
In addition to providing financial and material support for attacks against Coalition
Forces, Foruzandeh supplied a certain Shia militia group With a target for execution.
On July 25, 2005, Foruzandeh held a meeting With representatives of Iraqi
Hizballah and other Shia militia groups. calling upon them to continue liquidating all
enemies of the IslamiC revolution. including security and intelligence personnel,
tribal chiefs, and religiOUS clerics.
ABU MUSTAFA AL-SHEIBANI
AKAs: Hameid ThajeiJ Wareij AI-Attabi
Hamid AI-Shaybani
Abu Mustafa AI-Shebani
Abu Mustafa AI-Shaybani
Mustafa AI-Sheibani
Hamid Thajll
Hamid Thajeel AI-Sheibani
DOB Circa 1960
All. DOB 1959
POB Nasiriyah, Iraq
Citizenship Iranian
All CItizenship: Iraqi
Location. Tehran, Iran
Iran-based Abu Mustafa AI-Sheibani leads a network of Shia extremists that commit
and provide logistical and material support for acts of violence that threaten the
peace and stability of Iraq and the Government of Iraq AI-Shelbani's Iransponsored network was created to affect the Iraqi political process In Iran's favor.
The network's first objective is to fight U.S. forces, attacking convoys and killing
soldiers. Its second objective is to eliminate Iraqi politicians opposed to Iran's
Influence. Elements of the IRGC were also sending funds and weapons to AISheibani's network.
AI-Sheibani's network - conSisting of several hundred members - conducted lED
attacks against Americans in the Baghdad region. As of March 2007, AI-Sheibani,
known to transport Katyusha rockets to be used for attacks against Coalition
Forces, launched rockets against Americans and made videos of the attacks to get
money from Iran. As of April 2007, a member of AI-Sheibanl's network superVised
the transport of money and explosives from Iran for eventual arrival in Baghdad In
early-May 2007, AI-Shelbanl's network aSSisted members of a Shia militia group by
transporting them to Iran for training and providing them With weapons for their
activities in Iraq.
Additionally, AI-Shelbani commands several pro-Iranian Insurgent groups In
southern Iraq that work to destabilize Iraq and sabotage Coalition efforts These
groups use a variety of weapons, to Include mortars. Katyusha rockets, and antitank land mines. Ordered by IRGC headquarters to create disorder, the task of
http://wwwtreas.gov/presslreleases/hp759.htm
2/1/2008
P-759: Treazury Designates Individttals, Entity Fueling Iraqi Insurgency
these groups is to attack bases of Coalition Forces
British forces.
In
Page 3 of 4
southern Iraq, particularly
In an effort to cause instability III Iraq, AI-Sheibanl and his network targeted Iraqi
government officials. AI-Sheibani conducted attacks against the Iraqi Police Chief of
NaJaf, Iraq. and the Iraqi Deputy Governor in NaJaf, Iraq. AI-Shelbani's network also
killed Muhammad al-FrlJI, a colonel In tile Iraqi Ministry of Interior.
ISMA'IL HAFIZ AL LAMI (ABU DURA)
AKAs: Abu Dura
Abu Diri
Abu Dar'a
Abu Haydar
Ismail Hafeth IzaJawi
Ismail al-Lami
Isma'il Hafith Abid ·Ali al-Laml
Ismai'il Hafuz al-Zargawi
DOB Circa 1957
POB Baghdad, Iraq
Citizenship: Iraq
Location 1· I ran
Location 2 Sadr City, Baghdad. Iraq
As of 2007, Iran-based Shia extremist Abu Dura and his group were actively
targeting Iraqi government offiCials, Sunni community leaders, and anyone who
cooperated with Coalition Forces. In a brazen daylight attack, Abu Dura and his
group kidnapped employees from the Ministry of Higher Education in November
2006. Sunni hostages were then Singled out, tortured. and killed by men under Abu
Dura's control. Abu Dura was also responsible for the July 2006, kidnapping of
Taysir NaJih Awad al-Mashadanl, a Sunnl member of the Iraqi Parliament. He also
planned to kidnap Sunnl Iraqi politician Adnan al-Dulaymi and planned a mortar
attack agalllst the residence of Iraqi Vice President Tariq al-Hashlmi.
Abu Dura also directs acts of violence against Iraqi civilians. Abu Dura uses
members of a Baghdad-based Shia militia to gather information on potential targets
Abu Dura then uses this IIlformation to plan and coordinate potential kidnapping
and assassination operations. In July 2006, men under Abu Dura's control routinely
executed Iraqi citizens in Sadr City, Baghdad.
In addition to directing acts of violence against Iraqi government officials and
citizens, Abu Dura supported acts of violence against U.S and Coalition Forces. In
July 2006, men under Abu Dura's control attacked a U S. forces patrol in Sadr City,
Baghdad The purpose of the attack was to kidnap U.S soldiers and use them as a
tool to make US forces leave Iraq After fleeing to Iran to aVOid capture by
Coalition Forces, Abu Dura continued to direct attacks in Iraq against Coalition
Forces and Sunnls in Iraq during early-2007. Abu Dura mallltained contact With
proxies in Iraq who carried out those attacks.
MISH'AN RAKIN THAMIN AL-JABURI
AKAs Mushan al-Jaburi
Meshaan al-Juburl
Mishan Jibourl
Mlshan al-Jaboun
Mashaan AIJabouri
Mashaan Jabouri
Mash'an el-Jburl
Mlsh'an al-Juburl
Mush'an al-Jiburi
Mashan Juburi
Mishan al-Jabburl
Meshan Thamin al Jabourl
Mishan Riqardh Damin al Jabouri
Mishaan al-Jubouri
Mashaan Rakadh Dhamin AI Jabbury
Misham AI Jaburi
Mish'an Rakkad Damin al-Jabburi
Nationality Iraq
Citizenship: Syrian
DOB 1 August 1957
http://www treas.gov/presslreleases/hp7.59 htm
2/112008
P-759: Tree&ury Designates Individuals, Entity Fueling Iraqi Insurgency
Page 4 of 4
POB Ninwa, Iraq
Passport number: 01374026
Location 1. Latakia, Syria
Location 2: Damascus, Syria
Syria-based Mish'an AI-Jaburi provides financial, material, and technical support for
acts of violence that threaten the peace and stability of Iraq In February 2006, AIJaburi was expelled from the New Iraqi Parliament and fled Iraq to SYria for
embezzling government funds and supporting Iraq-based insurgents AI-Jaburl also
owns Syria-based AI-Zawra, a televiSion station that considers Itself to be part of
the fight against the US In one instance, AI-Jaburl agreed to broadcast opencoded messages through patriotic songs to the Sunnl terrorist group Islamic Army
of Iraq. Additionally, AI-Jaburi utilized his nephew, Hasib Ismail Dandan, to provide
storage sites for weapons, funds, and footage transiting in and out of Iraq
Despite being publicly critical of al-Oa'ida in Iraq (AOI), AI-Jaburl IS reported to have
proVided financial support and services to AOI AI-Jaburi worked with an AOI
Jihadist umbrella organization, the MUJahadin Shura Council, to fund Sunnl
extremist operations Additionally, AI-Jaburi's television station broadcast
recruitment videos for AOI's Abu Bakr AI-Sadiq AI Salafi Battalion.
AL-ZAWRA TELEVISION STATION
AKAs Alzawraa TV
AI-Zawraa TV
EI-Zawra satellite station
Zorah Channel
AI Zoura TV station
AI-Zawara satellite television station
AI Zawrah Television
Zawrah TV station
AI Zaoura network
Location Syria
Syria-based AI-Zawra television station is owned and controlled by Mish'an AIJaburl. Publicly stating that he owns AI-Zawra and that "no one" outside his family
controlled its content. AI-Jaburl privately agreed to broadcast open-coded
messages through patriotic songs to the Sunni terrorist group the Islamic Army of
Iraq AI-Zawra, which has received financing from AI-Oa'ida, is also used as a
venue to broadcast graphiC videos of attacks against U.S. forces. Additionally, AIZawra broadcast recruitment videos for AOI's Abu Bakr AI-Sadlq AI-Salafi Battalion
In November 2006, AI-Zawra's Iraq office was closed by the Government of Iraq for
airing programs inciting violence.
In addition to the reasons for which AI-Zawra is being designated, it is a proinsurgency station that broadcasts graphic videos of Insurgent attacks against U.S
forces, advocates violence against Shla, and calls upon Iraqis to unite and take up
arms against Coalition Forces.
-30-
http://wwwtreas.gov/presslreleases/hp759.htm
2/1/2008
760: Treasury Under Secretary David McCormick to Deli ver Speech on China's Journey to Environ ...
Page I of I
Jan uary 10, 2008
hp-760
Treasury Under Secretary David McCormick to Deliver Speech on China 's
Journey to Environmentally Sustainable Growth
Treasury Under Secre tary Da vid McCormick will delive r a speech on Monday in La
Jolla, Cal if.. at the 2008 Australian American Leaders hip Dialogue at the Uni versity
of San Di ego (UCSO) Gradu ate School of International Relation s and Pacific
Studies . He will discuss policy cha ll enges facin g the United States in addressi ng
energ y and environmental issues , focusi ng on recent U .S.-Chin a bi lateral
developments and recent U.S . leade rship efforts in multilateral forums .
What Speech on China 's Journe y to Environmentally Sustainab le Growth
When 12:15 p.m (PST) Monday, January 14
Where UCSO Interna tional House Great Hall
9500 Gil man Dri ve
La Jolla , Calif.
Note Med ia interested in attending should RSVP tobjagoda@ucsd.edu.
-30-
http://www treas.gov/presslreleases/hp760 htm
2/ \ /2008
Page 1 of4
January 14, 2008
2008-1-14-14-55-11-1656
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $71,425 million as of the end of that week, compared to $71,492 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
I
II
IIJanuary 11, 2008
I
IA Official reserve assets (in US millions unless otherwise specified)
IIYen
IITotal
II
11 14 ,608
II
11 11 ,734
11 71 .425
11 26 ,342
II
II
11 0
II
1/5,757
II
11 20 ,293
IIEuro
1(1) Foreign currency reserves (In convertible foreign currencies)
I(a) Securities
lof which: issuer headquartered in reporting country but located abroad
I(b) total currency and deposits with:
I
II
10) other national central banks, BIS and IMF
14,536
Iii) banks headquartered in the reporting country
11 0
lof which located abroad
11 0
11 0
I(iii) banks headquartered outside the reporting country
lof which located in the reporting country
I
I
11 0
1(2) IMF reserve pOSition
11 4 ,253
1(3) SDRs
119.496
1(4) gold (including gold deposits and, if appropriate, gold swapped)
11 11 ,041
I--volume in millions of fine troy ounces
11 261 .499
1(5) other reserve assets (specify)
11 0
I-finanbal derivatives
II
I--loans to nonbanK nonresidents
II
I--other
II
IS Other foreign currency assets (specify)
II
I
I--securities not included in official reserve assets
II
I
I--deposits not included In official reserve assets
II
I
I--Ioans not included in official reserve assets
II
1
--financial derivatives not included in official reserve assets
JI
I
I--gold not included in official reserve assets
II
1
I --other
II
II
II
I
II. Predetermined short-term net drains on foreign currency assets (nominal value)
~"--[_ _ _ _ _ _----'1'--1_ _-----'IL.-l_ _---'I~I_ _ _1,--1_ _-----.JI'--I_ _-----.JII
http://wwwtreas.gov/presslreleases/hp/20081141455111656.htm
2/1/2008
Page 2 of4
II
I
I
IIMaturlty breakdown (residual maturity)
Ilrotal
IUp to 1 moot"
I
II
1. Foreign currency loans, securities, and deposits
IIprincipal
I--outflows (-)
IIlnterest
I
!--inflows (+)
I[Princlpal
IIInterest
I
I
More than 3
months and up to
1 year
More than 1 and
up to 3 months
II
]I
I
II
II
I
"
II"
!!
!I
1/
"
I
1/
"
II
1/
I
I
II
II
II
I
1/
1/
1/
1/
I
1/
I
II
I
I!
"
I
II
2. Aggregate short and long positions in forwards and
futures in foreign currencies ViS-a-VIS the domestic
currency (including the forward leg of currency swaps)
I (a) Short positions ( - )
I (b) Long positions (+)
II
1/
I 3. Other (specify)
II
1/
II
I --outflows related to repos (-)
I --inflows related to reverse repos (+)
II
II
II
II
II
II
I --trade credit (-)
II
II
II
I --trade credit (+)
II
II
I --other accounts payable (-)
II
II
II
I --other accounts receivable (+)
II
II
I
"
"II
"
II
II
I
I
I
1/
I
I
II
"
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
II
/
II
I
1/
1/
I
MatUrity breakdown (residual maturity, where
applicable)
I
More than 3
months and up to
1 year
More than 1 and
up to 3 months
[
Ilrotal
IUp to 1 mooth
[1 Contingent liabilities In foreign currency
1/
II
1/
II
!
II
II
II
II
II
II
I
I
I
(a) Collateral guarantees on debt falling due within 1
year
[b) Other contingent liabilities
II
options (puttable bonds)
"
11
II
@Undrawn,
II
II
II~ Foreign currency securities issued with embedded
uncondilional credit lines provided by:
II(a) other national monetary authorities, 81S, IMF, and
other international organizations
[other national monetary authorities (+)
(b) with banks and other fmanclal Institutions
headquartered in the reporting country (+)
(c) with banks and other financial institutions
headquartered outside the reporting country (+)
Undrawn, unconditional credit lines proVided to
(a) other national monetary authorities, 81S, IMF, and
other international organizations
I
I
I
1/
1/
II
!I
I
"
I
II
"II
II
II
II
I
II
II
II
II
I
II
II
II
II
JI
II
II
II
I
I
JI
II
II
II
I
II
II
II
t?ther national monetary authorities (-)
r
I
~I
[BIS(+)
tlMF (+)
!
II
"
II
http://wwwtreas.gov/presslreleases/hp2008i141455111656.htm
II
"
II
I
I
I
2/1/2008
Page 3 of4
I--BIS (-)
II
I
I--IMF (-)
II
I
I
I
I
I
(b) banks and other financial institutions headquartered
in reporting country (- )
II
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
II
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
II
I(a) Short positions
I
I(i) Bought puts
I
I(ii) Written calls
I(b) Long positions
I
l(i) Bought calls
I(ii) Written puts
IPRO MEMORIA: In-the-moneyoptions .
1(1) At current exchange rate
I(a) Short POSition
I(b) Long position
1(2) + 5 % (depreCiation of 5%)
I(a) Short position
I(b) Long position
II
1(3) - 5 % (appreciation of 5%)
I(a) Short position
I(b) Long position
1(4) +10 % (depreciation of 10%)
I(a) Short position
I
"
"
I"
I
I
I(b) Long position
1(5) -10 % (appreciation of 10%)
I(a) Short position
I
I(b) Long position
1(6) Other (specify)
I(a) Short position
I(b) Long position
IV. Memo items
[
[(1) To be reported with standard periodicity and timeliness:
Ua) short-term domestic currency debt indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic
currency)
"
"II
"
t-nondeliverable forwards
[ --short positions
[ --long positions
tother instruments
~) pledged assets
t-included in reserve assets
--included in other foreign currency assets
r
http://wwwtreas.gov/presslreleases/hp/20081l41455111656.htm
"
"
"
"
"
"
II
II
I
I
I
2/1/2008
Page 4 of 4
I(d) securities lent and on repo
II
II
I--Ient or repoed and included in Section I
I--Ient or repoed but not included in Section I
II
II
I
I--borrowed or acquired and included in Section I
I--borrowed or acquired but not included in Section I
I(e) financial derivative assets (net, marked to market)
I--forwards
I
I--futures
I
I--swaps
I
I--oplions
I
I--other
I
IW) derivatives (forward, futures, or options contracts) that have a resldualmatuflty greater than one
year, which are subject to margin calls.
I
I
II
II;-aggregate short and long positions in forwards and futures in foreign currencies Vis-a-VIS the domestic II
currency (including the forward leg of currency swaps)
II
I
10) bought calls
I
I
I(ii) written puts
II
1(2) To be disclosed less frequently
II
I(a) currency composition of reserves (by groups of currencies)
11 71 ,425
I--currencies in SDR basket
11 71 ,425
I--currencies not in SDR basket
II
I--by individual currencies (optional)
\I
I
II
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I(a) short positions
10) bought puts
I(ii) written calls
I(b) long positions
I
I
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates, Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values,
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/doliar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end,
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://wwwtreas.gov/presslreleases/hp20081141455111656.htm
211/2008
P-761: Remarks by TreMUIY Under Secretary David H. McCormick<br>on China's Journey to Enviro...
Page 1 of 5
January 14, 2008
HP-761
Remarks by Treasury Under Secretary David H. McCormick
on China's Journey to Environmentally Sustainable Growth
at the West Coast Leadership Dialogue 2008
La Jolla, Calif. - Thank you Phil for that warm introduction, and thank you to the
Australian American Leadership Dialogue and the School of International Relations
and Pacific Studies at UC San Diego for inviting me to speak with you today. Both
the Leadership Dialogue and the School of International Relations arose over the
final two decades of the 20 th Century to meet the compelling need to engage the
best business, scientific and, yes, even government minds, to think though the
major economic issues facing the United States, Australia, and the Pacific Rim.
The 2008 West Coast Leadership Dialogue is perfectly timed to fulfill this mission.
The United States and Australia together face an Asia in transition. Economic
dynamism has created unprecedented opportunities, but at a high cost in energy
demand and related environmental damage. The challenge is especially great with
respect to China. As we have in the past, we must work together to capture these
opportunities and meet these challenges. Under the leadership of President
George Bush and Prime Minister Kevin Rudd, we are doing so.
The Importance of Multilateral Engagement
No one can doubt the seriousness of the dual challenges of energy-driven
development and climate change. Last November's report by the United Nation's
Intergovernmental Panel on Climate Change - the Fourth Assessment report concluded, and I quote, that: (1) "warming of the climate system is unequivocal, as
is now evident from observations of increases in global average air and ocean
temperatures, widespread melting of snow and ice, and rising global average sea
level"; that (2) "most of the observed warming over the last 50 years is likely to have
been due to the increase in greenhouse gas concentrations"; and, that (3) "global
greenhouse gas emissions due to human activities have ... [increased] 70%
between 1970 and 2004".
Climate change is a global challenge that requires global solutions, and President
Bush's strategy reflects this reality. Thus, at the December meeting of the United
Nations Conference on Climate Change in Bali, the United States focused on
practical steps to set the stage for a global, comprehensive and effective post-2012
climate change agreement.
In Bali, the U.S. had three main objectives:
First, to reach consensus on launching negotiations for the development of a post2012 climate change agreement.
Second, to agree on a comprehensive negotiating roadmap that would include the
prospect of meaningful actions by both developed and developing countries to
tackle the climate change challenge.
And, third, to agree on a schedule for the negotiations, with the goal of reaching an
agreement by the end of 2009.
I am pleased that we and our Bali partners met these objectives in the Bali
http://www treas.gov/presslreleases/hp761 htm
6/20/2008
P-761: Remarks by Treasury Under Secretary David H. McCormick<br>on China's Journey to Enviro...
Page 2 of 5
Roadmap, a document adopted by 192 countries, developed and developing alike,
accounting for almost all of the human sources of climate change. It was not easy,
as you know. But the process proved its value, as over the course of twelve days
we were all able to air our perspectives, debate our approaches, and move to a
hard won and deeply rooted consensus. Now, as we move forward with future
negotiations, there can be no question that the United States is committed to
working with other countries to achieve a global approach that is both
environmentally effective and economically sustainable.
President Bush is already taking a number of practical steps to achieve this goal. A
cornerstone of this effort is the "Major Economies Process," in which the United
States convenes the world's major economies - including Australia and China -- to
contribute to a new global arrangement under the United Nations' process. The
U.S. hosted the first of these Major Economies Meetings last September, and it
included 17 major economies responsible for more than 80% of the world's
economic output, energy use, and greenhouse gas emissions to discuss the .
development of a work program that can contribute to what became key elements
of the Bali Roadmap. Additional meetings to sustain this momentum are scheduled
for Honolulu in late January followed by a meeting later this Spring in France.
One of the critical insights fueling this process is the central role of technology in
achieving what are often perceived to be the competing priorities of energy-driven
economic development and environmental sustainability.
Developed countries have access to state of the art technology that drives
economic growth while reducing emissions that contribute to climate change and
other sources of pollution. I am not referring to esoteric alternative energy
technologies that are five, ten, even twenty years or more from deployment, but
rather to existing commercially-available technologies that are being deployed
today in the United States, Australia, Europe, and elsewhere to mitigate the
environmental impact of economic growth.
However, despite the viability and availability of these technologies, they are not
being widely adopted in many emerging economies. The reason is simple advanced technology is expensive. When viewing the full range of demands on
fragile budgets, leaders in developing countries have to consider pressing demands
such as education or health care as well as energy. There is a premium on
reducing costs to the lowest-cost alternatives to stretch funds to cover as many
needs as possible. At this point in their development, many believe they don't have
the lUxury of investing in environmental sustainability.
The growing global demand for energy will require enormous investments in
technology and infrastructure. The International Energy Agency, for example,
estimates that some $22 trillion will be invested in energy-supply infrastructure
alone between 2006 and 2030, with $10 trillion of that sum being invested in the
developing world. Estimates of the incremental cost necessary to ensure that these
investments are made in lower carbon infrastructure vary, but among developing
nations, it could be $30 billion or more per year. That's $30 billion these countries
need for technologies that are available today to fuel growth in an environmentally
friendly way.
To put a dent in this funding gap - and catalyze private sector investment .President Bush has proposed the creation of an international Clean Technology
Fund. The United States will be one of the lead donors in what is expected to be a
mUlti-billion dollar fund to help finance the cost of cleaner technology investment in
developing countries. The objectives of this fund are to:
(1) Reduce emissions growth in major developing countries through the accelerated
deployment of clean technologies;
(2) Stimulate private sector capital by making challenging, high impact clean energy
projects more attractive investments; and,
(3) Encourage major emerging economies to partiCipate in a new global climate
http://wwwtreas.gov/presslreleases/hp761.htm
6/2012008
P-761: Remarks by Treasury Under Secretary David H. McCormick<br>on China's Journey to Enviro...
Page 3 of 5
framework and adopt environmentally-friendly policies and investments.
We have already held discussions with potential donors for this fund, and we look
forward to establishing it later this year.
The Key to the Challenge: China
The widespread adoption of clean technology is one component of a durable
solution to the challenge posed by climate change and energy-driven development.
But the overall success of this effort hinges upon the question of how cooperation
between the developed and developing world will unfold. It is no secret to any in
this room that no developing country looms larger in this equation than China.
China's economic development is a signature event of the past three decades.
Averaging more than 8 percent per year over this time, China's growth has lifted
hundreds of millions of people out of poverty and reshaped the international
economy. But it has been fueled by a rapid increase in energy consumption.
Today, China is the world's second largest consumer of oil with its oil consumption
growing by half a million barrels a day in 2006 -- 38% of the total growth in global
demand.
The impact of China's energy demands has not been limited to oil. China is also
the world's largest producer and consumer of coal. Although China contains only
13% of the world's proven coal reserves, over the last decade it has been
responsible for nearly 40% of total global consumption, generally used to expand
China's electrical generating capacity. In 2007, China added 95 gigawatts of
electrical generating capacity - that's the equivalent of three new 500-megawatt
coal-fired power plants every week, or roughly half of California's total electrical
consumption last year.
China's rapid economic growth has come at a terrible cost to its air, water, and soil.
Sixteen of the world's 20 most polluted cities are in China. Water quality in China
has deteriorated significantly, with 26% of surface water being totally unusable,
62% of water being unsuitable for fish, and over 90% of all rivers running through
cities suffering significant pollution. And by its own account, China is overtaking the
United States as the world's largest source of greenhouse gases even though its
economy is only one sixth in size.
I was able to see an example of China's environmental challenges first hand last
summer when I accompanied Treasury Secretary Hank Paulson to Qinghai Lake of
China's Western Plateau. Located in the northwest of China, seven of the world's
great rivers originate on the Plateau which serves as a primary water source for
much of Asia. However, China's Western Plateau and the Qinghai Lake area are in
trouble. Over the last thirty years, the lake has started to shrink dramatically, the
desert has started to encroach on the surrounding lands, and glaciers situated in
the Plateau have been melting at an accelerated pace. The economic and
environmental implications of this phenomenon are staggering.
Even some efforts to find cleaner sources of energy have had an environmental
boomerang. Take the Three Gorges Dam project. The dam is a remarkable piece
of engineering, standing out as the world's largest man-made source of electriCity
generation from renewable energy. Yet the dam has created extensive
environmental problems such as water pollution and landslides, and has come at a
tremendous human cost, with the displacement and relocation of over one million
people. The dam demonstrates how solving one problem may result in other
problems just as significant.
Fostering Bilateral Cooperation between the United States and China
The challenge facing China is quite clear. But make no mistake, this challenge is
ours as well - extending to the United States, Australia, and other Pacific Rim
nations. The actions we take together are crucial for finding sustainable solutions
to global energy demand, global energy security, and global warming.
http://www treas.gov/presslreleases/hp761 htm
6/20/2008
P-761: Remarks by Treasury Under Secretary David H. McCormick<br>on China's Journey to Enviro...
Page 4 of 5
The United States is stepping up to the challenge. Since 2006, Secretary Paulson
has led the United States in senior-level discussions with the Chinese government
in the U.S.-China Strategic Economic Dialogue, or the SED. This dialogue has
allowed the United States and China to address long-term strategic issues, ranging
from financial sector reform to food and product safety to energy and the
environment.
Due to the thirst for energy and natural resources in both of our countries, the
United States and China have common objectives in advancing technology
development and deployment, best practices regarding energy security and
efficiency, and environmental stewardship. Our goal in discussions with the
Chinese has been to seize this opportunity, and we have made progress.
Agreements have included:
•
A commitment by the Chinese, with technical support provided by the
United States, to develop and implement a nationwide program on sulfur
dioxide emissions trading in the power sector, aimed at reducing one of the
key contributors to acid rain and fine particle pollution;
• A joint five-year agreement to promote the large scale deployment of
alternative fuel technologies for vehicles, including electric, hybrid-electric
and fuel cell technologies;
• Strengthened cooperation on strategic oil reserves, including cooperation
with the International Energy Agency; and,
• A memorandum of understanding to combat illegal logging and to promote
sustainable forest management.
As this list demonstrates, China also recognizes that it needs to act and act now on
its environmental and energy agenda. Indeed, late last year the Chinese
government made public its comprehensive plan for addressing many of its
environmental challenges.
It is in America's national interest to help China turn its plan into effective and timely
action. It is for this reason that at the SED last December, we agreed to launch a
ten-year plan for cooperation on energy and environment issues.
This plan provides a path for advancing technological innovation, facilitating the
adoption of clean energy technology, developing technology to address climate
change, and promoting the sustainability of natural resources. It will build on
current efforts underway in both countries by implementing practical steps in areas
such as conservation, pollution abatement, technology and R&D, and the
development of sound market-oriented environmental and energy policies and
regulations. Thus, with this plan, the United States can help the Chinese to make
their environmental efforts as effective as possible, as quiCKly as possible.
Each of these areas holds promise. In conservation, this could lead to further
progress on combating illegal logging and sharing expertise on protected lands. In
pollution abatement, this could result in market-oriented policies to combat
pollutants and improve China's water quality. In research and development, we
would hope to see increased academic exchanges between our two countries and
the commercialization of alternative energy sources. And in the development of
sound market-oriented energy and environmental policies and regulation, we aspire
to, among other things, the elimination of barriers to the trade in environmental
goods and services.
We are in the process of setting up a jomt U.S.-China working group, with Cabinetlevel leadership, to get our ten-year plan off to a strong start. Ultimately, the
success of this effort will be judged by effective environmental protection and
increased energy security while ensuring continued economic growth.
Conclusion
When future scholars write the history of the twenty-first century, they will judge
http://www treas.gov/presslreleases/hp761 htm
6/20/2008
P-761: Remarks by Treasury Under Secretary David H. McConnick<br>on China's Journey to Enviro...
Page 5 of 5
how we in the United States, Australia and the rest of the developed world
cooperated with China and other major emerging economies to solve the enormous
challenges posed by climate change and energy-driven economic development.
The Bali Roadmap, the Major Economies process, the Clean Technology Fund, and
the U.S.-China ten-year plan collectively represent an important starting point for
how the United States and the international community can address these
challenges.
The Chinese often say that the journey of a thousand miles begins with a single
step. Well, we have now taken more than a single step, although there are
thousands yet to go. The time is now for leadership to ensure we reach our final
destination of a clean and prosperous world.
http://wwwtreas.gov/presslreleases/hp761.htm
6/20/2008
762: Treasury Targetb FARe Financial Network in Colombia
Page 1 of2
/0 view or pnnt me f-'Ur content on tills page, Clown/oaCl me tree AClOlJe® AcroIJat® KeaCler®,
January 15, 2008
hp-762
Treasury Targets FARC Financial Network in Colombia
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC)
today announced the designation of one entity and six individuals acting on behalf
of the Revolutionary Armed Forces of Colombia or FARC, a Colombian narcoterrorist group.
"Today's designations build upon and augment actions taken by the Colombian
authorities against a FARC money exchange company established to launder illicit
drug proceeds," said Adam J Szubln, Director of OFAC. "With this action, we are
commencing a campaign against the FARC's financial network to undermine this
deadly narco-terrorlst organization"
President George W. Bush, on May 23, 2003, designated the FARC as a Significant
foreign narcotics trafficker pursuant to the Foreign Narcotics Kingpin Designation
Act due to Its extensive narcotics trafficking activities. The FARC was also named
as a Foreign Terrorist Organization by the Secretary of State in October 1997 and
was designated as a Specially Designated Global Terrorist pursuant to Executive
Order 13224 in November 2001
The designated FARC financial network centers on the Colombian money
exchange business ComerClallzadora Colombian Money Exchange Ltda with
offices in the cities of Bogota and Villavicencio. Comerciallzadora Colombian
Money Exchange Ltda., a Colombian money exchange business or "profeslonal del
cambio" In Colombia, was used to help launder the narcotics proceeds of the
FARe. The enterprise accepted foreign currency from the FARC, derived from drug
sales abroad, and in exchange provided pesos to the FARC that it could use in
Colombia. The six individuals designated by OFAC include Jorge Ellecer Vargas
Arias, Cesar Augusto Vargas Alba, Sandra Milena Vargas Soler, Dora Lilia Pava
Giraldo, and Jorge Leandro Vargas Alba.
Also designated is Norberto Antonio Agudelo Velasquez, a significant drug trafficker
for the FARC. Agudelo Velasquez was responsible for the production and sale of
cocaine for the FARC's 27th front and also was in charge of contacting other drug
traffickers to export the FARC's drugs from Colombia The narcotics proceeds
obtained by Norberto Antonio Agudelo Velasquez were laundered through the
Comercializadora Colombian Money Exchange Ltda. network.
The FARC's 27th Front is led by LUIS Eduardo Lopez Mendez (alias "Efren
Arboleda"), who ultimately reports to FARC Secretariat Member Victor JuliO Suarez
ROjas (alias "Mono JOjoy"). Suarez ROjas IS the FARC's Chief of Military Operations
and he has served as commander of the Eastern Bloc of the FARC. Victor Julio
Suarez Rojas and Luis Eduardo Lopez Mendez were previously designated by
OFAC on February 18, 2004 and November 1,2007, respectively.
This action today is part of ongoing efforts under the Foreign Narcotics Kingpin
Designation Act to apply financial pressure against significant foreign narcotics
traffickers worldwide. More than 300 businesses and individuals associated with the
68 drug kingpins have been designated pursuant to the Kingpin Act since June
2000. Today's designation would not have been possible without support from the
Drug Enforcement Administration.
Today's designation action freezes any assets the seven designees may have
under U.S. jurisdiction and prohibits U.S. persons from conducting financial or
commercial transactions with these individuals and entities. Penalties for violations
http://www treas.gov/presslreleases/hp762 htm
2/1/2008
762: Trea~ury TargetsFARC Financial Network in Colombia
Page 2 of2
of the Kingpin Act range from civil penalties of up to $1,075,000 per violation to
more severe criminal penalties. Crimlilal penalties for corporate officers may
include up to 30 years in prison and fines of up to $5,000,000 Criminal filles for
corporations may reach $10,000,000. Other individuals face up to 10 years III
prison for criminal violations of the KlIlgplil Act and fines pursuant to Title 18 of the
United States Code.
REPORTS
•
•
27th FARC Front Financial Flow
For a complete list of the Individuals and entitles deSignated today, please
visit: http://www .treasu ry. gov/offices/enforcementiofac/actions/i ndex. shtml
To view previous OFAC actions directed against the FARC, please visit
•
•
•
Treasury Action against the FARC on November 1,2007.
Treasury Action against the FARC on September 28,2006.
Treasury Action Against the FARC on February 19, 2004.
- 30 -
http://wwwtreas.gov/presslreleases/hp762.htm
211/2008
Department of the Treasury
Office of Foreign Assets Control
FARC 27th FRONT FINANCIAL FLOW
JANUARY 2008
Victor Julio SUAREZ ROJAS
alias "Mono Jojoy"
FARe Secretariat Member
Previously designated on February 18, 2004
CD
•
-------------
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DRUGS
luis Eduardo lOPEZ MENDEZ
alias "Efren Arboleda"
27th FRONT COMMANDER
Previously designated on November 1, 2007
•
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Norberto Antonio AGUDELO VELASQUEZ
alias "Amado"
Drug Trafficker
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S. Treasury • Recent OFAC Actions: 1110112007
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11/01/2007
The following individuals have been added to OFAC's SON list:
CABANA GUILLEN, Sixto AntoniO (aka "BIOHO, Domingo"; a,k,a "BIOJA. Domingo");
DOB 15 Jun 1955; POB Onhueca Cienaga, Magdalena, Colombia; citizen Colombia;
nationality Colombia; Cedula Number 19500634 (Colombia) (individual) [SDNTK]
CABRERA DIAZ. Hermilo (a,k,a CABRERA DIAZ, Ermilo; a,k,a, "BERTULFO"); DOB 25 Nov
1941; POB HUila. Colombia; citizen Colombia. nationality Colombia; Cedula No, 9680080
(Colombia) (individual) [SDNTK]
CAICEDO COLORADO, Abelardo (aka "SOLIS ALMEIDA"); DOB 3 Mar 1960; POB
Mercaderes. Cauca. Colombia; citizen Colombia; nalionality Colombia (individual) [SDNTK]
CAMARGO. Norbei (a,k,a, CAMARGO. Norbey; a,k,a TRIANA, Hermer; a,k,a, "JAMES
PATAMALA"; a,k,a, "JAMES PATAPALO"; a,k,a, "MUERTA PARADO"); DOB 5 Aug 1965;
POB EI PauJil. Caqueta. Colombia; citizen Colombia; nationality Colombia; Cedula No,
17702895 (Colombia) (lIldivldual) [SDNTK]
CUEVAS CABRERA. Erminso (a,k,a, "MINCHO"); DOB 16 Sep 1960; POB EI PauJil.
Caqueta. Colombia; citizen Colombia; nationality Colombia; Cedula No, 96328518
(Colombia) (individual) [SDNTK]
LEAL GARCIA. IgnaCIO (aka "CAMILO"; a,k,a "TUERTO"); citizen Colombia; nationality
Colombia; Cedula No, 96186610 (Colombia) (individual) [SDNTK]
LOPEZ MENDEZ. LUIS Eduardo (a,k,a, LOPEZ MENDEZ, Alfonso; a,k,a "EFREN
ARBOLEDA"); citizen Colombia; nationality Colombia; Cedula No, 96329889 (Colombia)
(individual) [SDNTK]
MOLINA GONZALEZ. Jose Epinemio (a,k,a, MOLINA GONZALEZ, Jose Epimenio; a,k,a
"DANILO GARCIA"); DOB 18 Nov 1957; POB Icononzo. Tolima. Colombia; citizen Colombia,
nationality Colombia; Cedula Number 1.1. 57111-01681 (Colombia) (lIldivldual) [SDNTK]
OLARTE LOMBANA. Alonso (a,k,a, GUZMAN FLOREZ, Relllel; a,k,a "LUIS EDUARDO
MARIN"; a,k,a "RAFAEL GUTIERREZ"); DOB 7 Nov 1960; all. DOB 11 Apr 1957: POB
Bogota, Colombia; all. POB Natagaima. Tolima, Colombia; citizen Colombia; nationality
Colombia; Cedula No, 18260876 (Colombia) (individual) [SDNTK]
PASCUAS SANTOS. Miguel Angel (a,k,a, "HUMBERTO"; a,k,a "SARGENTO PASCUAS");
DOB 28 Apr 1952; POB Tello. Huila. Colombia; Citizen Colombia, nationality Colombia.
Cedula Number 12160124 (Colombia) (indiVidual) [SDNTK]
RODRIGUEZ MENDIETA, Jorge Enrique (a k,a "IVAN VARGAS"); DOB 15 Jan 1963: POB
Giron. Santander. Colombia. citizen Colombia. nalionality Colombia: Cedula No, 91223461
(Colombia) (lildividual) [SDNTK]
http://www.treas.sov/offIces!enforcemenv0fac/actions 12007110 l.shtml
2/1/2008
S. Treasurf - Recent OF AC Actimts: 1110112007
Page 2 of2
ROPERO SUAREZ. Emlro del Carmen (ak .a "RUBEN ZAMORA"): DOB 2 Sep 1962: POB
Municipio de Nueva Granada, Norte de Santander, Colombia: citizen Colombia: nationality
Colombia : Cedula No. 13461523 (Colombia) (individual) [SDNTK]
SANTANILLA BOTACHE , Miguel (a.ka. "GENTIL DUARTE"): DOB 10 Dec 1963; POB
Florencla, Caqueta , Colombia: citizen Colombia : nationality Colombia: Cedula No . 93123586
(Colombia) (individual) [SDNTK]
TORRES CUETER , Guillermo Enrique (a .k.a. "JULIAN CONRADO"): DOB 17 Aug 1954 :
POB Turbaco, Bolivar, Colombia ; citizen Colombia: nationality Colombia, Cedula No .
9281858 (Colombia) (individual) [SDNTK]
TRASLAVINA BENAVIDES, Erasmo (a.k.a . "ISMARDO MURCIA LOZADA" : a.k .a.
"ISNARDO MURCIA LOZADA": a.k.a. "JIMMY GUERRERO") : DOB 19 Jun 1958: POB
Guacamayo, Santander, Colombia: citizen Colombia: nationality Colombia: Cedula No.
13642033 (Colombia) (individual) [SDNTK]
http://wwwtreas.gov/omces/enforcemerrtlofac/actions/200711 0 I.shtmi
211 12008
S. Treasury - Recent OFAC Actions: 09/28/2006
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09/28/2006
The following individuals have been added to OFAC's SON list:
AGUILAR RAMIREZ, Gerardo Antonio (a.k.a. "CESAR"); DOB 20 Sep 1962; POB Colombia;
Cedula No. 16148998 (Colombia); all. Cedula No. 16447616 (Colombia) (individual) [SDNTK]
AGUIRRE RAMOS, Manuel Francisco, Paseo de los Heroes, Av. 95 B7, Colonia Rio Tijuana,
Tijuana, Baja California, Mexico; Pro!. Puerta de Hierro, Colonia Puerta de Hierro, Tijuana,
Baja California, Mexico; Pda. Manuel M. Flores 2, Colonia Hipodromo Dos, Tijuana, Baja
California, Mexico; clo INMOBILIARIA ESPARTA SA DE C.V., Tijuana, Baja California,
Mexico; clo INMOBILIARIA LA PROVINCIA SA DE CY, Tijuana, Baja California, Mexico;
Calle 2A Barrio Juarez 2034-702, Colonia Zona Central, Tijuana, Baja California, Mexico;
DOB 16 Mar 1969; POB Baja California, Mexico; C.U.R.P. # AURM690316HBCGMN05
(Mexico); R.F.C. # AURM-690316-97A (Mexico) (individual) [SDNTK]
ALVIS PATINO, Gentil (a.k.a. LOPEZ, Angel Leopoldo; a.k.a. MARTINEZ VEGA, Juan Jose;
a.k.a. PATINO ORTIZ, Alvis; a.k.a. "CHIGUIRO"; a.k.a. "GONZALEZ, Ruben"); DOB 4 Jun
1961; POB EI Doncello, Caqueta, Colombia; Cedula No. 17669391 (Colombia); all. Cedula
No. 12059198 (Venezuela) (individual) [SDNTK]
CARVAJALlNO, Jesus Emilio (a.k.a. "PARIS, Andres"); DOB 15 Mar 1955; POB Bogota,
Colombia; Cedula No. 3228737 (Colombia); Passport AC192015 (Colombia) (individual)
[SDNTK]
GARCIA MOLINA, Gener (a.k.a. "GUTIERREZ, Jhon"; a.k.a. "HERNANDEZ, John"; a.k.a.
"JHON 40"; a.k.a. "JOHN 40"; a.k.a. "JOHNNY 40"); DOB 23 Aug 1963; POB San Martin,
Meta, Colombia; Cedula No. 17353242 (Colombia) (individual) [SDNTK]
GRANDA ESCOBAR, Rodrigo (a.k.a. "CAMPOS, Arturo"; aKa. "GALLOPINTO"; a.k.a.
"GONZALEZ, Ricardo"), Avenida Victoria No. 36, Urbanizacion Bolivar La Victoria, Jose Felix
Rivas, Estado de Aragua, Venezuela; DOB 9 Apr 1949; POB Frontino, Antioquia, Colombia;
Cedula No. 171493523-4 (Ecuador); all. Cedula No. 19104578 (Colombia); Electoral Registry
No. 22942118 (Venezuela); Passport P0161 04 (Colombia) (individual) [SDNTK]
HERNANDEZ SOMERO, Urbano, Avenida Manuela Herrera 592, Colonia Rio Reforma CP
22000, Tijuana, Baja California, Mexico; C. Mision de Mulege 2993, Colonia Zona Urbana
Rio Tijuana, Tijuana, Baja California, Mexico: Avenida Manuela Herrera 590, Colonia Rio
Reforma CP 22000, Tijuana, Baja California, Mexico; Avenida Del Bosque 4640, Colonia
Jardines de Chapultepec, Tijuana, Baja California, Mexico; C. Hermosillo, Colonia Rancho EI
Grande CP 22000, Tijuana, Baja California, Mexico; Pda. Mercurio, Colonia Puerta De Hierro
CP 22330, Tijuana, Baja California, Mexico; Pda. Del Cobre 0, Colonia Puerto De Hierro CP
22000, Tijuana, Baja California, Mexico: clo COMPLEJO TURISTICO OASIS SA DE CY,
Rosarito, Baja California, Mexico: clo PLAYA MAR SA DE CY, Tijuana, Baja California,
Mexico; clo INMOBILIARIA LA PROVINCIA SA DE CY, Tijuana, Baja California, Mexico;
clo INMOBILIARIA ESTADO 29 SA DE CY, Tijuana, Baja California, Mexico; c/o
INMOBILIARIA TIJUANA COSTA SA DE CY, Tijuana, Baja California, Mexico; DOB 25
May 1943; POB Mexicali, Baja California, Mexico; C.U.R.P. # HESU430525HBCRMR13
(Mexico); all. C.U.R.P. # HESU430525HBCRMR05 (Mexico); all. C.UR.P. #
HEXU430525HBCRXR07 (Mexico); Immigration No. A38839964 (United States) (individual)
http://www.treas.sov/offIces/enforcemenr/0fac!actions/20060928.shtml
2/1/2008
S. Treasury - Recent OFAC Actions: 09/28/2006
Page 2 of 4
[SDNTK]
JIMENEZ PEREZ. Jose Julian Bruno. c/o INMOBILIARIA ESTADO 29 SA DE CV. Tijuana.
Baja California. MexICO: Calle RIo Bravo. Colonia Revoluclon. Tijuana. Baja California.
Mexico: Avenida IndependenCia. Colonia Zona Urbana RIO Tijuana. Tijuana. Baja California.
Mexico: c/o INMOBILIARIA LA PROVINCIA SA DE CV. TIjuana. Baja California. MexIco:
DOB 19 Jun 1961. POB Ensenada. Baja California. MexIco: CURP #
JIPJ610619HBCMRL07 (Mexico) (individual) [SDNTK]
JUVENAL VELANDIA. Jose (aka MUNOZ ORTIZ. Manuel Jesus: a.k.a. "IVAN RIOS"):
DOB 19 Dec 1961. POB San FrancIsco. Putumayo. Colombia: Cedula No 71613902
(Colombia) (individual) [SDNTK]
LlSANDRO LASCARRO. Jose (a.k.a. MUNOZ LASCARRO. Felix Antonio; a.k.a. "PASTOR
ALAPE"): DOB 4 Jun 1959; all. DOB 1946; POB Puerto Bemo. Antioquia. Colombia Cedula
No. 71180715 (Colombia): all. Cedula No. 3550075 (Colombia) (individual) [SDNTK]
PELAYO MENDOZA. Franco Arturo. Calle Farallon 3206. Colonia Playas de TIjuana. Secc.
Costa Hermosa. TIjuana. Baja California. Mexico; Paseo Playas de TIjuana 317. Tijuana.
Baja California. Mexico: Paseo del Pedregal 3034. Colonia Playas de Tijuana. Secc. Costa
Hermosa, Tijuana, Baja California. MexIco; Calle De La Luz 218. Colonia Playas de Tijuana.
Secc. Costa Hermosa. Tijuana. Baja California, Mexico; Blvd. Insurgentes 16174-18-B.
Colonia Los Alamos, Tijuana. Baja California. MexIco: Calle 16 de Septiembre 3-FA. Colonia
Las Torres. Tijuana. Baja California, Mexico; Calle Juan Covarrubias, Colonia Los Altos,
Tijuana. Baja California. MexIco; c/o INMOBILIARIA TIJUANA COSTA SA DE CS., Tijuana.
Baja California. Mexico: DOB 2 Feb 1953: POB Casimiro Castillo. Jallsco. MexIco (Irldivldual)
[SDNTK]
SERPA DIAZ, Alvaro Alfonso (ak.a CERPA DIAZ, Alvaro Alfonso; a.k.a. CERPA DIAZ.
Tiberio Antonio: a.k.a. SERPA DIAZ, Alvaro Enrique: a.k.a. "FELIPE RINCON"): DOB 28 Mar
1959: all DOB 9 Oct 1956: POB San Jacinto. Bolivar, Colombia: all. POB Cali. Colombia.
Cedula No. 6877656 (Colombia) (individual) [SDNTK]
TOVAR PARRA. Ferney (a.ka. "DIEGO"; a.k.a. "FERCHO"): DOB 17 Nov 1966; POB
Cartagena del Chaira, Caqueta, Colombia: Cedula No. 17640605 (Colombia) (Individual)
[SDNTK]
URIBE URIBE, Miguel Angel. c/o INMOBILIARIA ESTADO 29 SA DE CV. TIjuana. Baja
California. MexIco: Calle Nevado de Toluca 845, Tijuana. Baja California, Mexico: c/o
INMOBILIARIA LA PROVINCIA SA DE CV, Tijuana, Baja California. MexIco; DOB 2 Aug
1957; POB Tijuana. Baja California, Mexico: CURP # UIUM570802HBCRRG08 (Mexico)
(individual) [SDNTK]
VALENCIA MARTINEZ. Alberto Alfredo, Avenida !.T.R 2207, Colonia Tecnologico. Tijuana.
Baja California. MexIco; Calle Geiser 101. Colonia Collnas de Agua Caliente. Tijuana, Baja
California, Mexico; Avenlda Hlpodromo 19, Colonia Hipodromo. Tijuana, Baja California.
Mexico; Calle Lomas Altas 1480. Colonia Lomas de Agua Caliente, Tijuana, Baja California.
Mexico: Calle Coronado 21760, Colonia Mesetas del Guaycura. Tijuana. Baja California.
MexIco; Blvd. Fundadores 0, Colonia EI Rubi. Tijuana, Baja California, MexIco; c/o
INMOBILIARIA TIJUANA COSTA SA DE CS, Tijuana, Baja California. MexIco; DOB 8 Apr
1949; POB Tijuana, Baja California, Mexico; CURP # VAMA490408HBCLRL08 (MeXICO):
RF.C # VAMA-490408-C6A (Mexico) (Individual) [SDNTK]
The following entities have been added to OFAC's SON list
INMOBILIARIA ESPARTA SA DE CV., Avenlda Negrete 220 Local 2B, Colonia Zona
Central, TIjuana, Baja California, Mexico; RF.C. # IES-870805 (Mexico) [SDNTK]
INMOBILIARIA ESTADO 29 SA DE C.V, Entre Juan Sarabia y Plutarco Elias C. TIjuana
Baja California, Mexico; Ocampo 18604, Colonia Zona Central, TIJuana, Baja California.
MexIco; RF.C # IEV-950628 (MeXICO) [SDNTK]
INMOBILIARIA LA PROVINCIA SA DE CV. Cuauhtemoc 60463 Libertad. TIjuana. Baja
California, Mexico: R.F.C # IPR-931014 (MeXICO) [SDNTK]
INMOBILIARIA TIJUANA COSTA SA DE CV. Agua Caliente 104409. Colonia AVlacion.
http://www treas.g~v Iothcesl enforccrnem/o fae! acti ons/2 0060928. shtrnl
2/1/2008
S. Treasury - Recent OFAC Actions: 09/28/2006
Page 3 of4
Tijuana. Baja California, MexIco; Entre Abelardo L. Rodriguez y Avenlda Del RIO, TIjuana,
Baja California, Mexico RFC # ITC-910503 (MexIco) [SDNTK]
PLAYA MAR SA DE CV, Paseo De Los Heroes. Colonia RIo Tijuana 2110, Tijuana. Baja
California, MexIco: Entre Via Rapida y Jose Clemente Orozco, Tijuana, Baja California,
Mexico; Blvd. Agua Caliente 10440, Colonia AVlacion 22420, Tijuana, Baja California,
Mexico: RF.C # PMA-910805 (MexIco) [SDNTK]
The following changes have been made to OFAC's SON list
AGUIRRE GALINDO, Manuel, clo Complejo Turistlco OasIs. SA DE CV, Rosarito, Baja
California, Mexico: DOB 2 Nov 1950; RF.C AUGM-501102-PM3 (Mexico) (individual)
[SDNTK] -to- AGUIRRE GALINDO, Manuel, clo COMPLEJO TURISTICO OASIS, SA DE
CV, Rosarito, Baja California, Mexico: clo INMOBILIARIA ESPARTA SA DE CV, Tijuana
Baja California, Mexico; DOB 2 Nov 1950: POB Tijuana, Baja California, Mexico: RF.C
AUGM-501102-PM3 (MexIco) (lIldivldual) [SDNTK]
GALINDO LEYVA, Esperanza, clo ComplejO Turistlco Oasis, SA de CV, Playas de
Rosarito, Rosarito, Baja California, Mexico; DOB 16 Aug 1920; RFC. GALE-200816-6IA
(Mexico) (individual) [SDNTK] -to- GALINDO LEYVA, Esperanza, clo COMPLEJO
TURISTICO OASIS, SA de CV, Playas de Rosarito, Rosarito, Baja California, MexIco; 536
Huerto Place, Chula Vista, CA 91910: 950 Norella Street, Chula Vista, CA 91910; clo PLAYA
MAR SA DE CV, TIjuana, Baja California, MexIco: clo INMOBILIARIA LA PROVINCIA S.A
DE CV, TIjuana, Baja California, Mexico: DOB 16 Aug 1920; POB San IgnacIo, Sinaloa,
Mexico; Passport 99020017901 (MexIco); RFC. # GALE-200816-6IA (MexIco); all. RFC. #
GALE-241004-61A (Mexico) (individual) [SDNTK]
http://wwwtreas.gDv/offices/enforcemem/Qfaclactions/20060928.shtrnI
211/2008
S. Treasury. Recent OFAC Action~: 02118/2004
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OFFICE GF FOREIGN A~SETS CCHHROL
-=~~~~ H iF})
_-_-; -f~:
l"
~tj ;~:,fi
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Office of Foreign Assets Control
-------------------------------
RECENT OFAC ACTIONS
Full List I P[eviou~
I Next
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
02/18/2004 (late p.m.)
The following have been named as Specially Designated Narcotics Trafficker Kingpins
(without the a.k.a.s listed as separate entries in this Bulletin):
ENTITIES:
FUNDACION PARA LA PAZ DE CORDOBA (a.k.a. FUNDACION POR LA PAS DE
CORDOBA; a.k.a. FUNDAZCOR; a.k.a. FUNPAZCOR), Carrera 6 No. 29-12, Monteria,
Cordoba, Colombia; NIT # 830054536-9 (Colombia) [SDNTK)
LOS GNOMOS LTDA., Calle 5 No. 61-82, Apt. 412B, Cali, Valle, Colombia; NIT #
800165614-2 (Colombia) [SDNTK)
SOCIEDAD DE COMERCIALIZACION INTERNACIONAL POSEIDON SA
(a.k.a. C.1. POSEIDON SA; f.k.a. C.1. COMERCIALIZADORA INTERNACIONAL
POSEIDON SA), Calle 79 Sur No. 48B-56, Sabaneta, Antioquia, Colombia; NIT #
800173090-7 (Colombia) [SDNTK)
OTHER INDIVIDUALS:
ALBAN BURBANO, Luis Alberto (a.k.a. ALBAN URBANO, Luis Alberto; a.k.a. CALARCA,
Marco Leon; a.k.a. CALARCA, Marcos Leon); DOB 16 Aug 1957; POB Cali, Valle, Colombia:
Cedula No. 16588328 (Colombia) (individual) [SDNTK)
ARROYAVE RUIZ, Elkin Alberto (a.k.a. LOPEZ, Cesar), Carrera 9 No. 710-10, Cali,
Colombia; DOB 3 Sep 1968; POB Caucasia, Antioquia, Colombia; Cedula No. 4652820
(Colombia) (individual) [SDNTK)
ATENCIA PITALUA, Rafael Dario, c/o FUNDACION PARA LA PAZ DE CORDOBA,
Monteria, Cordoba, Colombia; DOB 4 Feb 1963; Cedula No. 6889653 (Colombia) (individual)
[SDNTK)
BLANCO PUERTA, Edgar Fernando; DOB 19 Jun 1946; POB Medellin, Antioquia, Colombia:
Cedula No. 13224238 (Colombia) (individual) [SDNTK]
BOCOTA AGUABLANCA, Gustavo (a.k.a. BOGOTA, Gustavo; a.k.a. "Estevan;" a.k.a.
"Tribisu"); DOB 28 Aug 1966; Cedula No. 9466199 (Colombia); alt. Cedula No. 9466833
(Colombia) (individual) [SDNTK]
BRICENO SUAREZ, German (a.k.a. "Granobles;" a.k.a. SUAREZ ROJAS, Noe); DOB 15
Dec 1953; Cedula No. 347943 (Colombia) (individual) [SDNTK]
BRICENO SUAREZ, Jorge (a.k.a. BRICENO SUAREZ, Jorge Enrique; a.k.a. "Mono Jojoy;"
a.k.a. "Oscar Riano;" a.k.a. SUAREZ, Luis; a.k.a. SUAREZ ROJAS, Victor Julio); DOB Jan
1953; alt. DOB 1 Feb 1949; alt. DOB 2 Jan 1951; alt. DOB 5 Feb 1953; POB Santa Marta,
Magdalena, Colombia; alt. POB Cabrera, Cundinamarca, Colombia; Cedula No. 12536519
(Colombia); alt. Cedula No. 19208210 (Colombia); aiL Cedula No. 17708695 (Colombia);
http://www.treas.g{)v/offlceslenforcement/ofaclactions/20040218.shtml
211/2008
S. Treasury - Recent OF AC Actions: 02/18/2004
Page 2 of4
may also be using Cedula No. 70753211 (Colombia) (individual) [SDNTK)
BUITRAGO PARADA. Hector German (aka "Martin Llanos"); DOB 21 Jan 1968: POB
Monterrey. Casanare. Colombia ; Cedula No . 79436816 (Colombia) (individual) [SDNTK)
CABRERA. Jose Benito (a .ka CABRERA CUEVAS. Jose Benito; a.k.a . "EI Mono Fabian :"
a.k.a. "Fabian Ramirez") ; DOB 6 Jul 1963; all. DOB 5 Jul 1965; POB EI Paujil . Caqueta.
Colombia ; Cedula No . 96329309 (Colombia) (in dividua l) [SDNTK)
CARACAS VIVEROS . Oscar (a.ka . "EI Negro Oscar"); DOB 15 Nov 1967; POB Colombia:
Cedula No 96351739 (Colombia) (individual) [SDNTK)
CASTANO GIL . Carlos ; DOB 15 May 1965: POB Amalfi. Antloqula. Colombia , Cedula No .
70564150 (Colombia) (individual) [SDNTK)
CASTANO GIL. Hector; DOB 24 Mar 1959; POB Amalfi . Antioquia . Colombia ; Cedula No .
337 1328 (Colombia) (individual) [SDNTK)
CASTANO GIL. Jose Vicente; DOB 2 Jul 1957: Cedula No . 3370637 (Colombia) (individual )
[SDNTK)
CASTELLANOS GARZON . Henry (aka "Comandante Romana ;" a.k.a. "Edison Romana ;"
a.k.a . "Romana"); DOB 20 Mar 1965; POB San Martin, Meta , Colombia; Cedula No .
17353695 (Colombia) (individual) [SDNTK)
CIFUENTES GALINDO . Luis Eduardo (a .k.a . "EI Aguila") ; DOB 16 Mar 1960 : Cedula No.
3254362 (Colombia) (ind ivid ual) [SDNTK)
DE VIA SILVA, Lu is Edgar (a .k.a. "Raul Reyes"): DOB 30 Sep 1948: POB La Plata . Huila .
Colombia. Cedula No . 14871281 (Colombia) (individual) [SDNTK)
DUQUE GAVIRIA. Ivan Roberto (a.k.a. "Ernesto Ba ez"); DOB 9 May 1955; POB Aguadas.
Caldas, Colombia ; Cedula No . 10241940 (Co lombia) (indi vidu al) [SDNTK)
GIRALDO SERNA . Hern an; DOB 16 Oct 1948; Cedula No . 12531356 (Colombia) (individual)
[SDNTK)
GOMEZ ALVAR EZ. Sor Teresa. c/o FUNDACION PARA LA PAZ DE CORDOBA . Monteria .
Cordoba , Colombia ; DOB 27 Jun 1956; POB Amalfi . Antioquia . Colombia ; Passport
21446537 (Co lombia); Cedula No. 21446537 (Colombia) (individual) [SDNTK)
ISAZA ARANGO, Ramon Maria ; DOB 30 Sep 1940; POB Sonson. Antioquia . Colombia :
Ced ula No. 5812993 (Colombia) (individ ua l) [S DNTK)
LON DONO ECHEVERRY. Rodrigo (a .k.a. "Timochenko :" a.k.a . "Timoleon Jimenez"): DOB
22 Jan 1959: all. DOB 1 Jan 1949; POB Ca larca. Qu indio . Colomb ia: Cedula No . 79149126
(Colombia) (individual) [SDNTK)
MANCUSO GOMEZ . Sal va tore (a.k.a . LOZADA. Santander ), Calle 64 No . 8A-56. Monteria ,
Cordoba. Colombia ; DOB 17 Aug 1964 : POB Monteria , Cordoba . Colombia ; Cedula No.
6892624 (Colombia) (individual) [SDNTK]
MARIN ARANGO . Luciano (a .k.a . "Ivan Marques:" a.k.a. "Ivan Marquez"); DOB 16 Jun 1955:
POB Florencia , Caqueta . Colombia; Cedula No . 19304877 (Co lom bia) (individua l) [SDNTK]
MARIN , Pedro Antonio (a .k.a. "Manuel Marulanda ;" a .k.a. "Manuel Marulanda Velez; " a.k .a .
MARIN MARIN, Pedro Antonio ; a.k .a. "Tirofijo"); DOB 13 May 1930; POB Genova , Qu indio ,
Colombia ; Cedula No . 4870142 (Colombia) (individual) [SDNTK)
MATA MATA. Noel (ak.a. "Efrain Guzman ;" a .k.a. "EI Chucho ;" a .k.a . MATTA MATTA. Noel) :
DOB 31 Jan 1935: all. DOB 30 Jan 1935; POB Chaparral. Tolima. Colombia : Cedul a No .
4870352 (Colombia) (individual ) [SDNTK)
http://www .treas.gov/offices/enforcemerrt/ofac/actions/20040218.shtml
211 /2008
S. Treasury - Recent OF AC Actions: 02/1S/2004
Page 3 of4
MOLINA CARACAS, Tomas (a.ka. "Arturo Guevara;" a.k.a. CASTILLO CORTES, Miguel
Angel; a.k.a. "EI Patron;" a.k.a. "Jorge Medina;" a.k.a. MEDINA CARACAS, Tomas; a.k.a
"Negro Acacia"); DOB 15 Mar 1965; POB Lopez De Micay, Cauca, Colombia (individual)
[SDNTK]
MURILLO BEJARANO, Diego Fernando (a.ka. "Adolfo Paz;" a.k.a "Don Berna"); DOB 23
Feb 1961; Cedula No. 16357144 (Colombia) (individual) [SDNTK)
PEREZ ALZATE, Guillermo (aka "Pablo Sevillano"), Diagonal 50 No 49-14 of. 601,
Medellin, Colombia; Calle 26A No. 70-35 Medellin, Colombia, Calle 30 No.9-51, Montena,
Cordoba, Colombia; Calle 24 No.1-52, B. Cta de Oro, Colombia; Calle 37 No. 2-40, Almacen
Dulcino, Tumaco, Narino, Colombia; Passport AF891 052 (Colombia); Cedula No. 71646827
(Colombia) (individual) [SDNTK)
PINEDA PALMERA, Juvenal Ovidio (ak.a PALMERA PINEDA, Juvenal Ovidio Ricardo;
a.k.a "Simon Trinidad"); DOB 30 Ju11950; POB Bogota, Cundinamarca, Colombia;
Passports T757205 (Colombia), AC204175 (Colombia), AH182002 (Colombia): Cedula No
12715418 (Colombia): all. Cedula No. 12751418 (Colombia); all. Cedula No. 12715416
(Colombia) (individual) [SDNTK)
ROMERO
Colombia;
Sabaneta,
B0088212
VARELA, Carlos Ali (aka MARTINEZ, Richard), c/o LOS GNOMOS L TDA, Call,
c/o SOCIEDAD DE COMERCIALIZACION INTERNACIONAL POSEIDON SA,
Antioquia, Colombia; DOB 19 Mar 1959; all DOB 19 Feb 1959; Passport
(Venezuela); Cedula No. 13447909 (Colombia) (individual) [SDNTK)
SAENZ VARGAS, Guillermo Leon (a.ka. "Alfonso Cano"); DOB 22 Jul 1948; POB Bogota,
Cundinamarca, Colombia; Cedula No. 17122751 (Colombia) (individual) [SDNTK]
SANCHEZ VARILLA, LUIs Manuel; DOB 1 Feb 1964; Cedula No. 8174649 (Colombia)
(indiVidual) [SDNTK]
SIERRA RAMIREZ, Juan Carlos; DOB 15 Apr 1966; Cedula No. 71680143 (Colombia)
(individual) [SDNTK)
TONCEL REDONDO, Milton De Jesus (a.k.a. "EI Negro;" a.k.a. "Joaquin Gomez;" a.k.a.
"Oro Churco;" a.k.a. "Usurriaga"); DOB 18 Mar 1947; all. DOB Feb 1949; POB Barrancas, La
Guajira, Colombia; all POB Ubita, Boyaca, Colombia; Cedula No. 15237742 (Colombia):
may also be USing Cedula No. 70753211 (Colombia) (individual) [SDNTK]
TORRES VICTORIA, Jorge (a.k.a. "Pablo Cataturnbo"): DOB 19 Mar 1953; POB Cali, Valle,
Colombia; Cedula No. 14990220 (Colombia) (individual) [SDNTK]
VARGAS PERDOMO, Eugenio (ak.a "Carlos Bolas;" a.k.a. DORNELES DE MENEZES,
Francisco): DOB 19 Nov 1969; POB Puerto Lopez, Meta, Colombia: Cedula No. 17344616
(Colombia) (individual) [SDNTK]
VARGAS RUEDA, Nelson (a.k.a. "Alfredo;" a.k.a. "Hugo"): DOB 27 Apr 1970; Cedula No.
77130763 (Colombia) (indiVidual) [SDNTK]
All financial assets and real property of:
AL-HARAMAIN FOUNDATION (aka AL-HARAMAIN • United States Branch: a.k.a. AL
HARAMAIN FOUNDATION, INC; a.k.a. AL-HARAMAIN HUMANITARIAN FOUNDATION,
a.k.a. AL-HARAMAIN ISLAMIC FOUNDATION: a.k.a AL-HARAMAYN; a.k.a. ALHARAMAYN FOUNDATION; a.k.a. AL-HARAMAYN HUMANITARIAN FOUNDATION, a k.a
AL-HARAMAYN ISLAMIC FOUNDATION; a.k.a. AL-HARAMEIN; a.k.a. AL-HARAMEIN
FOUNDATION: a.k.a. AL-HARAMEIN HUMANITARIAN FOUNDATION: a.k.a. ALHARAMEIN ISLAMIC FOUNDATION; a.k.a. ALHARAMAIN; a.k.a. ALHARAMAIN
FOUNDATION; a.k.a ALHARAMAIN HUMANITARIAN FOUNDATION; a.k.3. ALHARAMAIN
ISLAMIC FOUNDATION, a.k.a. ALHARAMAYN; a.k.a ALHARAMAYN FOUNDATION; a.k.a.
ALHARAMAYN HUMANITARIAN FOUNDATION: a.k.a. ALHARAMAYN ISLAMIC
FOUNDATION; 3.k.a. ALHARAMEIN: a.k.a. ALHARAMEIN FOUNDATION; a.k.3.
ALHARAMEIN HUMANITARIAN FOUNDATION; a.k.a. ALHARAMEIN ISLAMIC
FOUNDATION; a k.a. MU'ASSASAT AL-HARAMAIN AL-KHAYRIYYA; a.k.a. MU'ASSASAT
AL-HARAMA YN AL-KHA YRIYYA; a.k.a. MU'ASSASAT AL-HARAMEIN AL-KHA YRIYYA;
a.k.a. VAZIR; a.k.a. VEZIR), 1257 Siskiyou Boulevard, Ashland, OR 97520, U.SA, 3800
http://wwwtreas.gov/offices/enforcement/ofac!actions/2004021S,shtml
2/1/200S
P-764: OfAC Lifts Designation 01 Six Colombian Companies<br>Companies Seized and Forfeited b...
Page 1 of 1
10 vIew or pont tne /-'Ur content on tn/s page, aOwn/oaa tne tree {\GotJe® AcrotJat® Keaaer®.
JanualY 17. 2008
HP-764
OFAC Lifts Designation of Six Colombian Companies
Companies Seized and Forfeited by Colombian Government
The US. Department of the Treasury's Office of Foreign Assets Control (OFAC)
announced today the removal of six Colombian companies from its list of Specially
Designated Narcotics Traffickers Following their designation, the Colombian
Government forfeited the ownership interests held by narcotiCS traffickers and their
family members in each of these companies, paving the way for their delisting.
"Today's action reflects a major success in our efforts to strike at drug cartels and
their illicit riches," said OFAC Director Adam J. Szubln "OFAC's continued pressure
on the cartels' assets, combined with the Colombian Government's increasingly
successful efforts to seize and forfeit these assets, serves as a powerful weapon
agalilst these dangerous narcotiCS organizations"
OFAC listed these companies as Specially Designated Narcotics Traffickers In the
1990s because they were owned or controlled by Cali Cartel leaders Miguel and
Gllberto Rodriguez OreJuela along With their family members. These designations
were taken pursuant to Executive Order 12978 of October 21, 1995, which applies
financial sanctions against Colombia's drug cartels. The Rodriguez OreJuela
brothers were the leaders of ttle Cali drug cartel, once the most powerful cocaine
trafficking organization in Colombia. They are now serving prison sentences in the
United States after pleading guilty to federal narcotics trafficking and money
laundering charges In September 2006.
These SIX companies are IIlvolved In real estate holdings and are located in Call,
Colombia. The companies' names are: Invers/ones Miguel Rodriguez e Hijo,
InverSlOnes Rodriguez Arbelaez y CIa. S en C., InverslOnes Rodnguez Moreno y
Cia. S en C, Invers/ones y Construcc/ones Atlas Ltda, Inversiones y
Construcciones Cosmovalle Ltda., and MO.C Echeverry Hermanos Ltda.
A detailed look at the program against Colombian drug organizations is provided in
OF AC's March 2007 Impact Repo/1 on Economic Sanctions against Colombian
Drug Ca/1els.
http://www .treasury. gov/offices/enforcementlofac/reports/na rco _i m pact_report_ 05042007. pdf
http://www treas.gov/presslreleases/hp764 htm
2/112008
763: Treasury International Capit!11 (TIC) Data for August
Page 1 of 3
FROM THE OFFICE OF PUBLIC AFFAIRS
We recommend printing this release using the PDF file below.
To view or print the PDF content on this page. download the free Adobe® Acrobat® Reader®.
January 16. 2008
HP-763
Treasury International Capital (TIC) Data for November
Treasury International Capital (TIC) data for November are released today and posted on the U.S. Treasury web site (www.treas.gov/t
which will report on data for December, is scheduled for February 15, 2008.
Net foreign purchases of long-term securities were $90.9 billion.
• Net foreign purchases of long-term U.S. securities were $70.3 billion. Of this, net purchases by foreign official institutions were
purchases by private foreign investors were $58.6 billion.
• U.S. residents sold a net $20.6 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $79.7 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $36.t
holdings of Treasury bills increased $15.6 billion.
Banks' own net dollar-denominated liabilities to foreign residents increased $33.7 billion.
Monthly net TIC flows were positive $149.9 billion. Of this, net foreign private flows were positive $104.9 billion, and net foreign official
$45.0 billion.
-30-
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars, not seasonally adjusted)
2005
2006
12 Months Through
Nov-06
Nov-07 Aug-07
Sep
Foreigners' Acquisitions of Long-term Securities
1
2
3
4
5
6
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line 1 less line 2) /1
17157.5 21077.1
16145.9 19933.9
1011.5 1143.2
20456.9
19302.3
1154.6
29216.0
28216.1
999.9
3323.3
3359.3
-36.0
233
227
5
891.1
269.4
187.6
353.1
81.0
946.6
125.9
193.8
482.2
144.6
970.8
132.8
189.9
482.1
166.0
824.0
211.9
126.7
337.1
148.3
-11.7
26.9
4.3
-3.8
-39.1
2
1
8
Private, net /2
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
9
10
11
Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
120.4
68.7
31.6
196.6
69.6
92.6
183.8
69.4
79.9
175.9
-1.9
130.5
-24.2
-29.7
4.1
2
1
7
http://www treas.gov/presslreleases/hp763- htrn
1
211/2008
P-763: Treawry International Capital (TIC) Data for August
Corporate Bonds, net
Equities, net
19.1
1.0
28.6
5.8
28.2
6.3
45.2
2.1
3.0
-1.6
Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Securities to U.S. Residents
3700.0
3872.4
5515.9
5766.8
5352.5
5574.3
8089.0
8351.0
823.8
858.3
55
59
Foreign Securities Purchased, net (line 14 less line 15) /4
-172.4
-250.9
-221.8
-262.0
-34.5
-4
-45.1
-127.3
-144.5
-106.5
-118.5
-103.3
-147.1
-114.9
-21.7
-12.9
-I
-2
839.1
892.3
932.9
737.9
-70.5
-143.0
-169.9
-167.6
-187.3
-16.1
696.2
722.4
765.3
550.6
-86.6
-47.6
-58.9
146.2
-9.0
131.9
-21.7
193.6
29.4
33.7
21.0
-15.6
-43.3
16.1
-25.0
7.0
-28.7
30.5
-I.I
17.2
3.8
11.4
155.1
153.6
164.2
12.6
10.6
0.8
174.9
-19.8
163.0
-9.4
83.3
80.9
-14.7
27.4
16.4
198.0
249.5
-125.7
-97.6
-3
665.0
1066.5
1146.6
618.4
-150.5
-3
578.0
87.0
926.2
140.3
1031.3
115.3
343.3
275.1
-129.1
-21.4
-4
12
13
14
15
16
Foreign Bonds Purchased, net
Foreign Equities Purchased, net
17
18
19
Net Long-Term Securities Transactions (line 3 plus line
20
Other Acquisitions of Long-term Securities, net /5
21
23
24
25
26
27
28
29
-2
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
22
Page 2 of 3
Increase in Foreign HOldings of Dollar-denominated ShortU.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
Official, net
Change in Banks' Own Net Dollar-Denominated Liabilities
30 Monthly Net TIC Flows (lines 21,22,29) /8
of which
31
32
11
/2
/3
/4
/5
/6
17
/8
Private, net
Official, net
Net foreign purchases of U.S. securities (+)
Includes international and regional organizations
The reported division of net purchases of long-term securities between net purchases by foreign official institutions and
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and I O.a.4 on
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign s
Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United State
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securitil
estimated foreign acquisitions of U.S. equity through stock swaps estimated U.S. acquisitions of foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign (
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims al
quarterly and published in the Treasury Bulletin and the TIC web site.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or bro
TIC data cover most components of international financial flows, but do not include data on direct investment flows, wi'
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data SUI
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on
site describes the scope of TIC data collection.
http://wwwtreas.gov/presslreleases/hp76J.htm
2/1/2008
763: Treasury International Capital (TIC) Data for August
Page 3 of 3
REPORTS
• (PDF) TIC Monthly Reports on Cross-Border Financial Flows (Billions of dollars, not seasonally adjusted)
http://wwwtreas.gov/presslreleases/hp763.htm
211/2008
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
9 a.m. (EDT), January 16, 2007
CONTACT Brookly McLaughlin, (202) 622-2920
EMBARGOED UNTIL
TREASURY INTERNATIONAL CAPITAL DATA FOR NOVEMBER
Treasury International Capital (TIC) data for November are released today and posted on the U.S.
Treasury web site (www.treas.gov/tic).Thenextrelease.whichwillreportondataforDecember.is
scheduled for February 15, 2008.
Net foreign purchases of long-term securities were $90.9 billion.
•
Net foreign purchases oflong-term U.S. securities were $70.3 billion. Of this, net purchases
by foreign official institutions were $11.8 billion, and net purchases by private foreign
investors were $58.6 billion.
•
U.S. residents sold a net $20.6 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been $79.7 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities increased $36.5 billion. Foreign holdings of Treasury bills increased $15.6
billion.
Banks' own net dollar-denominated liabilities to foreign residents increased $33.7 billion.
Monthly net TIC flows were positive $149.9 billion. Of this, net foreign private flows were positive
$104.9 billion, and net foreign official flows were positive $45.0 billion.
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars., not seasonally adjusted)
2006
12 Months
Nov-06
17157.5 210nl
16145.9 19933.9
1011.5
1143.2
2005
Throu.~h
Nov-07
Aue-07
Sep-07
Oct-07
Nov-(J7
20456.9
193023
1154.6
29216.0
28216.1
999.9
3323.3
3359.3
-36.0
2332.7
227(,.6
56.2
2671.9
2553.8
118.0
2886.6
2816.2
70.3
Foreigners' Acquisitions of Long-term Securities
I
2
3
Gross Purchases of Domeslic U.S. Secunlies
Gross Sales of Domestic U.s Securilies
Domestic Securities Purchased, net (line I less Itne 2) II
4
5
6
7
8
Private. net /2
Treasury Bonds & Notes, net
Gov't Agency Bonds. net
Corporate Bonds. net
Equities. net
891.1
269.4
187.6
353.1
81.0
946.6
125.9
193.8
482.2
144.6
970.8
132.8
189.9
482.1
166.0
824.0
211.9
126.7
337.1
1483
-11.7
26.9
4.3
-3.8
-39.1
27.9
11.6
2.3
11.4
25
96.2
45.9
4.8
15.7
29.9
58.6
23.2
20.6
10.6
4.1
9
10
II
12
13
Official, net /3
Treasury Bonds & Notes, nel
Gov't Agency Bonds. net
Corporale Bonds, net
EqUities. net
120.4
68.7
31.6
19.1
1.0
196.6
69.6
92.6
28.6
5.8
183.8
69.4
79.9
28.2
6.3
175.9
-1.9
130.5
45.2
2.1
-24.2
-29.7
4.1
3.0
-1.6
28.3
14.4
9.2
4.6
0.1
21.8
40
10.0
7.4
0.4
11.8
0.4
6.0
4.9
0.5
3700.0
3872.4
-172.4
5515.9
5766.8
-250.9
5352.5
5574.3
-221.8
8089.0
8351.0
-262.0
823.8
858.3
-34.5
557.8
598.8
-41.0
8094
813.5
-4.1
728.7
708.1
20.6
-45.1
-127.3
-144.5
-106.5
-118.5
-103.3
-147.1
-114.9
-2 J.7
-12.9
-19.7
-21.3
-9.1
5.0
11.0
9.6
839.1
892.3
932.9
737.9
-70.5
15.2
114.0
90.9
-143.0
-169.9
-167.6
-187.3
-16.1
-20.6
-12.5
-11.2
696.2
722.4
765.3
550.6
-86.6
-5.5
101.5
79.7
-47.6
-58.9
-15.6
-433
146.2
-9.0
16.1
-25.0
131.9
-21.7
7.0
-28.7
193.6
29.4
30.5
-1.1
33.7
21.0
17.2
3.8
5.4
-6.5
-4.7
-1.8
31.9
9.0
6.9
2.2
36.5
15.6
10.8
4.8
11.4
10.6
0.8
155.1
174.9
-19.8
153.6
1630
-9.4
164.2
83.3
80.9
12.6
-14.7
27.4
11.9
3.0
8.9
22.9
2.9
20.0
20.9
3.6
17.3
16.4
198.0
249.5
-125.7
-97.6
-31.5
-41.3
33.7
665.0
1066.5
1146.6
618.4
-150.5
-31.5
92.2
149.9
578.0
870
926.2
140.3
1031.3
1153
343.3
275.1
-129.1
-21.4
-44.7
13.1
50.5
41.6
104.9
45.0
14
15
16
17
18
Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less line 15) /4
Foreign Bonds Purchased. net
Foreign Equities Purchased, nel
19
Net Long-Term Securities Transactions (line 3 plus Ime 16):
20
Other Acquisitions of Long-term Securities, net /5
21
Net Foreign Acquisition of Long-Term Securities
(lmes 19 and 20):
27
28
Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: /7
Pri vate. net
Official, net
29
Change in Banks' Own Net Dollar-Denominated Liabilities
22
23
24
25
26
30 Monthly Net TIC Flows (lines 21.22.29) /8
of which
31
Pri vate. net
32
Official, net
II
12
13
14
/5
/6
17
/8
Net foreign purchases of U.S secufltles (+)
Includes internatIOnal and regIOnal organizations
The reported diVision of nel purchases of long-term secuflties between net purchases by foreign offiCial institutions and net purchases
of other foreign investors is subject to a "transaction bras" descrrbed in Frequenlly Asked Quesllons 7 and I O.aA on the TIC web site.
Net transactIOns in foreign securities by U.S. reSidents. Foreign purchases of foreign securities == U.S. sales of foreign securities to foreigners
Thus negative entries indicate net U.S. purchases of foreign securities. or an outflow of capital from the United States: positive entries
indicate net US. sales of foreign securities.
Minus estimated unrecorded prinCipal repayments to foreigners on domestic corporale and agency asset-backed secuntles +
eSlimated foreign acqUISitions of US. equity through stock swaps estimated U.S. acquisitions of foreign equity through stock swaps +
increase m nonmarketable Treasury Bonds and Notes Issued to OtT,cial Institutions and Other ReSidents of Foreign Countnes.
These are primarily data on monthly changes In banks' and broker/dealers' custody liabilities. Data on custody claims are collecled
quarterly and published 10 Ihe Treasury BulletlO and the TIC web Site
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or broker/dealers.
TIC data cover most components of I11ternalional finanCial flows. but do not include data on direct investment flows. which are collected
and publIShed by the Departmenl of Commerce's Bureau of Economic AnalySiS In addition to the monthly data summaflzed here.lhe
TIC collects quarterly data on some banking and nonbank 109 assels and liabilities. Frequenlly Asked Question I on the TIC web
site describes the scope of TIC data collection.
2
761: Remarks hy Treasury Under Secretary David H. McConnick<br>on China's Journey to Enviro ... Page I of 5
January 14,2008
HP-761
Remarks by Treasury Under Secretary David H. McCormick
on China's Journey to Environmentally Sustainable Growth
at the West Coast Leadership Dialogue 2008
La Jolla, Calif, - Thank you Phil for that warm introduction, and thank you to the
Australian American Leadership Dialogue and the School of International Relations
and PacifiC Studies at UC San Diego for inviting me to speak with you today. Both
the Leadership Dialogue and the School of International Relations arose over the
final two decades of the 20 111 Century to meet the compelling need to engage the
best business, scientific and, yes, even government minds, to think though the
major economic issues facing the United States, Australia, and the Pacific Rim.
The 2008 West Coast Leadership Dialogue is perfectly timed to fulfill this mission.
The United States and Australia together face an Asia in transition. Economic
dynamism has created unprecedented opportunities, but at a high cost in energy
demand and related environmental damage. The challenge is espeCially great With
respect to China As we have in the past, we must work together to capture these
opportunities and meet these challenges. Under the leadership of President
George Bush and Prtme Minister Kevin Rudd, we are doing so.
The Importance of Multilateral Engagement
No one can doubt the seriousness of the dual challenges of energy-driven
development and climate change. Last November's report by the United Nation's
Intergovernmental Panel on Climate Change - the Fourth Assessment report concluded, and I quote, that: (1) "warming of the climate system is unequivocal, as
is now evident from observations of increases in global average air and ocean
temperatures, widespread melting of snow and Ice, and rising global average sea
level": that (2) "most of the observed warming over the last 50 years IS likely to have
been due to the increase in greenhouse gas concentrations": and, that (3) "global
greenhouse gas emissions due to human activities have .. [increased) 70%
between 1970 and 2004".
Climate change is a global challenge that requires global solutions, and President
Bush's strategy reflects thiS reality. Thus, at the December meeting of the United
Nations Conference on Climate Change in Bali, the United States focused on
practical steps to set the stage for a global, comprehensive and effective post-2012
climate change agreement
In Bali, the U.S. had three main objectives'
First, to reach consensus on launching negotiations for the development of a post2012 climate change agreement
Second, to agree on a comprehensive negotiating roadmap that would include the
prospect of meaningful actions by both developed and developing countries to
tackle the climate change challenge
And, third, to agree on a schedule for the negotiations, with the goal of reaching an
agreement by the end of 2009.
I am pleased that we and our Bali partners met these objectives in the Bali
Roadmap, a document adopted by 192 countries, developed and developing alike,
accounting for almost all of the human sources of climate change. It was not easy,
as you know. But the process proved Its value, as over the course of twelve days
we were all able to air our perspectives, debate our approaches, and move to a
http://wwwtreas.gov/presslreleases/hp761.htm
2/112008
761: Rem~rks hy Treasury Under Secretary David H. McCormick<br>on China's Journey to Enviro... Page 2 of 5
hard won and deeply rooted consensus. Now, as we move forward with future
negotiations, there can be no question that the United States IS committed to
working with other countries to achieve a global approach that IS both
environmentally effective and economically sustainable.
President Bush is already taking a number of practical steps to achieve this goal. A
cornerstone of this effort IS the "Major Economies Process," in which the United
States convenes the world's major economies - Including Australia and China -- to
contribute to a new global arrangement under the United Nations' process The
US hosted the first of these Major EconorTlies Meetings last September, and It
Included 17 major economies responsible for more than 80% of the world's
economic output, energy use, and greenhouse gas emissions to discuss the
development of a work program that can contribute to what became key elements
of the Bali Roadmap. Additional meetings to sustain this momentum are scheduled
for Honolulu in late January followed by a meetrng later thiS Spring in France.
One of the critical inSights fueling this process is the central role of technology in
achieving what are often perceived to be the competing priorities of energy-driven
economic development and environmental sustainability.
Developed countries have access to state of the art technology that drives
economic growth while redUCing emiSSions that contribute to climate change and
other sources of pollution. I am not referrrng to esoteric alternative energy
technologies that are five, ten, even twenty years or more from deployment, but
rather to eXisting commerCially-available technologies that are being deployed
today in the United States, Australia, Europe, and elsewhere to mitigate the
environmental impact of economic growth.
However, despite the viability and availability of these technologies, they are not
being Widely adopted in many emerging economies. The reason is simple advanced technology IS expensive When vieWing the full range of demands on
fragile budgets, leaders in developing countries have to consider pressing demands
such as education or health care as well as energy. There is a premium on
redUCing costs to the lowest-cost alternatives to stretch funds to cover as many
needs as possible At this point In their development, many believe they don't have
the luxury of investing in environmental sustainabillty.
The growing global demand for energy will reqUire enormous investments in
technology and infrastructure. The International Energy Agency, for example,
estimates that some $22 trillion Will be Invested in energy-supply infrastructure
alone between 2006 and 2030, with $10 trillion of that sum being invested in the
developing world. Estimates of the incremental cost necessary to ensure that these
investments are made in lower carbon infrastructure vary, but among developing
nations, It could be $30 billion or more per year. That's $30 billion these countries
need for technologies that are available today to fuel growth in an environmentally
friendly way.
To put a dent in this funding gap - and catalyze private sector Investment -President Bush has proposed the creation of an International Clean Technology
Fund. The United States will be one of the lead donors in what is expected to be a
multi-billion dollar fund to help finance the cost of cleaner technology Investment In
developrng countries. The objectives of thiS fund are to
(1) Reduce emissions growth in major developing countries through the accelerated
deployment of clean technologies;
(2) Stimulate private sector capital by making challenging, high impact clean energy
projects more attractive investments: and,
(3) Encourage major emerging economies to partiCipate In a new global climate
framework and adopt environmentally-friendly policies and investments.
We have already held discussions with potential donors for this fund, and we look
forward to establishing it later this year.
The Key to the Challenge. China
http://www treas.gov/presslreleases/hp761.l'Itm
2/1/2008
761: Remarks hy Treasury Under Secretary David H. McCormick<br>on China's Journey to Enviro ... Page 3 of 5
The widespread adoption of clean technology is one component of a durable
solution to the challenge posed by climate change and energy-driven development.
But the overall success of this effort hinges upon the question of how cooperation
between the developed and developing world will unfold. It IS no secret to any In
this room that no developing country looms larger In thiS equation than China.
China's economic development IS a signature event of the past three decades.
Averaging more than 8 percent per year over this time, China's growth has lifted
hundreds of millions of people out of poverty and reshaped the international
economy. But it has been fueled by a rapid Increase in energy consumption.
Today, China IS the world's second largest consumer of 011 with ItS oil consumption
growing by half a million barrels a day in 2006 -- 38°Ir, of the total growth in global
demand.
The Impact of China's energy demands has not been limited to 011 China IS also
the world's largest producer and consumer of coal Although China contains only
13% of the world's proven coal reserves, over the last decade It has been
responSible for nearly 40% of total global consumption, generally used to expand
China's electrical generating capacity. In 2007, China added 95 gigawatts of
electrical generating capacity - that's the equivalent of three new 500-megawatt
coal-fired power plants every week, or roughly half of California's total electrical
consumption last year
China's rapid economic growth has come at a terrible cost to its air, water, and SOil.
Sixteen of the world's 20 most polluted cities are in China. Water quality in China
has deteriorated Significantly, with 26% of surface water being totally unusable,
62% of water being unsuitable for fisll, and over 90% of all rivers running through
cities suffering significant pollution. And by its own account, China is overtaking the
United States as the world's largest source of greenhouse gases even though its
economy IS only one sixth in size
I was able to see an example of China's environmental challenges first hand last
summer when I accompanied Treasury Secretary Hank Paulson to ~inghai Lake of
China's Western Plateau. Located in the northwest of China, seven of the world's
great rivers originate on the Plateau which serves as a primary water source for
much of Asia. However, China's Western Plateau and the Oinghai Lake area are in
trouble. Over the last thirty years, the lake has started to shrink dramatically, the
desert has started to encroach on the surrounding lands, and glaciers situated in
the Plateau have been melting at an accelerated pace The economic and
envlronmen\allmpllcatlons of tillS phenomenon are staggering.
Even some efforts to find cleaner sources of energy have had an environmental
boomerang. Take the Three Gorges Dam proJect. The dam is a remarkable piece
of engineering, standing out as the world's largest man-made source of electriCity
generation from renewable energy. Yet the dam has created extensive
environmental problems such as water pollution and landslides, and has come at a
tremendous human cost, with the displacement and relocation of over one million
people. The dam demonstrates how solVing one problem may result in other
problems Just as significant.
Fostering Bilateral Cooperation iJetween the United States and China
The challenge facing China IS qUite clear. But make no mistake, this challenge is
ours as well - extendtng to the United States, Australia, and other Pacific Rim
nations. The actions we take together are crucial for finding sustainable solutions
to global energy demand, global energy security, and global warming.
The United States is stepping up to the challenge. Since 2006, Secretary Paulson
has led the United States in senior-level discussions With the Chtnese government
In the U.S.-China Strategic Economic Dialogue, or the SED. ThiS dialogue has
allowed the United States and China to address long-term strategic Issues, ranging
from financial sector reform to food and product safety to energy and the
environment.
Due to the thirst for energy and natural resources In both of our countries, the
United States and China have common objectives In advanCing technology
development and deployment, best practices regarding energy security and
http://www treas.gov/presslreleases/hp761.htrn
2/1/2008
761: Renl~rks by Treasury Under Secretary David H. McConnick<br>on China's Journey to Enviro ...- Page 4 of 5
efficiency, and environmental stewardship. Our goal In discussions with the
Chinese has been to seize this opportunity, and we have made progress
Agreements have included:
•
•
•
•
A commitment by the Chinese, with technical support provided by the
United States, to develop and Implement a nationwide program on sulfur
dioxide emissions trading in the power sector, aimed at reducing one of the
key contributors to acid rain and fine particle pollution:
A joint five-year agreement to promote the large scale deployment of
alternative fuel technologies for vehicles, including electriC, hybnd-electric
and fuel cell technologies:
Strengthened cooperation on strategic oil reserves, Includlllg cooperation
with the International Energy Agency; and,
A memorandum of unders\andlllg \0 combat Illegal logglllg and \0 promote
sustainable forest management
As thiS list demonstrates, China also recognizes that It needs to act and act now on
its environmental and energy agenda. Indeed, late last year the Chinese
government made public its comprehenSive plan for addressing many of its
environmental challenges.
It is in America's national interest to help China turn its plan into effective and timely
action. It is for this reason that at the SED last December, we agreed to launch a
ten-year plan for cooperation on energy and environment Issues
This plan provides a path for advanCing technological innovation, facilitating the
adoplion of clean energy technology, developing technology to address climate
change, and promoting the sustainability of natural resources. It will build on
current efforts underway in both countries by implementing practical steps in areas
such as conservation, pollution abatement, technology and R&D, and the
development of sound market-oriented environmental and energy policies and
regulations. Thus, with this plan, the United States can help the Chinese to make
their environmental efforts as effective as possible, as quickly as possible.
Each of these areas holds promise. In conservation, thiS could lead to further
progress on combating Illegal logging and sharing expertise on protected lands. In
pollution abatement. this could result in market-oriented policies to combat
pollutants and improve China's water quality. In research and development, we
would hope to see increased academic exchanges between our two countries and
the commerCialization of alternative energy sources. And in the development of
sound market-Oriented energy and environmental policies and regulation, we aspire
to, among other things. the elimination of barriers to the trade in enVIronmental
goods and services.
We are In the process of setting up a Joint U.S.-China working group, with Cablnetlevel leadership, to get our ten-year plan off to a strong start. Ultimately, the
success of thiS effort will be Judged by effective enVIronmental protection and
increased energy security while ensuring continued economic growth.
Conclusion
When future scholars write the history of the twenty-first century, they will judge
how we in the United States. Australia and the rest of the developed world
cooperated with China and other major emerging economies to solve the enormous
challenges posed by climate change and energy-driven economic development.
The Bali Roadmap. the Major Economies process, the Clean Technology Fund, and
the U.S.-China ten-year plan collectively represent an important starting point for
how the United States and the international community can address these
challenges.
The Chinese often say that the Journey of a thousand miles begins with a Single
step. Well, we have now taken more than a single step, although there are
thousands yet to go. The time is now for leadership to ensure we reach our final
destination of a clean and prosperous world.
http://wwwtreas.gov/presslreleases/hp761.htm
2/1/2008
P-764: OfAC Lifts Designation 01 Six Colombian Companies<br>Companies Seized and Forfeited b...
Page 1 of 1
10 vIew or print tne f-JUI- content on tnlS page. Oownloao tne Tree AOOIJe® AcroIJat® KeaOerV3J.
January 17, 2008
HP-764
OFAC Lifts Designation of Six Colombian Companies
Companies Seized and Forfeited by Colombian Government
The US Department of the Treasury's Office of Foreign Assets Control (OFAC)
announced today the removal of six Colombian companies from its list of Specially
Designated Narcotics Traffickers. Following their designation, the Colombian
Government forfeited the ownership interests held by narcotics traffickers and their
family members In each of these companies. paving the way for their delisting.
"Today's action reflects a major success In our efforts to strike at drug cartels and
their illiCit riches," said OFAC Director Adam J. Szubin. "OFAC's continued pressure
on the cartels' assets, combined with the Colombian Government's increasingly
successful efforts to seize and forfeit these assets, serves as a powerful weapon
against these dangerous narcotiCS organizations."
OFAC listed these companies as SpeCially Designated Narcotics Traffickers in the
1990s because they were owned or controlled by Cali Cartel leaders Miguel and
Gilberto Rodriguez Orejuela along with their family members. These designations
were taken pursuant to Executive Order 12978 of October 21, 1995, which applies
financial sanctions against Colombia'S drug cartels. The Rodriguez Orejuela
brothers were the leaders of the Call drug cartel, once the most powerful cocaine
trafficking organization in Colombia. They are now serving prison sentences in the
United States after pleading guilty to federal narcotics trafficking and money
laundering charges In September 2006.
These six companies are Involved In real estate holdings and are located in Call,
Colombia. The companies' names are: Inverslones Miguel Rodnguez e Hijo,
InverslOnes Rodnguez Arbelaez y CIa. S en C, InverslOnes Rodnguez Moreno y
Cia. S. en C, Inversiones y Construcclones Atlas Ltda., Inversiones y
Constweciones Cosmo valle Ltda .. and MO. C Echeverry Hermanos Ltda.
A detailed look at the program against Colombian drug organizations is provided in
OFAC's March 2007 Impact Repol1 on Economic Sanctions agall7st Colombian
Drug Cal1els.
http://www .treasu ry. gov/offices/enforcement/ofac!reports/na rco _i m pact_report _ 05042007. pdf
http://www treas.gov/presslreleases/hp764 htm
2/1/2008
P-765: Secr~tary Paulson Statement on HOPE NOW Progress Report
Page 1 of 1
January 18, 2008
HP-765
Secretary Paulson Statement on HOPE NOW Progress Report
Washington- Secretary Henry M. Paulson, Jr. Issued the following statement today
regarding the HOPE NOW alliance's progress report on the number of homeowners
helped since the organization's Inception. The report indicated that during the fourth
quarter, following the creation of the alliance, mortgage servicers in the organization
were modifYing subprime loans three times faster than in the third quarter. The
industry assisted 370,000 homeowners during the second half of 2007. Additionally,
more than 16 percent of borrowers responded to 233,000 HOPE NOW outreach
letters sent in November by contacting their serVlcers, far more than the normal
letter response rate of 2-3 percent for delinquent borrowers.
"The HOPE NOW repol1 today IS a promising development. ThiS organization IS
shOWing the potential to help more homeowners keep their homes and working to
prevent a market failure- without forCing American taxpayers to pay the bill.
"As I have said, entire industries do not adjust easily or quickly, even in limes of
market calm. But this alliance is demonstrating that an industry can improve its
coordination and outreach to make a difference.
"Thls progress is heartening and I look forward to seeing regular progress reports
from the organization in the coming months, as servicers implement the streamlined
modification and refinance plan announced in December. We will continue to learn
as we move forward and will look for additional measures to reach more borrowers
to prevent as many avoidable foreclosures as possible
H
http://wwwtreas.gov/presslreleases/hp765.htm
211/2008
P-766: Statvnent by Secretary Hemy M. Paulson, Jr. <br>on Short-Term Growth Package<br>at Whi... Page 1 of 1
January 18, 2008
HP-766
Statement by Secretary Henry M. Paulson. Jr.
on Short-Term Growth Package
at White House Press Briefing
Washington, DC--Before the President left for the Middle East, he told the nation
he recognized the growing concerns about the economy and he asked his
economic team to assess the need for a growth package. I talked with
knowledgeable people in all parts of the economy, and reviewed the data with the
economic team, and we regularly reported our thinking to the President while he
was traveling When he returned, he made the decision that we need to act quickly
to support the economy in the short term.
The long-term fundamentals of the economy are strong, and I believe our economy
will continue to grow. At the same time, the US. economy is experienCing a
significant housing correction. This correction was Inevitable after years of
unsustainable home price appreciation, and it is exacting a penalty to our economic
growth. We are taking steps to minimize the impact on homeowners and the real
economy, and we will continue to work with Congress to do more on housing.
The housing correction, capital market turmoil, and high oil prices together have
caused our economy to slow materially in recent weeks. While I am confident in our
long-term economic strength, the short term risks are clearly to the downside, and
the potential cost of not acting has become too high. We must act now to support
our economy thiS year.
The PreSident laid out today clear principles that should gUide the creation of an
effective growth package. We are focused on working With Congress to quickly
reach consensus on a plan that gets cash to consumers and gives businesses
incentives to Invest, grow and hire. We know from experience that these policies
work to stimulate growth In the short term. The package should be robust enough to
make an impact this year, and should be temporary so that it doesn't impact our
long-term fiscal position.
Over the last few weeks, I consulted With the leaders In Congress and a broad
group of members In both parties to gather their views I heard from them the same
thing the President heard from them yesterday - our economy is slowing faster than
expected, and that means we need to act qUickly to put together a package that is
temporary, simple enough to get enacted quickly, effective at boosting growth and
Job creation thiS year and large enough to make a difference.
I am confident that the principles the PreSident outlined today are a solid foundation
on which to build - they reflect the prinCiples members of Congress have advocated
publicly and have discussed with me privately in recent weeks. I look forward to
engaging with Congressional leaders Illlmediately to support our economy thiS
year.
http://wwwtreas.gov/presslreleases/hp766.htm
2/112008
767: Secretary P~ulson Remarks on the Economy<br> Before the U.S. Chamber of Commerce
Page 1 of 3
January 22,2008
HP-767
Secretary Paulson Remarks on the Economy
Before the U.S. Chamber of Commerce
Washington- Thank you. Bruce, and good morning. It is good to be here for an
early start to what will be a busy. and I hope productive, week. On Friday. President
Busll announced his outline of an Immediate and meaningful fiscal growth package
that will boost consumer spending and support business investment this year. The
President and his economic team have been tracking economic signals closely for
some time now. and I and my team have been actively engaged with pollcymakers
here and around the world as we closely monitor the global equity correction. I
continue to have confidence in tile underlying strength of the global economy.
The US. economy is experiencing a significant housing correction. This was
Inevitable after years of unsustainable home price appreCiation, and It is exacting a
penalty to our economic growth. That, coupled with high energy prices and capital
market turmoil has caused our economy to slow matenally in recent weeks.
We are already taking aggressive action to minimize the impact on homeowners
and tile real economy by preventing avoidable foreclosures. We will continue to
work with Congress to do more on housing. At the same time, we will work with
Congress to quickly enact a broader temporary growth package to support our
economy this year, as we weather the housing correction. The President has asked
me to lead this effort, and so far we are engaged in a collaborative, bipartisan
process that should result In a robust, broad-based, temporary growth plan that can
be swiftly passed and enacted.
The U.S economy is resilient. The unemployment rate remains low and Job
creation continues. albeit at a modest pace. The structure of our economy is sound
and our long-term economic fundamentals are healthy. I have visited countries all
over the world. and the more I see the more sure I am that America's workers are
the most productive and innovative anywhere. But we need to do something now.
because the short-term nsks are clearly to the downside, and the potential benefits
of quick action to support our economy have become clear.
SpeCifically. the President called for a robust package that is large enough to have
a real impact on our economy and will bolster consumer spending and business
investment this year. We know from experience that both immediate tax relief for
income tax payers and Incentives for businesses to invest and hire are effective in
creating growth and Jobs in the short-term.
I spent much of last week and thiS weekend talking with Republican and
Democratic congressional leadership and members of Congress from across the
nation. These positive discussions have revealed broad agreement on the need to
quickly enact a temporary plan that boosts our economy this year.
The President's outline reflects ideas from these consultations and represents a
solid foundation for cooperation Time is of the essence, and the President stands
ready to work on a bipartisan basIs to enact economic growth legislation as soon as
possible.
I am optimistiC that we can find common ground and get this done long before
winter turns to spring By working together. we can disprove the old WaShington
aXiom that partisan politics prevents most short-term growth packages from being
enacted fast enough to do any good.
Four criteria will guide my efforts gOing forward As the President said, the
legislation that will best serve our economic interest must be SWift, robust. broad-
http://www treas.gov/presslreleases/hp767.l-ttm
211 12008
767: Secretary Paulson Remarks on the Economy<br> Before the U.S. Chamber of Commerce
Page 2 of3
based and temporary.
It must be swift. The legislation must be enacted qUickly, and the elements of the
legislation must have immediate Impact. If we miss this, we miss the mark.
It must be robust. The President proposed a package approximating one percent of
GOP --- anything less than that will not have a meaningful impact. Raising taxes to
offset these initiatives will diminish potential Job creation and growth benefits. The
last thing we should do right now is take money out of the economy.
It must be broad-based. To be effective, the package must reach a large number of
citizens. To move quickly through the legislative process, we should keep this
proposal simple. Debates over faVOrite programs will inevitably bog down the
process. We want to act in time to help families get through a tough economic time.
And, finally, it must be temporary, to avoid impacting our long-term fiscal position.
Our focus on short-term growth does not supersede or minimize our commitment to
the economic poliCies which we know to be In our country's long-term best interest --- a pro-growth tax system, entitlement reform and a balanced budget. We will
continue to advocate making the President's tax relief permanent, balancing the
budget, and addressing the long-term sustainability of Social Security and
Medicare. To succeed in quickly enacting a short-term growth package. I am
confident Congressional leaders agree that the debate over these longer-term
issues will proceed apart from thiS effort.
In addition, the Admlflistratlon contlflues our on-gOlflg efforts to minimize the
houslflg market's impact We have made progress. Last Friday the HOPE NOW
alliance, a coalition representing over 90 percent of the subprime servicing market,
as well as non-profit mortgage counsellflg organizations, trade aSSOCiations and
Iflvestors, announced promising developments. This industrY-Wide effort employs
multiple tools to reach and help struggling homeowners, includlflg streamlinlflg
subprime borrowers IfltO refinancings and loan modifications. According to HOPE
NOW, the industry assisted 370,000 homeowners In the second half of 2007, and
mortgage servicers modified subprime loans during the fourth quarter at a rate
three times faster than In the third quarter.
As I have said, entire industries do not adjust eaSily or quickly, even when markets
are calm. This alliance is demonstratlflg that an industry can, through coordination,
make a difference and do so without forcing American taxpayers to pay the bill. I
look forward to regular progress reports in the coming months. As we learn more,
we will look for additional measures to reach more borrowers and prevent as many
aVOidable foreclosures as possible.
The Administration has also, through FHASecure, expanded affordable mortgage
options. Working with Congress, we have increased funding for mortgage
counselors who assist struggling homeowners. We have also temporarily eliminated
taxes on forgiven mortgage debt. But more action IS needed in the housing sector,
action Just as urgent as a broader short-term economic boost.
Congress needs to pass legislation to modernize the FHA, to increase availability of
affordable FHA mortgages It needs to strengthen regulatory overSight of Fannie
Mae and Freddie Mac to ensure they will continue to fulfill their affordable mortgage
flnanclflg miSSion. And as part of thiS reform, to temporarily raise the loan limit on
conforming mortgages for securitization Congress should also allow states to Issue
tax-exempt bonds to raise funds for innovative reflflancing programs.
I am confident that Congress and the Administration share a sense of urgency and
will work together to address the economy's short-term needs. I look forward to
engaging intensely with the Congress to get money into our economy qUickly.
The U.S. economy is resilient and diverse. It has been remarkably robust in recent
years, and Will be so agam. Yet, neither today nor tomorrow should our economic
health be a partisan issue. It is a shared, fundamental responSibility of all leaders
who want continued opportunity and prosperity for all Americans.
http://wwwtreas.gov/presslreleases/hp767.htm
2/112008
768: Statement by Secretary Paulson on Executive Order <BR>Concerning Foreign Investment in t...
Page 1 of 1
January 23, 2008
HP-768
Statement by Secretary Paulson on Executive Order
Concerning Foreign Investment in the United States
"Foreign Investment plays an Important role in maintaining America's economic
stl'ength. When foreign companies invest In the United States, they are sending a
clear Signal of confidence In the American economy and American workers. The
President's Executive Order today strengthens the process of the Committee on
Foreign Investment in the United States (CFIUS) and will ensure that all appropriate
federal agencies rigorously review potential foreign investments with national
security implications The Executive Order makes clear that America remains open
to investment, consistent with the protection of our national security."
http://wwwtreas.gov/presslreleases/hp768.htm
2/lI2008
·769: US Financial Seetor Pandemic Flu Exercise <br>Prompts Enhanced Industry Preparations
Page 1 of 2
January 24, 2008
HP-769
US Financial Sector Pandemic Flu Exercise
Prompts Enhanced Industry Preparations
Washington- The U.S. Department of the Treasury, the Financial Services Sector
Coordinating Council for Critical Infrastructure Protection and Homeland Security
(FSSCC), and the Financial and Banking Information Infrastructure Committee
(FBIIC) today released the the In-deplh results of the FBIIC/FSSCC Pandemic Flu
Exercise of 2007.
The report builds off initial test results released In October, providing a thorough
examination of the industry's plans during a pandemic outbreak. Results compare
industry responses on issues including plans for telecommuting, stockpiling
equipment and anti-virus medication, and other continuity measures. Most
importantly, exercise results demonstrate that while there may be significant
impacts to the financial services sector during a pandemic outbreak, the sector
overall will continue to operate and cope with these impacts.
"The results of this report demonstrate the clear need for conducting this exercise,"
said Treasury Deputy Assistant Secretary Valerie Abend. "Even businesses that
had pandemic plans in place found that a global avian flu outbreak poses complex
issues and were able to identify areas where more work was needed."
The exercise, conducted between September 24 and October 12, 2007, was the
largest pandemic exercise ever held for financial services industry. The Treasury
Department, in partnership with FSSCC and FBIIC, and the Securities Industry and
Financial Management Association (SIFMA) sponsored the sector-wide pandemic.
The exercise highlighted the need for organizations to include pandemic-specific
focus in their overall business continuity planning efforts. At the start of the
exercise, more than one-third of participants stated that they had not yet developed
pandemic-specific business continuity plans. However, after the exercise 91
percent of participants said they would apply lessons they learned from the exercise
to a refinement of their organizations' business continuity plans.
The exercise was specifically designed to stress test the business continuity plans
of the more than 2,700 participating organizations. This exercise simulated
absentee rates at up to 49 percent across the country. Critical infrastructures that
the sector relies on were also stressed resulting in notable service degradation.
By providing an opportunity to test plans, identify systemic risks and critical
dependencies on other sectors through this exercise, 99 percent of exercise
participants felt that the exercise met its objectives and was useful in assessing
their pandemic planning needs. As a result, the exercise provided the participants
the opportunity to examine key crisis management issues, foster strategic thinking,
and strengthen the sector's overall preparedness.
"The exercise identified a number of issues that can be addressed to further
strengthen the sector's resiliency," said George S. Hender, Chairman of FSSCC.
"Each organization needs to look at the lessons learned from the exercise and
incorporate the appropriate enhancements to their pandemic planning."
The full After-Action Report of the FBIIC/FSSCC Pandemic Flu Exercise can found
at http://www .treasu ry. gov/offices/domestlc-finance/financial- insti tution/cip/flu .shtml.
http://www treas.gov/presslreleases/hp769.hfm
6/20/2008
P-769: US Finaneial Seetr,r Pandemic Flu Exercise <br>Prompts Enhanced Industry Preparations
Page 2 of 2
About FSSCC:
The Financial Services Sector Coordinating Council for Critical Infrastructure
Protection and Homeland Security (www.fsscc.org) is a group of more than 30
private-sector firms and financial trade associations that works to help reinforce the
financial services sector's resilience against terrorist attacks and other threats to the
nation's financial infrastructure. Formed in 2002, FSSCC works with the
Department of Treasury, which has direct responsibility for infrastructure protection
and homeland security efforts for the financial services sector, while also serving
under the overall guidance of the Department for Homeland Security.
About FBIIC:
The Financial and Banking Information Infrastructure Committee (FBIIC) is
chartered under the President's Working Group on Financial Markets and is
charged with improving coordination and communication among financial
regulators, enhancing the resilience of the financial sector, and promoting the
public/private partnership. The Treasury's Assistant Secretary for Financial
Institutions chairs the committee.
http://wwwtreas.gov/presslreleases/hp769.htm
6120/2008
S. Treasury - Office of Domestic Finance - Office of Critical Infrastructure Protection and Complianc... Page 1 of 1
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-- - - - .. --- '''--'''- ..... _. -. -_. - --- -_._ .. _------_.. - -_._.--. ._----_._-FBIIC-FSSCC PANDEMIC FLU EXERCISE OF 2007
< BACK
Date
Title
01/24/2008
After Action Report: Pandemic Flu Exercise lEI
06/19/2007
FBIIC-FSSCC Financial Sector Pandemic Exercise Information from
September 24 - October 12, 2007
05/24/2007
Treasury to Help Industry Test Pandemic Outbreak Response
treasury .gov/offices/domestic- fi nance/financial- institution/ ci plfl u.shtml
Last Updated: January 24, 2008
2/1/2008
Page I of I
May 24, 2007
HP-424
Treasury to Help Industry
Test Pandemic Outbreak Response
Washington, DC- The Treasury Department announced today that it will sponsor
an industry-wide exercise this fall for the financial services sector to test Its ability to
respond a pandemic crisis, SUCll as a bird flu outbreak
"A lack of preparedness could turn a biological problem Into one that seriously
affects the availability of financial services to Americans and the global economy,"
said D Scott Parsons, Treasury Deputy Assistant Secretary for Critical
Infrastructure Protection and Compliance PoliCy. "While the industry has taken up
ItS responsibility and Improved its response plans, there is still much work to be
done. Treasury is encouraging financial institutions of all sizes from across the
country, including banks, credit unions, securities firms and insurance companies,
to participate."
President Bush directed Treasury m May 2006 to coordinate with the banking and
fmance sector to better prepare Its response to a pandemic crisIs.
The voluntary exercise Will bring together the public and private sector through the
Financial and Banking Information Infrastructure Committee and the Financial
Services Sector Coordinating Council. The FBIIC-FSSCC Pandemic Flu Exercise of
2007, beginning September 24 and running for three weeks, will focus on the
continuity of flllancial services for Americans In the event of a pandemic crisis. The
exercise will examine a number of Issues mcluding human resources, continuity of
operations, and dependencies on other sectors such as transportalion, energy and
telecommunications.
The test will occur entirely online uSing a secure website hosted by the Securities
Industry and Financial Markets Association. Treasury Will release registration
information in the comlllg weeks.
http://wwwtreas.gov/presslreleases/hp424.htm
2/1/2008
770: Undbr Secretary David H. McConnick to Deliver Remarks on Rebalancing the U.S.-China Eco ... Page 1 of 1
January 24, 2008
HP-770
Under Secretary David H. McCormick to Deliver Remarks on Rebalancing the
U.S.-China Economic Relationship
Treasury Under Secretary David H. McCormick will deliver remarks Wednesday at
the Council on Foreign Relations in New York on rebalancing the U.S.-China
economic relationship.
• What: Remarks on Rebalancing the U.S.-China Economic Relationship
• When: Wednesday, January 30, 8:00 a.m. EST
• Where: Council on Foreign Relations
58 E. 68th Street
New York, NY
• Notes: RSVP required by 12:00 p.m. on Tuesday, January 29 to
nypressrsvp@cfr.org
CFR Press Contact: Nidhi Sinha, 212-434-9460, nsinha@cfr.org
Camera Crew Entrance: Park Avenue between 67th and 68th Streets
- 30 -
http://wwwtreas.gov/presslreleases/hp770.htm
2/112008
January 24, 2008
2008-1-24-8-46-10-16112
U,S, International Reserve Position
The Treasury Department today released U,S. reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $71,515 million as of the end of that week, compared to $71,425 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value. in US millions)
II
I
I
IA Official reserve assets (in US millions unless otherwise specified)
IIJanuary 18, 2008
IIEuro
IIYen
IITotal
1(1) Foreign currency reserves (in convertible foreign currencies)
II
!111,991
11 71 ,515
[(a) Securities
II
![14,498
11 26 ,489
I
[of which: issuer headquartered in reporting country but located abroad
II
II
110
I
I(b) total currency and deposits with
II
1114,378
II
115,881
II
1120,259
I
I
I
l(i) other national central banks, 81S and IMF
II
11 0
lof which: located abroad
II
I(iii) banks headquartered outside the reporting country
II
11 0
11 0
lof which: located in the reporting country
II
11
Iii) banks headquartered
In
the reporting country
1(2) IMF reserve position
14 ,246
1(3) SDRs
119480
1(4) gold (including gold deposits and, if appropriate. gold swapped)
11 11 ,041
I--volume in millions of fine troy ounces
11261499
1(5) other reserve assets (specify)
11 0
!--financial derivatives
II
I--Ioans to nonbank nonresidents
1/
I
0
I
I--other
[B
I
Other foreign currency assets (specify)
--securities not included
In
official reserve assets
II
--deposits not included in official reserve assets
--loans not included in official reserve assets
--financial derivatives not included in official reserve assets
t-gOld not included in official reserve assets
[ --other
"
"I
II
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
r____________~I~I
____
~II~_ _ _ _~II~----~II~_ _ _ _~I~I_ _ _ _~II
http://wwwtreas.gov/presslreleases/hp20081248461016112.htm
2/1/2008
Page 2 of 4
1
I'
[
IITotal
IUp to 1 moo,"
I
II
1 Foreign currency loans. seCUrities. and deposits
I--outflows (-)
IIPrlnclpal
II
[
II Interest
II
I--inflows (+)
IIPrlnclpal
\I
\I
II Interest
I
2. Aggregate short and long positions in forwards and
futures In foreign currencies vis-a-vIs the domestic
currency (including the forward leg of currency swaps)
I (a) Short positions ( - )
IIMaturlty breakdown (residual maturity)
I
II
More than 1 and
up to 3 months
II
I
II
II
I
II
II
I
II
\I
I
II
II
I
II
I
II
II
I
II
II
II
I 3. Other (specify)
II
II
I --outflows related to repos (-)
\I
\I
\I
I --trade credit (+)
II
\I
I --other accounts payable (-)
\I
II
I --other accounts receivable (+)
II
\I
I --trade credit (-)
I
II
I (b) Long positions (+)
I --inflows related to reverse repos (+)
I
More than 3
months and up to
1 year
"
II
I
II
II
I
II
II
II
I
II
II
I
"
"
"
"
II
I
I
I
II
I
II
I
III. Contingent short-term net drainS on foreign currency assets (nominal value)
I
\I
I
II
II
II
IMatUrity breakdown (residual maturity. where
I
applicable)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
IITota,
IUp to 1 month
11 Contingent liabilities In foreign currency
\I
\I
II
II
I
(a) Collateral guarantees on debt failing due within 1
year
JI
II
II
II
I
II
II
\I
I
II
II
II
I
\I
II
\I
I
II
II
I
\I
I
I
I
[(b) Other contingent liabilities
2. Foreign currency securities Issued with embedded
opllons (puttable bonds)
[3 Undrawn. uncondilional credit lines provided by
(a) other national monetary authorities. 815. IMF. and
other international organizations
I
II
[-:-other national monetary authorilles (+)
\I
[--8IS (+)
II
II
II
II
[IMF (+)
II
II
II
II
II
II
II
JI
I
II
II
II
I
I
\I
II
I
II
II
II
I
(b) with banks and other financial Institutions
headquartered in the reporting country (+)
(c) with banks and other financial institutions
headquartered outside the reporting country (+)
Undrawn. unconditional credit lines proVided to
(a) other national monetary authorities. 815. IMF. and
other international organizations
--other national monetary authorities (-)
r
II
II
http://wwwtreas.go v/press/releases/hp20081248461016112.htm
\I
II
\I
II
II
\I
II
I
I
I
211 12008
Page 3 of 4
I--BIS (-)
1/
[IMF (-)
1/
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial Institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of opllons in
Ilforeign currencies ViS-a-VIS the domestic currency
~) Short positions
@Bought puts
~I) Written calls
II
I
II
II
II
I
II
II
I
I
II
II
II
II
II
II
I
I
II
II
I
I
I
/I
II
II
1/
II
II
II
II
II
II
II
II
II
II
II
II
I
I
I
II
II
II
illi) Written puts
II
1/
II
@) Long positions
@Bought calls
~RO MEMORIA
II
II
II
;i
I
I
II
I
1(1) At current exchange rate
II
I
I(a) Short position
II
II
In-the-money options
I(a) Short position
II
II
II
II
I
I
I
I
I(b) Long position
II
II
II
II
I
1(3) - 5 % (appreciation of 5%)
II
II
II
II
I
II
II
II
II
I
I(b) Long position
II
II
II
II
II
II
1(4) +10 % (depreciation of 10%)
II
II
I
!
II
I
II
I
II
I
II
I
II
I
II
I
II
I
II
I
I(b) Long position
1(2) + 5 % (depreciation of 5%)
I(a) Short position
I
I
II
I(b) long position
II
II
1(5) - 10 % (appreciation of 10%)
II
II
II
II
II
II
II
II
II
II
II
1(6) Other (specify)
II
II
I(a) Short position
II
II
I(b) Long position
II
II
I(a) Short position
I(a) Short pOSition
I(b) Long position
II
II
I
II
II
II
IV. Memo items
I
[(1) To be reported with standard periodicity and timeliness
II
I
II
I
I(a) short-term domestic currency debt indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic
currency)
11
[--nondellverable forwards
II
[ --short pOSitions
II
"
[ --long positions
t-other instruments
~C) pledged assets
[inClUded in reserve assets
--included in other foreign currency assets
r
http://wwwtreas_gov/press!rele~ses/hp20081248461016112.htm
I
I
I
I
I
"
"\I
I
\I
1
II
II
I
I
I
2/1/2008
Page 4 of 4
~) securities lent and on repo
I
II
II
II
Bent or repoed and included In Section I
--lent or repoed but not included in Section I
I
I
[borrowed or acquired and included in Section I
II
--borrowed or acquired but not included in Section I
[(e) financial derivative assets (net. marked to market)
[--forwards
[futures
G-swaps
G-options
G-other
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one
lIyear, which are subject to margin calls.
II~-aggregate short and long positions in forwards and futures
In
foreign currencies vis-a-VIs the domestic
I
I
11
JI
currency (including the forward leg of currency swaps)
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a-VIs the domestic currency
I(a) short positions
II
II
II
I
I
I
l(i) bought puts
I(ii) written calls
I(b) long pOSitions
I(i) bought calls
I
II
I(ii) written puts
1(2) To be disclosed less frequently:
I(a) currency composition of reserves (by groups of currencies)
11 71 ,515
I--currencies In SDR basket
11 71 ,515
I--currencies not In SDR basket
II
I--by individual currencies (optional)
II
I
II
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://wwwtreas.gov/presslreleases/hp20081248461016112.htm
2/1/2008
P-771: Deputy Treasury Secretary Robert Kimmitt to Participate in Media Conference Call on Soverei ... Page 1 of 1
January 24, 2008
HP-771
Deputy Treasury Secretary Robert Kimmitt to Participate in Media Conference
Call on Sovereign Wealth Funds
Deputy Treasury Secretary Robert Kimmitt will participate in a Foreign Affairs
magazine media conference call on sovereign wealth funds and the world
economy. He will discuss his article in the January/February 2008 issue of Foreign
Affairs, "Public Footprints in Private Markets: Sovereign Wealth Funds and the
World Economy." Deputy Secretary Kimmitt's article is available at:
http!/www.foreignaffairs.org/200801 01 faessay871 09/robert -m-ki mmittlpubl icfootpri nts- in- private-ma I"kets. h tm I
•
•
•
•
What: Media Conference Calion sovereign wealth funds and the world
economy
When: 200 p.m. (EST) Monday, January 28
Dial-In U.S Callers: 1-800-853-3893
International Callers: 1-334-323-7224
Passcode Kimmitt
Note: Media Interested In participating MUST RSVP to Nadine Apellan at
NYpressRSVP@cfr.org or 1-212-434-9677 by 1100 a.m on Monday,
January 28
- 30 -
http://wwwtreas.gov/presslreleases/hp771.htm
2/112008
P-772: Assistant Secretary Ryan to Sp£ak <br>
Page I of I
January 25, 2008
HP-772
Assistant Secretary Ryan to Speak
Treasury Assistant Secretary for Financial Markets Anthony W Ryan will be a
featured speaker next week at the World Research Group's annual conference on
market liquidity III New York City His remarks will focus Oil the importance of
liquidity in capital markets and risk management
Who
Assistant Secretary for Financial Markets Anthony Ryan
What
Remarks on Liquidity of Financial Markets
When
Monday. January 28. 215 p,m, EST
Where
World Research Group's LiqUidity 2008 Conference
Brldgewaters
11 Fulton Street
New York. NY
http://wwwtreas.gov/presslreleases/hp772.htm
211/2008
773: Fact ~heet Examples of Row the Economic Growth Package will Benefit Amencans
10
view or pont rne
~Ur
Page 1 of 1
content on tn,s page, aownloaa rne tree AaoDe® AcroDat® Keaaer®,
January 25. 2008
hp-773
Fact Sheet: Examples of How the Economic Growth Package will Benefit
Americans
Examples of How the Economic Growth Package will Benefit Americans.
REPORTS
•
Fact Sheet Examples
http://wwwtreas.gov/presslreleases/hp773.htm
2/1/2008
FACT SHEET:
EXAMPLES OF
How THE ECONOMIC GROWTH PACKAGE WILL BENEFIT
AMERICANS
Married with children:
1) Married couple with two children I, earned income of $4,000, no federal income tax paid.
• Individual rebate
= $600
= $600
• Child tax credit
TOTAL
= $1,200
2) Married couple with two
$323.
• Individual rebate
• Child tax credit
TOTAL
children, earned income in excess of$3,000, AGI = $45,000, federal income tax is
3) Married couple with two
• Individual rebate
• Child tax credit
TOTAL
children, AGI
= $773
= $600
= $1,373
4) Married couple with two
• Individual rebate
• Child tax credit
TOTAL
children, AGI = $80,000, federal income tax paid in excess of $1 ,200.
= $1,200
= $600
= $1,800
5) Married couple with two
• Individual rebate
• Child tax credit
• Phaseout reduction
TOTAL
children, AGI = $160,000, federal income tax paid in excess of $1 ,200.
= $1,200
= $600
= ($500) [5% x ($160,000 - $150,000) = $500]
== $1,300
I
= $600
= $600
= $1,200
=
$48,000, federal income tax is $773.
All children referenced in the examples are qualifying children for purposes of the child tax credit.
Head of household with children:
I) Single parent with two children, earned income of $4,000, no federal income tax paid.
• Individual rebate
= $300
• Child tax credit
= $600
TOTAL
= $900
2) Single parent with two children, earned income in excess of $3,000, AGI = $38,000, federal income tax is
$433.
= $433
• Individual rebate
= $600
• Child tax credit
=$1,050
TOTAL
3) Single parent with two children, AGI = $60,000, federal income tax paid in excess of $600.
• Individual rebate
= $600
• Child credit
= $600
TOTAL
=$1,200
4) Single parent with two children, AGJ = $90,000, federal income tax paid in excess of $600.
• Individual rebate
= $600
• Child credit
= $600
• Phaseout reduction
= ($750) [5% x ($90,000 - $75,000)]
TOTAL
= $450
Married, no children:
I) Married couple with no children, earned income of $4,000, no federal income tax paid.
• Individual rebate
= $600
2) Married couple with no children, earned income in excess of $3,000, AGI = $20,000, federal income tax is
$930.
= $930
• Individual rebate
3) Married couple with no children, AGI = $25,000, federal income tax is $1,430.
• Individual rebate
= $1,200
4) Married couple with no children, AGI = $160,000, federal income tax paid in excess of $1 ,200.
• Individual rebate
= $1,200
• Phaseout reduction
= ($500) [5% x ($160,000 - $150,000)]
TOT AL
= $700 .
Single, no children:
1) Individual with earned income of $4,000, no federal income tax paid.
• Individual rebate
= $300
2) Individual with earned income in excess of $3,000, AGI
• Individual rebate
= $300
= $10,000,
federal income tax is $125.
3) Individual with AGI = $16,000, federal income tax is $725.
• Individual rebate
= $600
4) Individual with AGI = $80,000, federal income tax paid in excess of $600.
• Individual rebate
= $600
= ($250) [5% x ($80,000 - $75,000)]
• Phaseout reduction
TOTAL
= $350
-30-
774:
Trea~ury Assi~tant
Secretary tor Fmancial Markets<br>Anthony W. Ryan<br>Remarks at the ... Page I of 5
January 28, 2008
HP-774
Treasury Assistant Secretary for Financial Markets
Anthony W. Ryan
Remarks at the World Research Group Liquidity
New York City- Good afternoon Secretaries of the Treasury, from Alexander
Hamilton to Henry Paulson, have acknowledged the value of liquid. efficient capital
markets. Hamilton understood that the United States' Revolutionary War debt was
"the price of liberty" and to lay the groundwork for functionlllg, vibrant capital
markets, our young nation must establish a globally respected sovereign debt
market. Over 200 years later. that Vision continues to deliver economic benefits.
Similarly, Secretary Paulson has stated t1lat capital markets are "the lifeblood" of
the economy. Today's conference on liqUidity focuses on one of the vital Signs of
that lifeblood, and I appreciate the opportunity to share my thoughts with you.
Elements of Liquidity
In assesslllg liquidity, we must begin by recognizlIlg the dramatic changes that
have occurred in capital markets III recent years. Financial market innovation and
broadenlllg IIlvestment horizons - both from a geographic and asset class
perspective - have led to an ever increasing expansion of investment strategies
and instruments. Cash and spot markets have been seamlessly Integrated with
derivatives markets. With innovation and Interrelated markets have come immense
pools of capital ready to be deployed - and at times, withdrawn - which reflect the
vastly fluid nature of our global fillancial markets.
Today, I would like to focus my remarks not just on the benefits and challenges
resulting from the IIlcomlng or receding tides of liqUidity, but also their distinct
properties and transmission mechanisms. While the traditional characteristics of
liqUidity are often assumed to be fairly well understood, the dynamic nature of its
underlying properties warrants further evaluatJon
Furthermore, the channels of accesslllg or deploymg liquidity - be it via the financial
marketplace through credit markets, derivatives or structured vehicles - are evolving
rapidly. The same can be said about the breadth of alternative sources of liquidity
which includes hedge funds, pension funds, and sovereign wealth funds. Such
developments have important consequences for all market participants
Broadly defining and understanding liquidity is therefore critically important. There
are real economic returns associated With enhancing liqUidity as it Vitalizes capital
markets. At the same time, market participants can not be myopic and focus just on
returns. Market partiCipants must also focus on risks. By better understanding the
nature of liquidity, partiCipants are also better posilioned to address the difficult
challenge of managing one element of risk: liquidity risk. So, how best to proceed?
Water as an Analogy
A healthy funclioning fmanCial market Implies an efficient flow of liquidity. As we
seek to Improve the evaluation of liqUidity flows, we can expand our knowledge by
revlewmg the sCience of liquids as it serves as an interesting analogy. Natural
science offers us a perspective on liqUidity - through the lens of the chemistry and
the phYSICS of liquids.
liquids possess numerous properties with which we are familiar. Take for example
the most familiar liquid water. Hydrologists can describe the importance and
presence of water, its properties and various states, and how it transitions as it
moves through the water cycle.
http://wwwtreas.gov/presslreleases/hp774.htm
2/1/2008
774:Trea~ury Assi~tant Secretaryior Financial Markets<br>Anthony
W. Ryan<br>Remarks at the ... Page 2 of 5
Water is essential for survival. We often hear of tile absence of wa ter leading to
drought and death. Alternatively, an abu ndan ce of water may not be a panacea
Liquidity managers can rel ate , as no trader wants to be lon g excess funds at the
end of days when there's no bid or silort funds when there are no offers.
Understanding the underlying pllysical properties of water requires conS iderati on of
various external forces, be it temperature, pres su re or interactions with other
liquids . The same call be said for market liquidity as It IS affected by multiple
exogenous fact ors such as regu latory limit ations or in ves tment constraints.
Water also exists ill different states . A glacier Illay harbor an abundance of fresh
water yet tapping the reso urce requires ingenuity and special mechanisms to
penetrate the solid state. Similarly, additional liquidity is brought to borrowers
outside th e tradition al lending channels via securitization .
Science also teaches us to appreci ate the implications of trans itions between
states. Often, such transformations are not uniformly even . For example, when
water tranSitions from its liquid state to a solid as ice is formed, the process is
extremely abrupt from a mol ecu lar standpoint. We have certa inl y witnessed the
corresponding precipitous changes in market liquidity re ce ntly.
The Fluid Properties of Financial Markets
Just as scientists and engineers must understand and evaluate the nature of
liqUids, the same is true for financial market participallts with respect to liquidity It
too , is found in varying amounts and different state s. It too, possesses dynamic
properties and transitions. While our textbooks may ha ve described this as a
virtuous cycle, it can also be experienced as a vicious circl e.
In capital markets , liquidity is often defined as th e degree to which an asse t or
security can be bought or sold WltllOUt significantly affecting the asset's price It may
also be perceived as the ability to con vert an asset to cash quickly.
High levels of trading activity, narrow bid/ask spreads, low transaction cos ts , and
similar, non-discrete price movements characterize a highly liquid market. The clear
availability and activity of market makers, the rncentive to take on ri sk, and the
presence of effecti ve clearance and settlement systems support efficient capital
markets. In addition , complementary derivative instruments can help to lower cos ts
associated with ri sk transfer and attract additional investors to a market, thus
enhancing liqUidity .
Securing th e benefits of liquid ca pital markets is challenging as conditions are
anything but static . Capital markets - including even U.S . Treasurr es - face varying
degrees of liquidity. This ha s been particularly true over th e past severa l months .
Last summ er, liquidity conditions reached a crrti ca l pOint. The plentiful flow of
liquidity th at fueled a boom in borrowing and leverage across asset classes -- from
home mortgages to leveraged buyouts to private equity simpl y vaporized -- like
water into steam . Despite market participants' continuous monitoring of the
co nditions in the financial environillent - be it the worsening of Illortgage lending
standards, the expansion of even Illore comp le x instruillents an d structures, or the
application of more leve rage - the resulting transition in liquidity states was
nonetheless sudden and took most market participants by surp rise .
Not une xpectedly, the conseq uences were dramatic . Certain finan cia l sectors we re
materially compromised by the inability of participants to access liquidity - even
when such liquidity was wid ely present. This was a result of a decrease in
confidence as doubts arose about future financial conditions , which In turn,
delivered devas tating blows to both use rs and providers of liquidity.
For example, short term funding markets essentially froze . Inter-bank funding
spread s to future expected Fed poliCY rat es rose to unpre ceden ted heights,
reflecting the tremendous fnction and tenuous ties aillong counterparties Mortgage
origination and other asset securitization fell dramatically, exace rbating challenges
in the housing sector. Given th e interconnectedness of our cap ital markets, other
stresses predictably emerged wh ich further impeded liquidity : algonthmic trading
ceased, financial institutions grappled with va luing asse ts, and balance sheets
http://wwwtreas.gov/press/releases/hpJ74.htm
2/1/2008
774:
Trea~ury Assi~tant Secretaryfor Financial Markets<br>Anthony
W. Ryan<br>Remarks at the ... Page 3 of 5
came under pressure.
The lack of liquidity led to unprecedented actions by major central banks and
tremendous strains in the financial sector. We continue to see the results of these
strains play out. Since last August, we've seen the write off over $153 billion in the
financial sector, the downgrading of numerous issuers and structures, loss of over
$1 billion to guarantee over $18 billion of assets held in money market funds. and
the consolidation of over $136 billion in SIV assets .
Liquidity Sources and Cycles
However, this period of write-downs and recapitalizations is not a permanent state.
It is transitory - another phase of the cycle and in the long term, likely to be
beneficial. Just as water can be found in aquifers, new pools of liquidity are being
formed and tapped , resultlllg in a gradual reintermediation of capital markets .
Over the past nine weeks. over $95 billion has been raised in the capital markets.
We have seen equity raised by the housing Governments Sponsored Entities
(GSEs), and capital injections in financial institutions by va rious sovereign wealth
funds . We have also witnessed entries by other investors with strong balance
sheets and credits into capital reliant buslllesses such as banks, and monolllle
insurance companies
Recently, we have seen a gradual reduction in key benchmark spreads.
Commercial paper markets, even asset back commercial paper markets, have seen
greater issuance and lower funding rates . This is certainly not an "all clear" signal ,
but perhaps the beginning of the transition to an improved state of liquidity. This
process will take more time. Confidence returns when investors validate their
assumptions - not just on future returns, but equally on risks . It is on the latter
dimension where a great deal of reassessment is occurring .
One reason investor confidence is being hit so hard, is that many investors were
sanguine over the last few years This sanguine state - perhaps even overconfidence- was a result of many factors . But recent events underscore the
importance of the need for strong market discipline, prudent regulatory policies, and
robust risk management. Investors must appreciate risk - in its myriad dimensions
and seek to better identify , assess, and manage it. Successfully doing so requires
continuous evaluation from multiple perspectives , and humility to know the
limitations of any single or even comprehensive assessment of risk.
More transparency. disclosure and independent analysis can increase in ves tor
confidence . We have seen some positive developments in recent weeks.
particularly in the U.S, but more must follow. As the global capital markets continue
through this transition. some revaluations will be gradual. while others may be more
dramatic. As a result , we are likely to witness continued volatility.
Importantly. the markets' underlying infras tructures. and processes have remained
intact. Trading , clearing and settlement systems have each responded well despite
tremendous strains and massive volumes. However, we must not take this for
granted. Continued efforts to enhance such systems serve to prepare our markets
for future challenges .
Catalysts for Evolution
In the face of important changes related to global capital market liquidity. market
partiCipants and public policies must evolve . As market leaders , we need to
possess both Judgment and confidence: judgment to recognize when changes are
necessary and the confidence to make those changes
Addressing market challenges must be done thoughtfully. This task is a shared
responsibility between the private and public sectors. Consider liquidity risk
management. Firms have learned that the properties associated with liquidity may
be fleeting - and that additional methodologies to assess and manage liquidity
exposures may be warranted to aVOid such strallls in the future. Both regulators
and senior management of financial firms recognize that efforts to enhance
comprehensive stress testing , va luation and hedging capabilities, as well as
management information and me!rics for evaluating and managing liquidity risk are
http://wwwtreas.gov/presslreleases/hp774.htm
2/1/2008
774: Trea~ury Assi~tant Secretary for Financial Markets<br>Anthony W. Ryan<br>Remarks at the...
Page 4 of 5
invaluable.
Market participants should continue to appreciate the benefits of diversified sources
of liquidity. including the benefits of larger reserves. complementary sources and
potential global suppliers . Equally important. participants must appreciate that risks
must be assessed to each of these and th at these assessments and rel atio nships
can cllange. especially during periods of market stress.
Markets. practices and policies will need to evolve. Institutions, structures, and
strategies must do so as well . The good news is that our capital markets have a rich
history of adapting.
Both policymakers and market participants must review current practices .
Encouraging issuers to enhance disclosure, financial institutions to be well
capitalized, and JIlvestors to conduct JIldependent due diligence are logical
outcomes of such reviews.
The President's Working Group on Financial Markets , which Secretary Paulson
chairs and includes the Chairmen of the Federal Reserve, the Securities and
Exchange Commission, and the Commodity Futures Trading Commission, has
begun a comprehensive re v iew of such policy issues . We are also working With the
G7 and the Financial Stability Forum to re view issues related to the recent
challenges in the global financial markets.
These complementary reviews are focused on issues that range from enhancing
risk management IIlcludlllg liquidity and counterparty credit risk , to market
infrastructure , to reportlllg and disclosure , and to ratings and Investor practices .
While we address these intermediate term issues , our short term focus is to
minimize th e spillover effects of th e current capital markets challenges to the real
economy In addition, we are also engaged in a strategic endeavor. We are
developing a blueprint that outlines a more optimal regulatory framework for our
financial sector. Given the current frag mented stru cture an d a global financial
marketplace that IS constantly evolving, we need to ensure that our finan cial
marketplace is well positioned to compete and deli ver future benefits to our
economy.
Equilibrium
Economies deri ve much of their strength from robust and di verse ca pital markets.
As market participants, each of us must contribute to ensure the integrity, openness
and competitiveness of our markets . The natural byproduct of such conditions is
liqUid , efficiently functiolllng markets . A better understanding of global liquidity,
including Its capricious properties, its abundance, its hidden reservoirs, its dynamic
nature , and its transitional characteristics - enhances economic growth and
improves ri sk management. This In turn, serves to bolster in vestor confidence .
All stakeholders - be they prOViders of liquidity , such as investors , or users of
liquidity, such as issuers, - have a direct interest in facilitating liquidity in capital
markets. But the underlying drivers for such optimal operating conditions may not
always be present. As we ha ve seen recently, liquidit y can be abundant and
encourage imprudent risk taking. Or it can be scarce and create broad based risk
aversion.
There is no ideal qu antity of liquidity . We live with cycles and mu st learn to live with
a range of market conditions . We need to attempt to understand the und erlying
drivers of that liquidity. But even with such examination , the ultimate truths may not
be readily borne out.
The famed RUSSian physicist George Gamow once noted that the picture of
molecular motion in liqUids is "unpleasant and untidy" . ThiS is somewhat of a fitting
description of liquidit y conditions in financial markets over the last six months .
Rather than attempt to attain some Ideal level of liquidity in markets, we should
strive to enhance liquidity , with the full knowledge that markets - like liquids - are
fickle in nature and difficult to fully quantify - or even qualify In ce rtalll states or
periods.
http://wwwtreas.gov/press/releases/hp774.htm
211 12008
774: Trea~ury Assi~tant Secretary for Financial Markets<br>Anthony W. Ryan<br>Remarks at the...
Page 5 of 5
In addition to eff<Jrts to enhance market liquidity. we should seek to strengthen
market discipline and participants' awareness of risks. Ultimately. albeit at times
slowly, market discipline and prudent regulatory policies serve to recallbrate capital
markets. Eventually such efforts bring future benefits greater market depth. more
trading volume, larger flows, tighter spreads, lower costs, less volatility, better price
discovery. more capital, and an increaslllgly diverse IIlvestor base.
Conclusion
liquidity is a vital sign of capital markets. Robust capital markets possess efficient
flows of liquidity. which In turn, facilitate econOllllC growth Its fluid nature IS In fact
beneficial as it enables capital to flow to ever higller and better uses. Its presence
stimulates competition and innovation -- enabling not Just economic viability. but
vitality.
At the U.S Treasury Department, encouraging open capital markets, addresslllg
both the near term and strategiC challenges, and doing all we can to ensure high
quality, competitive and orderly capital markets remalll our goals. We encourage
the private sector to do the same.
Thank you
http://wwwtreas.gov/press/releases/hp774.htm
2/1/2008
P-775: Tre~ury Announces Market Financing Estimates
Page I of I
/0 view or pnnt tne I-'U~ content on tn,s page. Clown/oaCl tne Tree AClOlJe® AcrolJat® HeaCler®.
January 28, 2008
HP-775
Treasury Announces Market Financing Estimates
Washington- Treasury announced Its current estimates of net marketable financing
today for the January - March 2008 and April - June 2008 quarters
•
•
Over the January - Mal'Ch 2008 quarter, the Treasury expects to borrow
$156 billion of net marketable debt, assuming an end-of-March cash
balance of $25 billion. The current estimate is $23 billion higher than
announced in October 2007 The increase In borrowing is primarily the
result of lower I'eceipts and lower net Issuances of State and Local
Government Series seCUrities.
Over the April - June 2008 quarter, the Treasury expects to pay down $122
billion of net marketable debt, assuming an end-of-June cash balance of
$45 billion. This projection has not been adjusted for the estimated Impact of
the stimulus package currently under conSideration
During the October - December 2007 quarter, Treasury borrowed $87 billion of net
marketable debt, finishing With a cash balance of $57 billion at the end of
December. In October 2007, Treasury announced net marketable borrowing of $68
billion, assuming an end-of-December cash balance of $45 billion. The increase in
borrowing was primarily the result of lower receipts and adjustments in cash
balances.
Since 1997, the average absolute forecast error in net borrowing of marketable debt
for the current quarter is $12 billion and the average absolute forecast error for the
end-of-quarter cash balance is $9 billion. Similarly, the average absolute forecast
error for the following quarter is $32 billion and the average absolute forecast error
for the end-of-quarter cash balance is $11 billion.
Additional financing details relating to Treasury's Quarterly Refunding will be
released at 9:00 a.m. on Wednesday, January 30.
-30REPORTS
•
Sources and Uses Reconciliation Table
http://wwwtreas.gov/presslreleases/hp775.htm
2/1/2008
Ir
r
~
End-Ol-Quarter
Cash Balance
Quarter
OCI - Dec
2005
Jan - Mar
AnnollncementDate
(1)
(2)
(3)
I
(4)~(2)+(3) "(5)~(4)-(l)"
(6)
~'-~'"-n-n---------------§:'iljl::::::!!-::::::::~
A~;;;i----mmm----m-n-----Flm-niSi-mml-m-i'4,nn-lnnn-;:;;-n-nf~
2006
.--------------------------------------------~------------------------------------------------------c==Jt===
Apr - Jun
~-;;:;;;.::::::=:::=::::::::::::::=::0:::i;!!:::1:::::(ii::==:f~:::::i'2i::::::~
2006
Jul - Sep
2006
-m----m-------m---m-----------------1§--nn"nn--t---.. -mt---ii-;;nntnm-zo---nl§---m-6-m-----~----------------------_____________________________________________________________________________________________ I
I
Oct - Dec
2006
Jan - Mar
2007
~~_t_~:'.I____________________________________ L
______ ?_~------ ___ j~------~~--------I-------~--------L------~~- _______ _ ______ J~!L__ __
31
f--------------------------------------------~f--------------------~f-----------------I----------------+--------------------11-------------------,.-----------------------~
Actual
159
126
9
134
______ J~~L ___ _
6
Apr - Jun
2007
Jul- Sep
2007
_______(!~~)_______ L
Actual
'~~~~~~~~~~~~~~~~~~~~~~~::::~~:::::~~~::::~t:::::~~:~:::~~~::l~~:::~~~~::::~t:~~~i~:~)~:~:::t::::::::~~::~~~::~
Memo: Forecast Revision
Oct - Dec
2007
_____________________ _
2~_~~~~!.._~?_,_~_~Q?
Actual
Memo. Forecast Revision
_____________________ _
Jan - Mar
2~_~~~~!.._~?_'_~_~Q?
2008
!-"-~_':'_~!2_~~,~~_~~
_____________________ _
Memo: Forecast Revision
Apr - Jun
2008
___~!_~?)______ I-------~--------I- _____ J_I_~~L ___ _
January 28, 2008
-------------.-.----------------------------
Notes: All data reported on a cash basis
19
25
-------------------~f-----------------------~
--------~~--------j~----------~?-----------~
:~~~::::~r~::::~~j~:::~::f_~::::~:::t~~~:::i};~~:~~:~:t~:::::~~:~~~~::::::t~~:~~~f?J~~:::~~:j~:::~::~:::~~::~:~~~~:::
~:~::::~~~J_::::~~~l:::::~~::::~~:t::~~::i}~}::~:::I:~~:::~:~~~~~~:::::~I~::::::1~!~:::=~:l::~:~::~~V:----------
=:::::@1::4::Ji:;'i:~:=:::i,AL=:I::=ji:;~::::::f=:iji.:::::::1
776: Trea~lry Assistant Secretary for Economic Policy<br>Phillip Swagel<br>Statement for the Tr... Page I of 2
January 28, 2008
HP-776
Treasury Assistant Secretary for Economic Policy
Phillip Swagel
Statement for the Treasury Borrowing Advisory Committee of the
Securities Industry and Financial Markets Association
Washington- Economic growth appears to have slowed in late 2007, and IS likely
to remain sluggish through the first half of 2008. Labor market conditions softened
notably in December, as Job growth slowed and the unemployment rate Jumped to
5.0 percent. Core inflation has remained contained, even as a pickup in energy
prices boosted headline inflation at the end of the year Against this background,
the bipartisan tax relief proposal agreed to by the Admillistration and House
leadership has the potential to provide meaningful and well-timed support for
economic activity In mid-2008 and Into 2009.
Data already in hand suggest that 04 GOP moderated substantially from growth of
nearly 4 and 5 percent in 02 and Q3, respectively (the first read on Q4 GOP data
will be released on Wednesday. January 30). Slower growth of both consumption
and Investment appear to have offset continued support from exports and
government purchases. The December retail sales report points to a slower pace of
consumer spending, and housing market indicators suggest that residential
Investment posted another substantial decline in the fourth quarter. Shipments of
core capital goods through November point to a modest pace of spending on
bUSiness Investment in the fourth qual1er. (Data on orders and shipments of durable
goods in December to be released on Tuesday. January 29 will provide further
evidence on the trajectory of business spending.)
Exports remain a source of strength. With exports of goods and services up by 13
percent over the 12 months ending In November. Despite the solid export
performance, recent Increases in imports, including a higher volume of oil imports,
suggest that the contribution of net exports to real GOP will be smaller than the 1.4
percentage point boost seen on average in the second and third quarters.
Early data for the first quarter of 2008 are mixed. Initial claims for state
unemployment Insurance dropped back to just over 300.000 per week after having
risen above 350,000 per week in November and December, and consumer
sentiment rebounded In the first half of January, recouping nearly all of the loss
recorded over the prevIous two months. At the same time, regional measures of
manufacturing activity point to a weakening factory sector, and homebUilder
confidence remains close to a record low. Private forecasters generally expect
growth to remain sluggish, With consensus forecasts around 1-112 percent for the
first half of 2008.
While the economy is expected to continue to grow, the risks of a broader
slowdown have Increased FinanCial markets have deteriorated considerably since
the start of the year and credit conditions for households and bUSinesses remain
tight. In the first three weeks of January, US. equity markets gave up all of last
year's gains: Since the end of October 2007, total equity market capitalization has
fallen about $3 trillion. Together with declining home prices, the drop In household
wealth will have an adverse effect on consumer spending and business investment.
Energy costs remain a concern for households and businesses and a downside risk
for growth. The retail price of gasoline remained about $3 per gallon in the most
recent weekly statistics, about 85 cents higher than a year earlier. Reflecting
expectations that economic growth and thus 011 demand will ease In early 2008, oil
prices have retreated somewhat In recent weeks, with the one-month futures price
for West Texas Intermediate crude down by about $10 per barrel from ItS early
January peak of Just under $100 a barrel.
http://wwwtreas.gov/presslreleases/hp776.htm
211/2008
776: Trea~lry Assistant Secretary for Economic Policy<br>Phillip Swagel<br>Statement for the Tr...
Page 2 of 2
Higher energy prices do not appear to have appreciably boosted underlying
inflation. Core consumer prices (which exclude food and energy) rose by 2.4
percent over the year ended in December. compared to the year-earlier pace of 2.6
percent. The spread between yields on five-year inflation-protected government
securities and five-year constant maturity government securities, often used as a
measure of Inflation expectations. suggests that financial market participants look
for IIlflation Just above 2 percent. consistent with a retreat in headlille inflation going
forward. As the impact of hlglier energy prices on overall inflatloll wanes, workers
who have seen real wage gains erased by energy-led Increases in inflation will
benefit. Nominal wage growth has been SOlid, and slower headline inflation would
imply a resumption of real wage gains
The housing market is likely to remain weak well into 2008. Inventories of unsold
homes. both new and existing, remain substantially above levels that were tYPical
before or dUring the housing sector booni. The inventory of unsold new homes rose
to 9.6 months of supply In December: inventories averaged Just above a 4 month
supply from 2000 to 2005 The Inventory overhang Will weigh on both housilig
prices and construction Nationwide. home prices are roughly flat over the past
year, with some regions that experienced the highest house price appreciation
during the boom now seeing outright price declines. Residential investment has
subtracted nearly a full percentage pOint from annualized GDP growth during each
of the previous four quarters and looks to remain a drag on the economy into 2008.
Housing starts totaled 1.006 million at an annual rate III December. down more than
38 percent from a year earlier. and are at their lowest level since May 1991 Permits
for the single-family sector remain below starts, indicating continued future
weakness in residential investment. HomebUilder optllliism. which is closely
correlated with homebuilding activity, IS still near a record-low level.
The housing market slump and broader economic weakness has contributed to an
IIlcrease in mortgage delinquencies and foreclosures. New foreclosures Jumped to
0.8 percent of all loans serviced in 200703, according to a survey by the Mortgage
Bankers Association, totalilig slightly more than 350,000 loans in the 03 survey
alone. Subpnme adjustable rate mortgages (ARMs) are largely responsible for this
trend, but an increase III prime ARM foreclosure starts suggests that credit
difficulties are broader than just subpnme Overall, about 1.3 percent of all
mortgages serviced in the Mortgage Bankers survey were more than 90 days
delinquent in 200703, amountilig to nearly 575,000 loans. Foreclosures are
expected to nse further as an estimated 1.8 million US. owner-occupied subprlme
mortgages face IIlterest rate resets III 2008 and 2009.
The Administration has taken steps to help prevent avoidable foreclosures and
minimize the Impact of the hOUSing downturn on markets and the economy
Through FHASecure, the Administration has expanded affordable mortgage
options: last fall, the Administration encouraged the creation of the HOPE NOW
alliance to reach and help struggling homeowners These efforts have resulted III
progress According to HOPE NOW, the industry assisted 370,000 homeowners in
the second half of 2007, and mortgage servicers modified subpnme loans during
the fourth quarter at a rate three times faster than in the third quarter.
Workilig With Congress, the Administration has also temporanly eliminated taxes on
forgiven mortgage debt so homeowners facilig difficult mortgage situations do not
also face adverse tax consequences. The Administration has urged Congress to
pass legislation to modernize the Federal Housing Administration, allow states to
issue tax-exempt bonds to fund refinancing programs, and undertake
comprehensive reform of the housing government sponsored enterprises.
On Thursday. January 24, the President and the bipartisan leadership of the House
of Representatives reached agreement on a package of personal and business tax
relief to support economic growth while credit and housing markets contillue to
adJUSt. Together, the proposal will inject about $150 billion Into the economy in
2008, creatlllg over half a million additional Jobs by the end of this year. In sum.
growth is expected to continue, albeit at a modest pace and With Increased
downside risks. Rapid enactment of the bipartisan fiscal package would support
growth and help to ensure continued economic expansion and Job creation In 2008.
-30-
http://wwwtreas_gov/presslreleases/hp776.htm
2/112008
Page I of4
January 28, 2008
2008-1-28-15-50-23-15275
U,S, International Reserve Position
The Treasury Department today released U.s. reserve assets data for the latest week, As indicated in this table, U,S.
reserve assets totaled $71,603 million as of the end of that week, compared to $71,515 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
I
IA. Official reserve assets (in US millions unless otherwise specified)
1(1) Foreign currency reserves (in convertible foreign currencies)
I
II
IIJanuary 25, 2008
IIEuro
I
IIYen
IITotal
I
11 71 ,603
I
I(a) Securities
II
11 14 ,564
II
11 11 ,939
11 2 6,503
lof which: issuer headquartered in reporting country but located abroad
II
II
11 0
I(b) total currency and deposits With:
1(1) other national central banks, BIS and IMF
II
11 14 ,446
II
15,885
II
11 2 0,301
Iii) banks headquartered
II
III
the reporting country
11 0
0
11
!of which: located abroad
)!
I(iii) banks headquartered outside the reporting country
II
lof which: located in the reporting country
1(2) IMF reserve position
II
1!4,255
1(3) SDRs
11 9 ,502
I
1(4) gold (including gold depOSits and, if appropriate, gold swapped)
11 11 ,041
I
I--volume in millions of fine troy ounces
11 2 61,499
I
1(5) other reserve assets (specify)
110
11 0
11 0
I
I--financial derivallves
"
I--Ioans to nonbank nonresidents
I--other
[B
Other foreign currency assets (specify)
--securities not included in official reserve assets
--deposits not included in offiCial reserve assets
--loans not included in official reserve assets
I
--financial derivatives not included in official reserve assets
--gold not Included in official reserve assets
[--other
"
I
II
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
(-:_ _ _ _ _ _ _ _ _ _
~II~----~II~_ _ _ _~II~_ _ _ _~II~_ _ _ _~I~I_ _ _ _~II
http://wwwtreas.gov/presslreleases/200812~15502315275.htm
211/2008
Page 2 of4
[
I
IIMaturity breakdown (residual maturity)
"
II
Tota
I
[outflows (-)
II Principal
[
IIlnterest
t-inflows (+)
II Principal
I
IIlnterest
I
II
I
I
I
I
II
II
II
2 Aggregate short and long positions in forwards and
futures In foreign currencies vis-a-VIs tile domestic
currency (includlnq the forward leq of currency swaps)
II
II
I
I
I
II
II
II
II
1/
II
[ (a) Short positions ( - )
I
[ (b) Long positions (+)
More than 1 and
up to 3 months
Up to 1 moolh
1 Foreign currency loans, securities. and deposits
More than 3
months and up to
1 year
[ 3. Other (specify)
I --outflows related to repos (-)
I --inflowS related to reverse repos (+)
I
I
II
II
I
II
II
I
II
--trade credit (-)
--trade credit (+)
II
--other accounts payable (-)
II
--other accounts receivable (+)
II
I
I
I
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
/I
II
I Maturity breakdown (residual maturity. where
I
applicable)
I
[1 Contingent liabilities in foreign
I
currency
(a) Collateral guarantees on debt falling due within 1
year
[(b) Other contingent liabilities
IUp to 1 month
II
II
I
II
II
II
II
1/
2. Foreign currency securities issued with embedded
options (pultable bonds)
3. Undrawn, unconditional credit Imes provided by:
More than 1 and
up to 3 months
I
II
II
II
II
I
I
(a) other national monetary authorities, BIS, IMF, and
other international organizations
II
II
Eother national monetary authorities (+)
[BIS (+)
I
[iMF(+)
/I
(b) with banks and other financial Institutions
headquartered in the reporting country (+)
More than 3
months and up to
1 year
[Total
I
I
I
(c) with banks and other fmanclal institutions
headquartered outSide the reporting country (+)
Undrawn, unconditional credit lines provided to
r
http://wwwtreas.gov/presslreleases/200812815502315275.htm
I
I
I
II
"
II
"
II
II
"II
(a) other national monetary authorities, BIS. IMF, and
other international organizations
--other national monetary authorities (-)
I
"II
"II
I
II
II
II
I
I
I
I
I
2/1/2008
Page 3 of4
t BIS (-)
II
II
II
[IMF (-)
II
II
II
(b) banks and other financial institutions headquartered
in reporting country (- )
I
(c) banks and other financial Institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options In
foreign currencies vis-a-vIs the domestic currency
~) Short positions
I
II
I
I
II"
"II
II
I
II
II
II
II
II
I
\I
I
II
[(i) Bought puts
\I
\I
II
~i) Written calls
I
I
II
[(b) Long positions
I
I
I
1(1) Bought calls
I(ii) Written puts
I
iPRO MEMORIA In-the-money options ~ :
I
1(1) At current exchange rate
I(a) Short position
I(b) Long position
I
1(2) + 5 % (depreciation of 5%)
I(b) Long position
1(3) - 5 % (appreciation of 5%)
I(a) Short position
II
I(b) Long position
1(4) +10 % (depreciation of 10%)
II
I(a) Short position
II
I(b) Long position
I
II
II
II
I
I
II
II
I(a) Short position
I
II
II
I
I
\I
II
1(5) - 10 % (appreCiation of 10%)
II
II
II
II
II
I(a) Short position
I(b) Long position
1(6) Other (specify)
I(a) Short position
I(b) Long position
IV. Memo items
I
I
li 1) To be reported with standard periodicity and timeliness
(a) short-term domestic currency debt indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g,
currency)
II
II
In
domestic
[ --short posittons
I
[ --long POSitions
I
[other instruments
II
II
II
[inClUded in reserve assets
--included in other foreign currency assets
r
http://wwwtreas.gov/presslreleases/200812815502315275.htm
I
I
t-nondellverable forwards
[C) pledged assets
I
I
II
II
I
I
I
I
II
2/1/2008
Page 4 of 4
ltd) securities lent and on repo
II
--lent or repoed and included in Section I
II
--lent or repoed but not included in Section I
II
--borrowed or acquired and included in Section I
II
--borrowed or acquired but not included in Section I
II
(e) financial derivative assets (net, marked to market)
II
II
[--forwards
I--futures
I
[--swaps
I
[--options
I
I--other
I
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one
year, which are subject to margin calls.
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (Including the forward leg of currency swaps)
I
I
I
I
I(a) short positions ( - )
I
j(b) long positions (+)
I
I--aggregate short and long positions of options In foreign currencies vis-a-vis the domestic currency
I
I(a) short positions
l(i) bought puts
I(ii) written calls
I(b) long positions
I(i) bought calls
I(ii) written puts
1(2) To be disclosed
less frequently:
"II
I(a) currency composition of reserves (by groups of currencies)
11 71 ,603
I--currencies In SDR basket
11 71 ,603
I--currencies not in SDR basket
II
II
II
I--by individual currencies (optional)
I
I
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and depOSits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data prOVided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://wwwtreas.gov/presslreleases2008121315502315275.htm
2/1/2008
777: Trea~ury Assistant Secretary for Financial Markets Anthony W. Ryan February 2008 Quarterly ... Page 1 of 2
January 30, 2008
HP-777
Treasury Assistant Secretary for Financial Markets Anthony W. Ryan
February 2008 Quarterly Refunding Statement
Washington - We are offering $22,0 billion of Treasury seCUrities to refund
approximately $54,5 billion of pllvately held seCUrities maturing on February 15 and
to pay down approximately $32,5 billion, The securities are:
•
•
A new 10-year note in the amount of $13,0 billion, maturing February 15,
2018:
A new 30-year bond In the amount of $9,0 billion, maturlllg February 15,
2038
These securities Will be auclioned on a Yield basis at 100 p,m, EST on
Wednesday, February 6, and Thursday, February 7, respectively, Both of these
auctions will settle on Friday, February 15, The balance of our fillancing
requirements will be met Wltll weekly bills, monthly 2-year and 5-year notes, the
March 1O-year note reopenlllg and the April 5-year TIPS offering and 1O-year TIPS
reopening,
Treasury expects to Issue cash management bills III February, March, and April
Some of these cash management bills may be longer-dated than those recently
issued Such issuance of longer-dated cash management bills would be in
response to seasonal fluctuations In cash balances, volatility associated with the
timing of tax refunds, and the IIlcreased use of electronic payments versus check
payments,
Financing Needs in Fiscal Year 2008 and Bill Market Liquidity
Bill finanCing is Treasury's primary means of addresslllg unexpected or seasonal
fluctuations in borrOWing needs and a highly liquid Treasury bill market reduces the
government's interest expense over time, provides flexibility and promotes more
efficient capital markets Over the past six years, Treasury bills as a percentage of
our overall portfolio have fallen from 27 percent to 22 percent. We plan to IIlcrease
bill issuance amounts in the coming year DOlllg so will enhance liquidity, Improve
flexibility (given greater volatility in short-term Treasury cash balances), and could
Increase outstandlllg bills as a percentage of the portfoliO,
The fiscal year 2008 outlook, even absent the enactment of a fiscal stimulus
package, potentially calls for a higher net marketable borrowing requirement
resulting from larger base lille deficit prOjections and potential reduclions in
issuance of non-marketable securities to states and local muniCipalities,
Consequently, III addition to expected IIlcreases in bill issuance, Treasury may
raise nomillal coupon Issuance In the coming months to address these larger net
marketable borrowlIlg needs
Financing considerations related to potential Federal Reserve security
redemptions
While the deciSions of the Federal Reserve are independent of the Department,
Treasury may also need to raise bill Issuance sizes or issue additional cash
management bills to offset cash shortfalls should the Federal Reserve determille
additional security redemptions are necessary Treasury Will adjust such Issuances
as transparently as possible,
Financing considerations related to potential economic growth package
http://wwwtreas.gov/presslreleases/hp177.htm
211/2008
777: Tre&m-y Assistant ~etary [or Financial Markets Anthony W. Ryan February 2008 Quarterly ... Page 2 of 2
Treasury is also contemplating the optimal method of finanCing should Congress
pass an economic growtll package. The nature of the financing will largely be
dictated by the scope and timing of any such package Based on current forecasts,
additional borrowing needs can be addressed through changes in Issuance sizes of
the existing menu of securities, including cash management bills. If Treasury needs
to make any additional changes to the auction calendar, ample notice will be
provided in a transparent manner to market participants
New Treasury Auction System
As stated in the November 2007 Quarterly Refunding statement, Treasury's
enhanced auction system IS expected to be implemented in the first half of 2008.
We remain on schedule and Will continue to keep market partiCipants apprised of
progress related to the new auction system
Minimum Auction Purchase Denomination
COinciding with the implementation of the new Treasury auction system and as
discussed in the November 2007 quarterly refunding statement, Treasury has
decided to lower the minimum purchase amount in Treasury auctions. Subsequent
to the change, Investors will be able to purchase marketable seCUrities in a
minimum denomination of $100.
This change will broaden distribution, improve individual investor access to
Treasury marketable securities, and lower issuance costs to Treasury.
In addition, new $100 denominational notes and bonds auctioned under the new
system will be available for stripping shortly thereafter. We will provide information
on the exact date following the implementation of the new Treasury auction system.
Current Market Environment
Given current market conditions coupled with lower interest rates, Treasury
encourages private sector efforts to develop additional methods to minimize the
likelihood or impact of systemic fails so that overall market liquidity is not negatively
impacted by Treasury repo financing. Addressing this issue in a proactive manner
would benefit all stakeholders in the market and enhance market liquidity.
Please send comments and suggestions on these subjects or others relating to
Treasury debt management to debLmanagement@do.treas.gov.
The next quarterly refunding announcement will take place on Wednesday, April 30,
2008.
- 30 -
http://wwwtreas.gov/presslreleases/hp777.htm
2/112008
778: Report to The Secretary Of Toe<br>Treasury from The Treasury Borrowing Advisory Commit... Page 1 of 3
10 view or pnnt me I-'U~ content on tl11S page, aowrlloaa me Tree Aaobel!!J Acrobatl!!J HeaaerI!!J.
January 30, 2008
HP-778
Report to The Secretary Of The
Treasury from The Treasury Borrowing Advisory Committee
Of The
Securities Industry And Financial Markets Association
January 29, 2008
Dear Mr. Secretary:
Since the Committee's previous meeting in late October, credit conditions have
remained uncertain and the outlook for the economy has become more negative.
Expectations for growth in the first half of 2008 have fallen from 1.7% to 1 1% and
two primary dealers now expect a recession as a base case for their economic
outlook. Elsewhere the odds of a recession have varied between 30 and 50%.
Housing continues to be a significant drag on the economy and, although that has
largely been offset by a posItive contribution from the Improvement in the U.S. trade
balance, the secondary risk of a drop III consumer spendlllg, combilled with some
eVidence of a weaker labor market, Justify heightened concern about the growth
outlook.
Inflation has remailled somewhat elevated due to price increases for food and
energy. However, the slowlllg economic growth has had a moderating effect on a
variety of other consumer prices, especially for goods and services related to
housing. Core consumer price measures are rising In a 2% to 21'2% range. Chances
favor some improvement in these measures amid tight financial conditions, softer
home prices and higher unemployment, but the falling US dollar and elevated
commodity costs may keep alive concerns about inflationary pressures.
The steady tightening in financial conditions led the Federal Reserve to lower the
Federal funds target by 75 basis POliltS to 31'2% earlier this month. Policymakers
acknowledged that the more restrictive credit environment had Increased the
downside risks to the economy. Futures markets anticipate further reductions in the
policy rate ahead Expectations for a lower funds rate have contributed to a steeper
yield curve with short- to intermediate-term yields having declined the most. Yields
across the US Treasury curve are near the lowest levels in a number of years.
The Federal government's budget defiCit narrowed in fiscal year 2007. But the pace
of revenue collection has eased and economically sensitive spending has firmed in
recent months, suggestlllg a larger fiscal defiCit in 2008. Enactment of an economic
stimulus package would Widen stili further the budgetary shortfall.
The Committee was presented With four charges by the Treasury. After a short
conversation, we chose to begin With the second charge where the Committee was
asked to address their views on the lead/lag effects of revenues and outlays Oil
Treasury debt Issuance In various economic cycles, and the potential Issuance
patterns Treasury should consider given those trends.
One member prepared a presentation on this tOPIC and began the discussion by
citlllg the cyclical nature of tax receipts, suggesting that over three-quarters of the
traditional cyclical deficit swing occurs on the revenue side. The observation was
made that the revenue weakness occurs COinCident with the economiC downturn,
and continues for a period of many months Into the ensuing recovery.
One member noted that CBO projections (as well as others) tended to fall short of
http://wwwtreas.gov/presslreleases/hp778.htm
2/112008
778: Report to The Secretary Of The<br>Treasury from The Treasury Borrowing Advisory Commit... Page 2 of 3
the experienced deficits in economic downturns. This member, as well as other
Committee members, suggested that the volatility of budgetary balances during
these periods should influence Treasury to begin planning for potentially larger
borrowing requirements III the very near future.
This member then went on to suggest that Within Individual non-wlthlleld receipts
there is some nsk of significant decline. These are dnven by capital gains and
Irregular sources of Income, and have risen markedly over the pnor few years, and
consequently were at risk of detenoratlon Within an economic slowdown and/or
eqUity market correction.
In addition, corporate profit margins are likely to weaken over the coming months,
suggesting a potential tangible fall-off In corporate tax receipts. One member
suggested, however, that the data on individual and corporate tax receipts shows
modest signs of degradation at this pOint, but pOlilted out that the March and April
final settlements would be more illustrative.
Hence, With an uncertain set of revenue forecasts, and the Implementation of an
Impending fiscal stimulus package, this member and others cited the need for
Treasury to consider utllizlllg various forms of increased borrowing alternatives.
The Committee followed this discussion by tackling the Treasury's first charge
which was to solicit our views on future debt issuance In light of these and other
Issues.
As discussed earlier, members noted that the fiscal position of the Federal
government has already shown significant signs of deterioration. For example, tax
receipt growth in ttle first quarter of the fiscal year was under 5% after posting three
solid years of strong double-digit growth This weakness was most pronounced in
non-Withheld personal income taxes which actually declined slightly over the period
and corporate taxes which increased only marginally. At the same time Federal
expenditures, which were artificially subdued during the end of the previous fiscal
year due to the government running on a continuing resolution, increased markedly
to almost 9% year-an-year. Consequently, the budget deficit has weakened
materially and is now expected by many private forecasters to be in a range of $325
billion to $400 billion for fiscal year 2008, depending upon the size and composition
of proposed fiscal stimulus packages. This is a sharp increase from the 2007 fiscal
deficit of $164 billion.
Several members of the Committee noted that the current financing structure and
calendar afforded the Treasury With plenty of flexibility over the near-to-Intermediate
term. There has already been, for example, an increase In Treasury bill Issuance
such that the outstanding level of Treasury bills has grown from approximately $800
billion to a little more than $1 trillion. Growth in the Treasury bill market was very
much welcomed by the finanCial markets as uncertalilty in the credit markets has
significantly Increased the demand for safe and liquid securities such as Treasury
bills and short-matunty notes.
One member noted that the recently enacted TAF program by the Federal Reserve
accounted for approximately $80 billion of the increase In Treasury bills
outstanding.
Another member noted that the relatively tepid demand for non-marketable SLGs
by the MuniCipal Market has marginally exacerbated the pressure on issuance of
marketable securities. Most members agreed that the recent under-performance of
MuniCipal Bonds suggests that the demand for SLGs would remain tepid over the
near future.
The combination of these Issues, along with the uncertainty surrounding the size of
potential stimulus plans, biased most members toward the recommendation that
Treasury prepare for the potential need to expand the size, frequency, and perhaps
even the reintroduction of issues to its issuance calendar over the comlllg quarters
Most members agreed that the Treasury should at first expand Issuance across ItS
matunty spectrum and not rely entirely on the expansion of Treasury bill issuance
During our discussion of thiS topic, several Committee members noted the growing
http://wwwtreas.gov/presslreleases/hp778.htm
2/1/2008
778: Report to The Secretary Of The<br>Treasury from The Treasury Borrowing Advisory Commit... Page 3 of 3
difficulties surrounding Treasury's cash management function due to the pending
lumpiness of future maturities and the quickly changing revenue and expenditure
patterns. It was suggested that the Treasury investigate the potential use of longerdated cash management bills and/or a buy-back program designed specifically to
reduce this problem.
In its third charge to the Committee, the Treasury solicited our views on wllat steps
could be taken to minimize the IlkelJllood or Impact of systemic fails In the Treasury
repurchase market.
This is, of course, IlOt a new tOPIC for partiCipants in the Treasury and fixed-income
markets In general and It IS increasingly relevant given the recent decline in the
Federal funds rate, which can effectively reduce the cost of falls In the market by
short sellers and repo counterparties.
Members discussed many of the potential solutions or mitigating actions such as
moral suasion by regulators, encouraging foreign investors to partiCipate in
securities lending and other tactics.
It was agreed, however. that the best course of action was to encourage industry
groups such as the Treasury Market Practices Group (TMPG) and the Securities
Industry and Financial Markets Association (SIFMA) to work Independently and/or
together to present solutions to mitigate these issues.
In the final section of the charge, the Committee considered the composition of
marketable finanCing for the January-March quarter to refund the approximately
$54.6 billion of privately held notes and bonds maturing on February 15, 2008, as
well as the composition of marketable financing for the remainder of the quarter,
including cash management bills. as well as the composition of marketable
financing for the April-June quarter.
To refund $54.6 billion of privately held notes and bonds maturing on February 15,
2008 the Committee recommended a $14 billion 1O-year note due February 15,
2018 and a $9 billion of the 30-year bond due February 15, 2038. For the remainder
of the quarter, the Committee recommended $25 billion 2-year notes in February
and March, a $15 billion 5-year in February and March, and a $10 billion re-opening
of the 1O-year note in March. The Committee also recommended a $25 billion 31day cash-management bill maturing March 17,2008, a $20 billion 14-day cash
management bill also maturing March 17, 2008.
For the April-June quarter, the Committee recommended financing as found in the
attached table. Relevant figures included three 2-year note issuances monthly.
three 5-year note issuances monthly. a 1O-year note issuance in April followed by a
re-openlng In June. a 30-year bond re-openlng in May. as well as a 10-year Tips reopening In May. and a 5-year TIPS opening later that same month.
Respectfully submitted.
Keith T. Anderson.
Chairman
Rick Rieder
Vice Chairman
Attachments (2)
REPORTS
•
•
Table 01 08
Table 02 08
http://wwwtreas.gov/presslreleases/hp778.h t m
2/1/2008
US TREASURY FINANCING SCHEDULE FOR 1st QUARTER 2008
BILLIONS OF DOLLARS
ANNOUNCEMENT
ISSUE
4·WEEKAND
3&6 MONTH BILLS
DATE
AUCTION SETTLEMENT
DATE
NEW
AMOUNT
MONEY
59.00
-3.00
54.00
52.00
49.00
54.00
53.00
46.00
52.00
-2.00
-5.00
3-MO
6-MO
113
17.00
1110
15.00
9.00
2000
1900
1900
18.00
20.00
15.00
21.00
2200
2700
30.00
3000
23.00
24.00
24.00
24.00
18.00
19.00
21.00
21.00
21.00
21.00
30.00
24.00
21.00
30.00
24.00
21.00
63.00
65.00
3000
24.00
21.00
66.00
3000
25.00
22.00
19.00
19.00
6400
7.00
63.00
3.00
860.00
740.00
120.00
1/10
1/17
1/24
1/31
2/7
2/14
2/21
2/28
3/6
3/13
1/17
1/24
1/31
2/7
2/14
2/21
2/28
3/6
3/13
3120
3120
3124
3127
113
MATURING
4-WK
12/31
1/7
1/14
1/22
1/28
2/4
2/11
2/19
2/25
3/3
3/10
3/17
12/27
OFFERED
AMOUNT
DATE
22.00
600
12.00
19.00
2900
23.00
12.00
10.00
900
CASH MANAGEMENT BILLS
31·DAY BILL
2113
2/15
25.00
25.00
000
2/28
3/3
20.00
20.00
000
Matures 3/17
14-0AY BILL
Matures 3/17
000
COUPONS
CHANGE
IN SIZE
10-Year TIPS
1/7
1/10
1/15
8.00
20-Year TIPS
2-Year Note
5-Year Note
1/17
1/24
1/28
1/29
1/31
1/24
1/24
1/31
1/31
8.00
24.00
14.00
2.00
1.00
10-Year Note
3D-Year Bond
1/30
1/30
2/6
2/7
2/15
2/15
1400
1.00
2·Year Note
5-year Note
2/25
2127
2128
2/29
2/29
25.00
2125
15.00
1.00
1.00
10·Year Note - R
3/11
3/13
3/17
1000
1.00
2-Year Note
5-year Note
3/24
3/24
3/26
3/27
3/31
3/31
25.00
9.00
19.40
-11.40
21.60
24.40
54.60
-31.60
21.80
1820
1000
15.00
20.20
19.80
167.00
137.60
29.40
Estimates are italicized
NET CASH RAISED THIS QUARTER:
R : Reopening
149.40
US TREASURY FINANCING SCHEDULE FOR 2nd QUARTER 2008
BILLIONS OF DOLLARS
ISSUE
ANNOUNCEMENT AUCTION SETTLEMENT
DATE
DATE
DATE
4-WEEK AND
3&6 MONTH BILLS
3/27
4/3
4/10
4/17
4/24
5/1
5/8
5115
5/22
5/29
6/5
6/12
6119
CASH MANAGEMENT BILLS
l4-DAY BILL
Matures 4115
6-DAY BILL
Matures 4/15
4-DAY BILL
Matures 4/15
l8-DAY BILL
Matures 6116
11-DAY BILL
Matures 6/16
3/31
4/7
4/14
4/21
4/28
5/5
5/12
5/19
5/27
6/2
6/9
6/16
6123
4/3
4/10
4/17
4/24
5/1
5/8
5/15
5/22
5/29
6/5
6/12
6/19
6/26
4-WK
OFFERED
AMOUNT
3-MO
MATURING
AMOUNT
NEW
MONEY
6-MO
22.00
15.00.
9.00.
9.00
9.0.0.
15.0.0
18.0.0.
18.00
18.0.0
18.0.0
18.00
11.0.0
1300
22.00.
21.0.0.
1900.
1900
19.00.
19.0.0.
190.0
19.00.
19.00.
1900
19.0.0.
19.0.0.
19.0.0.
19.0.0
18.0.0.
17.00
17.0.0
17.00
17.0.0
17.0.0
17.00
17.00
17.0.0
17.0.0.
17.0.0.
17.0.0
640.0.
640.0.
65.0.0.
62.00.
630.0.
57.0.0.
52.00.
52.0.0.
53.00
59.0.0.
6200
6000
59.0.0.
-1.00
-10..00.
-20..00
-17.0.0.
-18.0.0.
-6.0.0.
2.0.0.
2.0.0
1.00
-5.0.0
-8.0.0
-13.0.0
-10.00
669.0.0
772.0.0.
-10.3.00
3/31
4/1
25.0.0.
25.0.0.
0.0.0.
418
419
2200.
22.00.
0.0.0.
4110
4111
80.0.
8.0.0.
0.0.0
5/28
5/29
30.0.0.
30.00.
0.0.0
613
615
12.00.
120.0.
0.00.
0..0.0.
COUPONS
CHANGE
IN SIZE
10-Year TIPS - R
6.0.0
417
4110
4/15
600
5-YearTIPS
2-Year Note
5-Year Note
4/17
4/21
4/21
4122
4123
4/24
4130
4/30
4/30
8.0.0.
250.0.
15.0.0
1.00
1.00.
21.60.
26.40.
10-Year Note
30-Year Bond - R
4130
4/30
5/7
5/8
5/15
5115
1500.
7.0.0.
1.0.0.
2.0.0.
74.0.0.
-52.0.0.
2-Year Note
5-year Note
5122
5/22
5/28
5129
612
6/2
26.0.0
16.00.
1.0.0
1.0.0.
22.10.
19.90.
10-Year Note - R
6/9
6/12
6116
10.00
6/23
6/23
6/24
6/26
6130
6/30
27.00.
17.0.0.
2-Year Note
5-year Note
172.00.
10.0.0.
1.00
1.00
21.10.
22.90.
13880.
33.20.
EStimates are italicized
R = Reopening
NET CASH RAISED THIS QUARTER:
-69.80
779: Minut*':s of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Indu ... Page 1 of 5
January 30, 2008
HP-779
Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the
Securities Industry and Financial Markets Association
January 29, 2008
The Committee convened In closed session at the Hay-Adams Hotel at 10:35 a.m.
All Committee members were present except Gary Cohn. Undersecretary for
Domestic Finance Robert Steel, Assistant Secretary for Financial Markets Anthony
Ryan, Deputy Assistant Secretary for Federal Finance Matthew Abbott. and Office
of Debt Management Director Karthlk Ramanathan welcomed the Committee and
gave them the charge.
A series of charts related to the fiscal situation, and noting current trends, including
Increased year over year growth In revenues (though slower than last year),
Increased growth In outlays, and decreased (negative) issuance in State and Local
Government Securities (non-marketable debt) Issuance, was presented by Abbott
The charts also Illghlighted the trend in Treasury cash balances as well as
addllional information outlining Increased net purchases of Treasury securities by
internalional investors.
Several themes related to the economy, the fiscal outlook, and Treasury debt
issuance as a whole also emerged from the charts. The slides showed that
Treasury would need to Increase ItS marketable borrowing in fiscal year 2008 given
the potential for less gradual shifts in revenues and outlays In FY 2008, a larger
debt maturity profile, decreased issuance of non-marketable securities fiscal year to
date, and any potential fiscal stimulus.
In this vein, Treasury will most likely rely on bills and shorter term nominal coupons
to address these issues. Moreover, Treasury will need to Issue longer dated cash
management bills than recently issued to address issues related to the timing of tax
refunds (given that a larger portion of refunds will be electronic rather than in paper
form thiS year versus last year) as well as to potentially manage any fiscal stimulus.
As coupons were gradually increased, the dependence on bills would lessen
towards the end of the fiscal year barring any surprises. Financing deciSions will
continue to be made in a transparent manner and In consultation with market
partiCipants
Before commenting on the series of charts presented In the first item on the charge,
the Committee Chair suggested that Treasury consider the second Item regarding
Treasury financing patterns. In particular, this charge Item referred to the lead/lag
effects of revenues and outlays on Treasury debt Issuance in various economic
cycles, and the potential issuance patterns Treasury should be cognizant of moving
forward given such trends. The Committee Chair suggested that the discussion of
the second item would provide good background prior to discussion of the first item
A Committee member was asked to address thiS item and presented a series of
slides shOWing cyclical influences on federal finance. According to the presentlllg
Committee member, economic cycles generally produce larger than anticipated
swings in federal budget balances, and the volatility seems to have IIlcreased even
as the economy has become less cyclicaL
In the 2001 recession, the percentage change In the bUdget deficit was 62 percent
of GOP compared to an average change of 2.1 percent of GOP in other
recessionary periods between 1954 and 1995. In addition, errors in budget
projections tend to be serially correlated, Ie, forecasts tend to over-predict defiCits
when the economy is expanding and under-predict deficits when the economy is
contracting.
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779: Minut*':s of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Indu... Page 2 of 5
Tax receipts are highly cyclical. and according to the presentlflg member, nonwithheld and corporate tax revenues pose a greater riSk to Treasury than withheld
taxes. The presenting Committee member noted that corporate taxes over the near
to intermediate term may remalfl stable given the Increased presence of US
corporations abroad, but that a significant dnver on non-withheld receipts - equity
markets - was likely to be less robust as compared to ttle previous cycle.
In addition, the presentlflg Committee member noted that receipts are generally
more volatile than outlays, and this trend was particularly relevant in the last
economic cycle. Weakness in receipts also tends to contlflue well Into recovery
periods because counter-cyclical policy responses tend to be Implemented
belatedly causing revenues to lag.
The presentlflg Committee member stated that debt managers generally had an
extremely challenging role in the current environment given the uncertalflty present
in the economy. While recent tax data does not yet suggest significant weakness,
Treasury should closely monitor the tax season In March and April for greater
clarity The risks to the defiCit were higher Ifl fiscal year 2009 rather than fiscal year
2008, and that a deteriorating economic outlook could lead to significantly larger
deficits.
The presenting Committee member then considered fiscal slimulus proposals,
noting the difficulty with such proposals to be timely, targeted, and temporary. The
presenting Committee member stated that monetary poliCY may be more effective
than fiscal policy, and that fiscal stimulus often is too little, too late. The presenting
Committee member noted that If fiscal stimulus were to occur, a larger and qUickly
Implemented package would be more effective than a phased approach given the
potential positive feedback mechanism within the economy. The presentation
concluded With a recommendation by the presentlflg Committee member on how
Treasury may want to proceed given some of the lead/lag issues related to receipts,
and suggested that Treasury needed to be vigilant of even higher deficits if the
economy weakened.
In the diSCUSSion that followed the presentation, the Committee began by agreeing
that larger defiCits could materialize In fiscal years 2008 and 2009, and that It may
be prudent to begin to plan for such defiCits. Issuance decisions by debt managers
at turning POlflts in the economic cycle are extremely chalienglflg, and Treasury
needs to malfltalfl flexibility. One member opined that in a worse case scenario,
deficits could double over the next few years, even before the expected secular
increases In budget deficits are expected in the 2013 to 2017 period This member
stated that treasury should plan now for such scenarios to preserve its flexibility and
to have a form of "Iflsurance".
Several members agreed with thiS perspective With one member suggesting that
Treasury needed to start thlflking more strategically about tile funding Issues by not
only considering finanCing quarter-by-quarter but also financing over an entire
economic cycle. A few members noted that while theoretically appeallflg, planning
for more than one year - even one quarter - was extremely difficult given very large
projection errors.
A brief diSCUSSion ensued about whether the stimulus package would create
temporary or secular defiCits, With members suggestlflg it was a difficult dynamiC
modellflg question given that such stimulus could Iflcrease revenues. One member
suggested that Treasury should consider extending ItS duration by Increasing
issuance of longer-term maturities. Several members questioned whether such
longer-dated issuance would constitute an overreaction since little is knowil about
whether economic growth over ttle Intermediate term was prolonged or temporary
(i.e. will the recovery going to be "V-shaped", "U-shaped" or "L-shaped") Another
member stated that for the time being, Treasury could finance deficits In FY 2008
with Its current auction calendar, but that if the economy should weaken materially
or appear to be headed towards a prolonged receSSion, Illcreaslflg nomillal
Issuance In the 1O-year and 30-year sectors may be prudent at that pOint
A member opined that Treasury that cash management was Just as important as
debt management. and that as part of a comprehensive strategic plan, Treasury
needed to utilize more of its eXisting tools Includlllg the repurchase of securities
(buybacks). A few members stated that Treasury should consider the repurchase of
Treasury securities during particularly large debt maturity periods using seasonal
http://wwwtreas.gov/presslreleases/hp779.htm
2/112008
779: Minut*':s of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Indu ... Page 3 of 5
large cash balances.
These repurchases. done In a transparent manner, could be used to lessen the
Impact of large debt maturity dates (such as those in May, August, and November),
reduce the size of cash management bills, and proVide greater flexibility to the
Treasury. Another member agreed and suggested that Treasury study uSlllg debt
purchases In the market to mlllimize cash balances and reduce tile risk associated
with very lal'ge cash management bills or bill issuance dUring periods of increased
debt matUrities. Director Ramanathan agreed to examine Treasury's use of debt
repurchases for cash management purposes
The Committee then turned to the diSCUSSion of the first question in the charge
concerning tiloughts on fiscal outlook and finanCing the proposed fiscal slimulus.
Several members noted that given the current deficit prOJections, the use of bills
IIlcludlllg ttw use of long-dated cash management bills as well as increaslllg shortterm coupon sizes would be suffiCient to financlllg in fiscal year 2008. One member
suggested that between $80 billion and $100 billion of stimulus would need to be
financed In the current fiscal year, and that Treasury was suffiCiently prepared to
meet this need.
A few members noted that the market could easily absorb another $100 billion in bill
issuance if it occurred gradually. Some members noted that there was a renewed
appetite for risk-free credit assets from both traditional and non-traditional accounts,
and that issuing more bills as well as longer dated cash management bills in thiS
environment may be beneficial for both investors and the Treasury
A couple of members pointed out that such a strategy of using bills and increasing
Issue sizes of shorter maturity coupons would only work if current deficits
prOjections were realized and there were no surprises to the economy. The member
cautioned that Treasury should be more cognizant of potential upside risks to the
deficit or "fat tail" events, Including further slowing In the economy or the potential
for some other unforeseen policy responses such as additional stimulus packages.
Prudent risk management suggested a cautious approach including some increase
In coupons One member noted that the economic outlook had changed
dramatically with the IIltroduction of a stimulus package and that reintroducing the
3-year note would be readily accepted by market participants.
The Committee concluded the diSCUSSion by stating that Treasury should be
prudent and continue to monitor risks to a larger defiCIt. Increased Issuance in bills
and shorter dated nominal coupons would be sufficient barring nay unforeseen
circumstances. In addition, tile Issuance of longer dated casil management bills to
bridge temporary cash outflows related to the tax refund season as well as any
stimulus package would be wise. If financing needs were to increase, Treasury
should first conSider addressing these needs through Increases III auction sizes,
then increases In auction frequenCies, and filially, conSider adding maturity POllltS.
In all of these chOices, Treasury should conSider cost trade offs between the three
actions.
In the final item of the charge, the Committee was asked about their thoughts
regarding the low-interest rate environment and ItS Implications on systemic fails. In
particular, the Committee was asked if current market conditions, coupled With the
potential for lower Interest rates, raise the potential risk of systemic fails. The
Committee was asked if any additional steps should be taken to minimize the
likelihood or Impact of systemic fails so that overall market liquidity is not negatively
impacted by Treasury repo finanCing.
A series of charts related to thiS matter were presented including a chart of the
relation of low rates to Treasury fails to deliver, as well as recent actions in the
market which have improved overall liquidity. Private sector efforts initiated by such
as the Securities Industry and FinanCial Markets Association (SIFMA) and tile
Treasury Markets Practice Group (TM PG) have looked at these issues since the
last episode of systemic fails, but Treasury asked the Committee If more could be
done. In particular, Treasury asked if other methods such as negative rate tradlllg,
strengthening the buy-in rule, and/or promotlllg greater coordination among
financial institutions were worth conSidering.
Committee members generally agreed that more work needed to be done in a fairly
rapid time frame regarding thiS issue to assure contlllued market effiCiency III a low-
http://wwwtreas.gov/presslreleases/hp779.htm
2/1/2008
779: Minut~s of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Indu...
Page 4 of 5
interest rate environment. Several members did not realize that these specific
actions had not been fully implemented since the last serious wave of fails Another
member cautioned that any solution still had tile potential to be "gamed." and one
had to always be aware of the law of unintended consequences . Another member
suggested that reopening issues was a tool that should be considered despite
Treasury's firmly stated reluctanc e to add permanent supply. Several members
noted that private sector groups need ed to focus their attention on this issue given
the speed in which fails could become elevated, and those suggestions such as
negative rate trading and or other netting measures needed to be introduced.
Moral suasion was also emphasized as another method to deal with systemic fails .
Specifically. determining whicll market participants are holding securities back from
market and encouraging those players to lend during times of protra cted shortages
and systemic fails was critical. Another member suggested tilat Treas ury reconsider
providing temporary supply via a securiti es lending facility.
Several members noted that the publishing of the Treasury Market Best Pracli ces
by the TMPG was well received by mark et participants. but that specific,
complementary solutions needed to be implemented in a compressed time frame to
prevent another episode with prolonged fails . A member asked if major central
banks were aware of the TMPG and the opportunities in lending in the financing
market. Director Ramanatilan stated that reserve managers at major centrat banks
as well as international investors wh icll Treasury regularl y spoke to felt that the
Treasury Best Practices document was a positive development, and looked forward
to continued efforts by all stakeholders.
The committee agreed that the TMPG, in co njunction with SIFMA and other private
sector enlities. should draft recommendations on effective. practical methods which
could be quickly implemented to address systemic fails. The Committee agreed that
this iss ue need to be managed in a timely manner given the speed in which rates
have decreased and the global nature of the Treasury market.
Director Ram anathan agreed that Trea su ry wo uld continue to follow the work of
SIFMA, the TMPG . and other priva te sector parties , and suggested that any such
recommendations and responses be presented to the Committee at a subsequent
meeting .
The Committee th en reViewed the fin ancing for the remainder of the Janu ary
through March quarter and the April tllrough June quarter (see attached) .
The meeting adjourned at 11 :55 a.m .
The Committee reconvened at the Hay-Adam s Hotel at 600 p.m. All the Committee
members except Gary Cohn were present. The Chairman presented the Committee
report to Assistant Secretary Rya n. A brief discussion followed the Chairman's
presentation but did not raise significant questions regarding the report's content.
The meeting adjourned at 6: 15 p.m.
Karthik Ram ana than , Director
Office of Debt Management . United States Department of the Treasury
January 29 . 2008
Certified by
Keith T. Anderson. Chairman
Treasury Borrowing Advisory Committe e
of The Secunties Industry and Fin ancial Markets Association
January 29, 2008
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779: Minutes of the Meeting ofthe Treasury Borrowing Advisory Committee of the Securities Indu...
Page 5 of 5
Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge - January 29, 2008
Fiscal Outlook
Given recent trends in the fiscal outlook, what are the TBAC's thoughts on
Treasury's debt issuance? In addition, Treasury would like the Committee's views
on the proposed fiscal stimulus and how such stimulus could be financed by
Treasury.
Treasury Fillanclllg Patterns
Treasury would like the Committee's perspective on the lead/lag effects of
revenues and outlays on Treasury debt Issuance in various economic cycles, and
the potential issuance patterns Treasury should be cognizant of moving forward,
given such trends.
Low Interest Rate Environment
Current market conditions. coupled with the potential for lower Interest rates raises
the potential risk of systemic fails, a risk that we believe could Impair liqUidity and
raise our cost of borrowing. Should any additional steps be taken to minimize the
likelihood or impact of systemic fails so that overall market liquidity IS not negatively
impacted by Treasury repo financing?
Financing this Ouarter
We would like the Committee's adVice on the following.
•
•
•
The compOSition of Treasury notes and bonds to refund approximately
$54.5 billion of pnvately ileld notes maturing on February 15. 2008.
The COIn position of Treasury marketable fillancing for the remalilder of the
January-March quarter. Including cash management bills.
The composition of Treasury marketable financing for tile Apnl-June
quarter.
- 30-
http://www treas.gov/presslreleases/hp779.btm
2/1/2008
782: --UPDATE-·<br>Secretary Paulson to Mark Earned Income Tax Credit Awareness Day
Page 1 of 1
January 30, 2008
HP-782
--UPDATE-Secretary Paulson to Mark Earned Income Tax Credit Awareness Day
Treasury Secretary Henry M. Paulson, Jr. will join U.S Treasurer Anna Escobedo
Cabral, Acting IRS Commissioner Linda Stiff, Senator Max Baucus and Senator
Charles Grassley in holding a press conference Thursday, January 31 marking
EITC Awareness Day, which promotes the earned income tax credit This briefing
will also be Web cast on the Treasury Department's website www.treasury.gov.
The EITC is one of the government's largest cash assistance programs targeted to
low-income, working Americans, and has successfully brought millions of
Americans out of poverty. Yet, nearly 1 in 4 Americans who are eligible for the
credit do not claim this important benefit
The Treasury and the IRS will promote EITC Awareness Day in conjunction with
hundreds of local area partners who will be holding similar events across the
country to promote the EITC and free tax preparation services for working families.
For more information on the EITC, visit the IRS's website at IRS.gov.
Who
Secretary Henry M. Paulson, Jr.
Treasurer Anna Escobedo Cabral
Acting IRS Commissioner Linda Stiff
Margaret Roark, Chairwoman, IRS Advisory Council
What
Press Conference Marking EITC Awareness Day
When
Thursday, January 31, 1030 a.m. EST
Where
Media Room (4121)
Treasury Department
Note
Media Without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or frances.anderson@do.treas.gov with the following information:
full name, Social Security number and date of birth.
This briefing will also be Web cast on the Treasury Department's website:
Treasury.gov.
http://www treas.gov/presslreleases/hp782 htm
211/2008
783: Testimony of Douglas H. Shulman <br>before the Senate Finance Committee <br>on <br>No...
Page I of 2
January 29, 2008
HP-783
Testimony of Douglas H. Shulman
before the Senate Finance Committee
on
Nomination to Become the Commissioner of Internal Revenue
Washington, D.C.--Good morning, Mr. Chairman, Ranking Member Grassley and
Members of the Committee
My name IS Douglas Shulman and I am currently the Vice Chairman of the
Financial Industry Regulatory Authority. It is an honor to appear before the
Committee today as you consider my nomination to become the Commissioner of
Internal Revenue.
I appreciate your giving me the opportunity to make a brief opening statement
before taking your questions I would also like to take this opportunity to introduce
my Wife, Susan, and my two children, Benjamlll and Eve.
Mr. Chairman, the Importance of the Internal Revenue Service (IRS) cannot be
overestimated. How the IRS approaches its work, and Interacts with taxpayers,
greatly affects both the functioning of the federal government, as well as Americans'
overall view of their government
The IRS touches every adult, every business and every non-profit organization In
America. For many Citizens, it IS the only federal agency With which they Will have
contact in a given year
Never has thoughtful leadership and direction at the IRS been more critical, as the
federal government's responsibilities to ItS Citizens have grown.
As you know, the IRS collects the vast majority of the revenue needed to fund our
government and the services It prOVides, from protecting the environment to
defending our homeland to Improving educational opportunities and IIlcreaslng
access to health care services. It is an awesome responsibility to lead such an
agency. And because I recognize the enormous challenge of the pOSition, I have
given a lot of thought as to how I would approach the job
Since I've been nominated, many people have asked me If I would emphaSize
service or enforcement But to be forced to choose between the two is a false
chOice. In order to execute ItS miSSion, the IRS must do bolli.
For taxpayers who pay their taxes Willingly and on time, which IS the great majority
of Americans, there must be clear gUidance, accessible education, and outstanding
service. Our aim should be to make It as easy as pOSSible for them to pay the
correct amount of taxes in the most effiCient and least burdensome manner
pOSSible For taxpayers who Intentionally evade paying their taxes, there must be
rigorous enforcement programs But whether serving taxpayers or enforCing the
law, it IS absolutely essential that American's believe the IRS IS fair and that It
respects the rights of all taxpayers.
Thanks to Commissioners Rossotti and Everson, there are important initiatives
currently In place that if confirmed I would antiCipate conlinUing. I would also bring
a fresh set of eyes to the pOSition, and ensure that the agency continues to evolve
as circumstances change.
Any effort to improve services must Include a commitment to IRS modernization
IRS employees must have timely access to taxpayer data so assistance IS quick
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783: Testlmony of Douglas H. Shulman <br>before the Senate Finance Committee <br>on <br>No... Page 2 of 2
and accurate. This will require focusing on and investing In IRS processes, as well
as the IRS's information technology systems If confirmed as Commissioner, I
would make this one of my top priorities.
The IRS must also continue ItS rigorous enforcement programs It must deter those
who may be inclined to evade their legal tax obligations and pursue those who
engage in evasion And as Members of this Committee already know. In recent
years a number of significant steps have been taken to shut down tax shelters and
other abusive transactions that were ueated for no other reason than to avoid
taxation
I also believe that it IS essential for the IRS to work closely With the practitioner
community. Includlllg lawyers. accountants. and tax preparers - a Vital part of our
nalion's tax compliance system. The IRS must use all the tools at its disposal dialogue. education. service and enforcement - to ensure that these Important
members of the tax community are partners in our efforts to see that all individuals
and institutions meet their tax obligations
Finally. if confirmed. I plan to focus on leadership and employee development
dUring my tenure as Commissioner I have been extremely impressed by the
current leaders of the IRS and its dedicated and talented workforce. However. like
other federal agencies. many experienced and knowledgeable IRS employees Will
be approaching retirement eligibility in the coming years. It is critical that the next
Commissioner devotes significant attention to the recruitment. training and
grooming of the next generation of IRS leaders.
Mr. Chairman. it is an honor to have been nominated by the President to be the
next Commissioner of the IRS. I am under no Illusion that. If confirmed. it will be a
very demanding and difficult Job
As Commissioner. I would do everything in my power to ensure that the nations' tax
laws are administered in a fair and effiCient manner. Essential to my success would
be a close partnership with Members of Congress on both Sides of the aisle. and
you have my commitment to work closely with thiS Committee.
Thank you and I would be happy to respond to your questions.
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2/1/2008
784: Treasl!TY Secretary Paulson to Deliver Remarks on the U.S. Economy
Page I of 1
January 29, 2008
HP-784
Treasury Secretary Paulson to Deliver Remarks on the U.S. Economy
Secretary Henry M. Paulson, Jr. will deliver remarks on Wednesday at The Real
Estate Roundtable's State of the Industry Meetillg. He will discuss the state of the
US. economy and the fiscal growth package.
Who
Treasury Secretary Henry M. Paulson. Jr
What
Remarks on the U.S Economy
When
Wednesday, January 30, 2:30 p.m EST
Where
Park Hyatt Washington
Park Ballroom
24th and M Streets, NW
Washington. D.C
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2/1/2008
785: Treasury To Hold Briefing, on Clean Technology Fund
Page 1 of 1
January 29, 2008
HP-785
Treasury To Hold Briefing on Clean Technology Fund
Under Secretary David H. McCormick will hold a briefing this afternoon on the clean
technology fund President Bush discussed in the State of the Union address. No
cameras will be permitted into tile briefing
Who
Under Secretary David H. McCormick
What
Pen-and-Pad Briefing on Clean Technology Fund
When
Tuesday, January 29,200 p.m. EST
Where
Andrew Johnson SUite (3432)
US. Treasury Department
1500 Pennsylvania Avenue, NW
WaShington, D.C.
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or frances.anderson@do.treas.gov with the following information:
full name, Social Security number and date of birth.
A fact sheet on the energy initiatives discussed in the State of the Union address is
available at: ttp://www.whitehouse.gov/stateoftheunion/2008/initiatives/energy.html
http://www treas. gOYIpresslreleases/hp785htm
2/112008
te of The Uldon 2008 Initiatives
Page 1 of2
Increasing Our Energy Security And Confronting Climate Change
The Administration Is Taking Steps To Reduce U.S. Dependence On Oil, And To Advance U.S. Leadership In Developing A
Global Response To Climate Change
1ight, President Bush will call on Congress to work with him on the next steps to improve our energy security and
,front the challenge of climate change without undermining economic growth. Last month, the President signed an
lrgy bill that will help cut greenhouse gas emissions and reduce U.S. dependence on oil, which harms America economically
)ugh high prices at the gas pump. As world demand for energy continues to increase, the President urges Congress to act on
remaining proposals from his energy security agenda:
• We must continue changing the way America generates electric power through even greater use of clean coal
technology, solar and wind energy, and clean, safe nuclear power.
• We must increase our domestic supply of oil in a prudent and environmentally sensitive way. The President urges
Congress to pass legislation that opens access to domestic energy sources in the Outer Continental Shelf and Alaska and
that protects America against supply disruptions by doubling the Strategic Petroleum Reserve.
• President Bush is committing $2 billion over the next three years to create a new international clean energy
technology fund to help confront climate change worldwide. Along with contributions from other countries, this fund
will increase and accelerate the deployment of all forms of cleaner, more efficient technologies in developing nations like
India and China, and help leverage substantial private-sector capital by making clean energy projects more financially
attractive.
! President
Will Call On Congress To Work With Him To Take Advantage Of New Clean Energy Technologies
sident Bush supports an increase in the use of nuclear power as a clean, safe, and affordable alternative energy
Irce to meet America's growing needs for electricity. Nuclear power produces no greenhouse gases, and a growing
lber of people believe it is an environmentally necessary choice. Without its use, power sector C02 emissions would have
n 28 percent greater in the electricity industry in 2005 - nearly equal to the annual emissions from all 136 million passenger
; in the U.S.
sident Bush seeks to fund new technologies that can produce power from coal with significantly lower carbon
ssions. Coal is America's most abundant and affordable energy resource, responsible for generating about 50 percent of
~rica's electric power. We are now cutting harmful air pollution from coal, and we have to learn to cut C02.
sident Bush is dedicated to strong growth in renewable electricity generation. Since 2001, wind power in the U.S. has
'In 550 percent and photovoltaic solar power grown by 525 percent; overall, renewable power has nearly doubled. The U.S.
the world in new wind capacity in 2006 and 2007. The President's Solar America Initiative - launched in 2006 - doubled U.S.
,stment in solar energy. The U.S. leads the world in geothermal electricity generation, with almost 3,000 megawatts of new
3city planned for development in the West.
United States will continue to lead the way in developing the clean and efficient technologies critical to reducing
m~ouse gas emissions while fostering economic growth. Since the President took office, the Federal government has
Imltted nearly $18 billion to research, develop, and promote clean and efficient technologies and help get them to market.
private sector has responded with significant investments, ranging from corporate research and development to the venture
tal markets.
:omplement the new international clean technology fund, the United States and the European Union have jointly
~osed in the WTO to eliminate tariff and non-tariff barriers to clean energy and environmental technologies and
'Ices. Global trade in the goods covered by the proposal totaled $613 billion in 2006 and could increase by an additional 7ercent annually according to the World Bank.
Administration Continues To Lead The Effort To Reach A New, Post-2012 Global Agreement
President will reaffirm the United States' commitment to work with major economies and through the UN to
Iplete an international agreement that will slow, stop, and eventually reverse the growth of greenhouse gases. This
ement will be effective only if it includes commitments by every major economy and gives none a free ride.
:IIWWw.whitehouse.gov/stateofrheunionJ2008/initiatives/print/energy.htmI
211/2008
te of The Un!on 2008
Initiatives
Page 2 of2
s week, the United States will host the second Major Economies Meeting on Energy Security and Climate Change.
,sident Bush announced this initiative in May 2007 to work with all of the world's largest energy users, including both
'eloped and developing nations, to produce. a detail.ed contribution from the leaders of these countries to help establish an
!rnational agreement by 2009 under the United Nations Framework Convention on Climate Change. In September, the U.S.
ited representatives of 17 world leaders plus the United Nations.
lecember, the United States joined the global consensus at the UN Climate Conference in Bali to launch a
nprehensive "roadmap" for global climate n~gotiations .. The Bali Action Plan is a critical first step in moving the UN
lotiation pr~c~ss .f0rv:'ard toward.a ~ompreh.e~slve ~nd effect.lve ~ost-2012 arrangement by 2009. The United States looks
yard to participating In the negotiations envIsioned In the Bali Action Plan, including through the Major Economies Process
I other appropriate channels to achieve an effective outcome.
! Energy Independence And Security Act Of 2007 Will Reduce U.S. Gasoline Consumption And Help Diversify
Ijlrica's Energy Sources, And Produce Some Of The Largest Greenhouse Gas Reductions In U.S. History
)ecember, President Bush signed the Energy Independence and Security Act of 2007, which responded to his
tenty in Ten" challenge in last year's State of the Union Address to improve vehicle fuel economy and increase
!rnative fuels. This bill will help reduce America's dependence on oil, improve efficiency, and cut emissions by:
• Mandating that fuel producers use at least 36 billion gallons of biofuel by 2022. Although on a longer timeline than
the President proposed last year, the new requirement represents a nearly five-fold increase over previously required
levels.
• Mandating a national fuel economy standard of 35 miles per gallon by 2020 - which will increase fuel economy by
40 percent and save billions of gallons of fuel. This requirement represents the first statutory increase in automobile
fuel economy standards since 1975 and includes an important "attribute-based" reform the President called for that will
ensure that increased fuel efficiency does not come at the expense of automotive safety.
• Mandating increases in energy efficiency of light bulbs by 30 percent. This will effectively phase out most common
types of incandescent light bulbs by 2012.
• Mandating new efficiency standards for nine appliances and encouraging the development of more efficient
commercial buildings, in addition to work already underway to update dozens of existing standards.
• Mandating that Federal government operations reduce total energy use in Federal buildings by 30 percent by
2015, reduce annual petroleum consumption by 20 percent by 2015, and increase use of alternative fuels by 10
percent by 2015. These new provisions effectively adopted key requirements of an Executive Order that President Bush
issued last year. Because the Federal government is one of the world's largest consumers of energy, these steps will not
only have significant energy security and climate benefits, but will also help boost markets for cleaner, more efficient
technologies.
en together, these programs will cumulatively reduce projected greenhouse gas emissions by more than six billion
ric tons by 2030, according to preliminary estimates.
Jrn to this article at:
Ilwww.whitehouse.gov/stateoftheunion/200S/initiatives/energy.htm I
://WWw.whitehrose.gov/stateoftheunion/2008/ini tiati ves/print/ en ergy. html
2/1/2008
786: Remafts hy Deputy Secretary Robert M. Kimmitt at the Virginia Military Institute
Page 1 ot 6
January 29, 2008
Hp·786
Remarks by Deputy Secretary Robert M. Kimmitt at the Virginia Military
Institute
A Department Transformed Treasury's Role
III
National Secunty
Lexington, Va. - Thank you, Casey Brower, for your kind introduction, but
moreover for forty years of support as a classmate and friend. And sincere thanks
to the Virginia Military Institute for inviting me here to address both the Cadets and
the wider VMI community.
It has been my honor to serve with VMI graduates In war and peace, in uniform and
in civilian life. Your Superintendent, General Peay, was a fellow Field Artilleryman indeed, he was my assignments officer when I returned from Vietnam. I envy you
Cadets the years of service In front of you, whether In uniform or in the private
sector. And, in addition to your faith and family, you can be sure of one constant
source of support throughout your life - the classmates Sitting around you today. In
that connection, I would note that, in addition to General Brower, we are joined
today by Colonel Red Taylor, both a West POint classmate and company·mate of
mine.
I would like to talk to you today about the Department of the Treasury, one of our
oldest and most respected federal institutions. When many of you think of the
Treasury. I am sure you think about our most visible and well known functions:
printing paper currency, minting COins, collecting taxes, issuing savings bonds,
regulating nalional banks, and managing the economy. But especially since the
tragic events of 9·11·2001, Treasury has gone well beyond these time·honored
responsibilities and has begun to play an ever·greater role in protecting our national
security. I want to make sure that this Important audience knows about thiS
transformed Treasury Department.
As 1 speak to you today. I am reminded of the coullsel I received before going to
Germany as Ambassador In 1991 My predecessor, Vernon Walters, passed along
only one bit of adVice "Don't ever forget how important speeches are to the
Germans. They like to give speeches, listen to speeches, and analyze speeches far
more than IS the case In the United States." He recounted a story of speaking once
to a distinguished group like the one assembled here today. He spoke in his
excellent German for 40 minutes and sat down, rather pleased with himself, only to
have the host of the event stand and say, "Mr. Ambassador, thank you so much for
your remarks. If you ever have time for a real speech, please come back to see us
agam." Well, if 40 minutes IS when a "real speech" starts, my allotted 30 minutes
only leaves me time today for "remarks," but I hope they will be remarks that give
you new insights into your Treasury Department.
The U.S. Economy, Credit Markets, and Housing Markets
Before turning to Treasury's expanding role in national security affairs, I would like
to say a few words about the state of the US and global economies - an Issue at
the forefront of Treasury's agenda, and one that was a key topic of interest at the
World Economic Forum In Davos, which I attended last week.
As the President said last evening III hiS State of the Union address, the U.S
economy is fundamentally healthy and IS expected to continue to grow. A broad
view of the economy shows that there are many signs of strength that Will help keep
it on a solid path Real GOP growth was 4.9 percent in the third quarter of last year.
supported by gains In consumer spending and bUSiness Investment. Continued
global economic growth is helping to boost US exports, commercial construction IS
strong, and core inflation remains contained.
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786: Remarh hy Deputy Secretary Robert M. Kimmitt at the Virginia Military Institute
Page 20
At the same time, growth looks to have slowed recently, and the U.S. economy is
facing significant headwinds from housing, credit markets, and energy prices.
The correction we are currently experiencing in the housing market remains
formidable, and was inevitable at some pOint after years of unsustainable home
price appreciation. Housing has subtracted substantially from real GOP growth
since the correction began in early 2006 Housing starts have fallen over 50 percent
from their peak, and, nationwide, home pl·lces are up just 2 percent over the past
year. Some regions that experienced the highest house price appreciation are now
seeing price declines.
Turmoil in credit and mortgage markets is also of concern. Fortunately, our finanCial
institutions entered into this recent period with strong earnings and strong capital.
They continue to be well-capitalized, and regulators are monitoring their status
closely. These challenges will take time to resolve, and we are especially mindful of
the risk that banks could reduce their lending to creditworthy borrowers.
Some of the incoming economic data are raising concerns about the health of our
expanSion, including reports that consumer spending IS slowing. Also, while job
creation in the United States continues, December saw a much more modest pace
of growth. Although we saw the 52nd consecutive month of job increases, a U.S.
record, the 18.000 jobs created in December were the smallest gain of that 52month period.
Therefore. while I am confident about our long-term economic strength, there are
short-term downside risks. For this reason, and at the direction of the President. the
Administration is working closely With Congress to reach a bipartisan agreement to
develop a short-term economic growth package that can be put in place as soon as
possible to keep our economy growing and creating jobs this year.
After much hard work With House leadership. the Administration reached an
agreement last Thursday on a package that is meant to be temporary, broad-based.
and have an impact immediately. It Includes measures to bolster business
investment and consumer spending ~ both of which are critical to economic growth.
The experience of the 2001 and 2003 tax cuts showed that providing tax relief to
families stimulates the broader economy by boosting household spending.
Furthermore, offering incentives to spur business investment Will encourage
businesses to expand and create new jobs. By quickly putting in place this shortterm package, we can protect the strength of our economy as we weather the
housing correction
The Administration IS also continuing to promote initiatives to minimize the impact of
the hOUSing market downturn on the economy. In the short term. we are fOCUSing on
the number of preventable foreclosures we can avoid We must remember that the
ultimate goal here is not the freezing of rates on as many mortgages as possible.
but rather the prevention of foreclosures where we are able. This is how we Will
best measure success
And we have made progress on two fronts. First, the HOPE NOW alliance, a private
sector coalition of mortgage servicers. mortgage counselors, investors, and trade
associations. has announced promiSing developments by stepping up the rate at
which they are modifying subprime mortgages to stave off foreclosures. In fact,
mortgage servicers modified subprime loans in the fourth quarter at a rate three
times faster than In the third quarter. Second, the Administration's FHASecure
program allows homeowners who have missed payments to refinance their
mortgages. Of course, more needs to be done ~ including ensuring that we address
the underlying causes to avoid a recurrence. We need to strengthen the oversight
of the Government Sponsored Enterprises Fannie Mae and Freddie Mac, examine
the role of credit rating agencies. and study Issues such as the regulation of
mortgage brokers.
The challenges before us are complex, and we are working hard to address the
economy's short-term needs. But I want to reiterate that the US economy is
diverse and resilient. It has been remarkably robust in recent years and will be so
again.
Evolution of Treasury
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786: Rematk'~ hy Deputy Secretary Robert M. Kimmitt at the Virginia Military Institute
Page 3 of6
Even as we at Treasury work to address current economic challenges. a core
Treasury responsibility since ItS founding, I cannot help but reflect on how the
Treasury's role today has notably expanded from what It was dUring my first tour at
the Department In the 1980s, when I served as TreasUl-Y General Counsel under
Secretary James Baker and President Ronald Reagan.
DUring those years, the Treasury Department was only occaSionally Involved In
high-level National Security Council meetings or the Administration's major policy
discussions as they related to thl-eats to our national security. Today, the growing
Interdependence of the global economy and our own economiC interests around the
world dictate a greater role for Treasury In national security Issues.
At the outset. let me say that even after 30 years of working on national security
issues at senior levels of the US Government, I have never seen a definition of
national security that IS enduring and all encompassing, precisely because national
security IS a dynamic concept that adapts to changes In the world situation National
security meant one thing in the Cold War period from 1945-1991: quite another in
the post-Cold War period from 1991-2001; and something very different again after
September 11 , 2001 _
In my View, national security IS defined best by ItS elements, which themselves will
adapt over time. In short, national security is the summation of our foreign, defense,
and international economic policies, all resting on a strong Intelligence base. It is
the growth In importance of the International economic policy component of national
security that has been so striking over the past ten years
As a result, Treasury now participates in 5-10 National Security Council meetings
each month, as compared to maybe one a month when General Brower and I
served together in the Reagan years. We contribute on the positive side of our
agenda that is, strengthening finanCial systems and contributing to the
development of economies In difficult security environments such as those In Iraq
and Afghanistan We also have a punitive capability uSlllg powerful new legal
authorities to combat illiCit finanCial activity perpetrated by countries such as Iran
and North Korea_
Today I would like to discuss two specifiC areas that illustrate thiS evolution
Treasury's contribution to the development of the Iraqi economy; and our role In
combating Iran's illiCit conduct In support of terrorism and nuclear proliferatlon_
Iraq
Over the past five years, Treasury has played a major role In helping the
Government of Iraq create a stable macroeconomic environment and bUild a solid
foundation for economic growth_ Of course, security remalils the major challenge
facing Iraq's young democracy. But economic progress contributes directly to the
prospect of enhanced security and a better life for the Iraqi people_
An economy that is spiraling out of control - because of hyperinflation or plunging
growth - undermilles social cohesion and fosters civil unrest. This unrest plays
directly into the hands of Insurgents, who can explOit the Iraqi government's failure
to provide economic security as a rationale for JOining their efforts, thereby impeding
or reverslllg the security gains that the Iraqi and US military work so hard to
achieve_ As a result, the PreSident and the National Security Council have looked to
Treasury and other agenCies to help promote the poliCies and provide the technical
expertise necessary to support a stable and growing economy_ Gains in achieving
this goal have been significant and, In my view, underemphasized_ Let me give you
a few examples_
When Saddam Hussein was forced from power, Iraq's currency was becoming
worthless, and counterfeiting was rampant. Consider how Important a stable
currency is to dally life - we need to know that the currency we hold Will maliltain Its
value_ When people lose faith in their currency, as happened, for example, In
Weimar Germany In the 1920s, the result IS economic chaos_ Moreover, they may
try to replace their currency with more reliable substitutes, such as gold or foreign
currencies, which only exacerbates the problem_
In 2004, Treasury helped the Government of Iraq develop a new currency_ The
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786: Remal\rs hy Deputy Secretary Robert M. Kimmitt at the Virginia Military Institute
Page 4 of6
introduction of the new Iraqi dinar required the pl-intlng of 2,300 tons of currency at
facilities around the world, the shipment of this currency to Iraq via Boeing 747s, the
circulation of this currency to 250 distribution points around the country, and the
hand-to-hand exchange of tile currency. About 2 billion banknotes Ilave been
successfully swapped, and the result has been a stable Iraqi dinar that IS widely
used by Iraqis.
High Inflation was anotller major challenge ~ rapidly rising prices meant that more
and more Iraqis found lilat their standards of liVing were dropping. Iraqi efforts in
this area have resulted in another major success story Inflation has declined from
77 percent in mid-2006 to less than 5 percent by December 2007.
On the mlcroeconomic level. we are seeing signs of progress. as well. For example.
there has been a surge In registered businesses, which have Jumped 500% postSaddam, from 8.000 to over 40.000. We have also seen the advent of mobile
technology. from almost zero to now 8 million cell phone subscribers. almost 1/3 of
the Iraqi population. Similarly, there are now more than 260,000 internet
subscribers, compared to an estimated 4.500 before the war
The new government also Inherited billions of dollars of Saddam-era government
debt, many times more than Iraq could possibly repay. Imagine if you inherited
credit card debt that was several times your annual salary. Without paying it off, you
could not get new credit. and the debt would continue to build because of interest
and penalties. In the case of Iraq. we helped the new government work out a deal
with their creditors under which 80 percent of the debt was fully forgiven. and the
remaining 20 percent paid off over several years. To date. 30 countries have
concluded agreements proViding debt forgiveness to Iraq worth $33 billion. As a
result. Iraq IS now on a much more financially sound footing, which In turn provides
for a more attractive environment for international investors looking at opportunities
in Iraq.
Treasury was also called upon to use its investigative expertise to lead the effort to
Identify and repatriate to the Iraqi people billions of dollars stolen by the Hussein
regime. As a result of these efforts. we were able to Idenlify and return more than
$2 billion located in more than 500 bank accounts in 41 countries.
Treasury also continues to co-chair, with the Department of Defense, the Baghdadbased Iraq Threat Finance Cell (ITFC), whose mission is to enhance the collection.
analysIs, and dissemination of timely and relevant financial intelligence to combat
the Iraqi Insurgency. Since its establishment in late 2005, the ITFC has paid
significant dividends to our war fighters. Senior U.S and Coalition military
commanders have come to rely on the ITFC's analysIs to help combat the Iraqi
insurgency and disrupt terrorist, insurgent, and militia financial networks. For
example. ITFC analysts and agents assist Coalition Forces in explOiting financial
data captured on persons In raids in Iraq and identifying trends and patterns In
Insurgency financing.
To help bUild the confidence and support of the international community for the Iraqi
economy. Treasury has also been Involved In a major Initiative called the
International Compact with Iraq I had the honor of serving as Presidential Envoy for
this Important Initiative. Under the Compact. the Government of Iraq reached out to
key partners in the international community to establish a collaborative process for
developing poliCY commitments These reform commitments will put the Iraqi
economy on a path to self-sufficiency and sustainable growth, wtlile also creating
safeguards to protect the most vulnerable groups in ItS society. In return. the
international community has continued to provide support in various forms.
including debt relief. loans, grants. and technical assistance. The final Compact
document was presented at a meeting In Sharm EI Sheikh. Egypt, in May 2007 that
was attended by over 70 countries and institutions and hosted by UN Secretary
General Ban KI Moon and Iraqi Prime Minister Maliki.
The Compact is important because it commits Iraq to a number of Significant
unifying principles. including the adoption of policies to ensure that all Iraqis benefit
from the country's vast 011 resources, important anti-corruption practices, and the
protection of vulnerable citizens. All of these reforms will help achieve both
economic and security objeclives. Moreover, the Compact was unanimously
endorsed by Iraqi Cabinet members from all of Iraq's communilies ~ Shia, Sunni,
and Kurds ~ establishing a clear consensus on the direction and strategy for
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786: Remarks hy Deputy Secretary Robert M. Kimmitt at the Virginia Military Institute
Page 5 of6
realizing Iraq's economiC potential.
Looking ahead, Treasury has several economic priorities In Iraq for the coming
year, with budget execution a top priority. Slow budget execution - that is, failing to
spend budgeted funds - means the Government of Iraq has been unable to provide
essential services and capital investment in key sectors. As security has improved,
however, Iraq's central government ministries and provincial governments have
been able to increase their rates of spending on Investment. As a result, the level of
government investment In crUCial Infrastructure and services through September
2007 had already well exceeded the level for all of 2006 However, even more
progress will be critical for building confidence In the Mallkl government's ability to
deliver essential services throughout the country.
Second, we want to help secure more debt relief for Iraq. Several major countries
that made commitments to proVide debt relief - such as Saudi Arabia and Russia have yet to deliver. We want to make a final push to get this done by the end of
2008. This will enable Iraq to borrow money to finance its Investments, something
that is not currently possible
Third, we are continUing to work With the Iraqis to Implement crUCial reforms
outlined in the International Compact, such as bank restructuring, investment
reform, and hydrocarbons legislation These types of reforms are essential for
making it easier for businesses - from small scale entrepreneurs to major
international corporations - to invest in Iraq. ThiS Will create opportunities for job
growth and give all Iraqis a stake in maintaining a secure environment.
Iran
Let me now turn to Treasury's role In U.S poliCY toward Iran, where we have seen
that, through a combination of targeted financial measures by governments and
necessary vigilance and action by the private financial sector, we can put
tremendous pressure on the support networks of IlliCit actors.
The Treasury Department has embarked on an Initiative to alert the international
community to the threat that Iran poses to the International financial system. Over
the past year and a half, Secretary Hank Paulson, Under Secretary Stuart Levey,
and I have met With our finance mlllistry and central bank counterparts from around
the world to discuss the imperative of ensUring that the international financial
system is not tainted or harmed by Iran's abuse. We have also engaged in
unprecedented outreach to the international private sector, meeting with more than
40 banks around the world to share information and discuss the risks of dOing
business with Iran. And we have implemented targeted finanCial measures against
Iranian banks, entities, and indiViduals engaged In illiCit activities.
DiplomatiC efforts have also resulted in two unanimous United Nations Security
CounCil Resolutions targeting Iran's pursuit of nuclear capabilities and ballistiC
missiles. And last October, the world's premier standard-setting body on anti-money
laundering and counter-terrorist finanCing - the Financial Action Task Force issued a public statement confirming the extraordinary risks to the financial system
that accompany doing business With Iran. Further, the Task Force Issued an
adVISory identifYing customers and transactions associated With Iran as
representing a significant risk factor for financing the proliferation of weapons of
mass destruction
The private sector plays an essential role in this effort. By proactively going beyond
their legal requirements to aVOid risky business With money launderers,
proliferators, and other illicit actors, the international banking sector is augmenting
government-Imposed measures to Isolate these actors finanCially. Financial
institutions do not want to risk their reputations by dealing with such customers. and
they understand the dire consequences to their bUSiness should they engage In
such activity.
We are beginning to see the Isolating effect that finanCial pressure can have on the
Iranian regime as the international community counters Iran's financial support for
terrorism - a cause to which Iran dedicates hundreds of millions of dollars each
year - and its pursuit of nuclear capabilities and ballistiC missiles. We have been
sharing Information with government and private sector leaders about Iran's
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786: Remar.rs by Deputy Secretary Robert M. Kimmitt at the Virginia Military Institute
Page 6of6
deceptive use of the financial system to try to hide its support for these dangerous
activities from the law-abiding International community. Many financial institutions
worldWide have recognized this risk and have dramatically scaled back or cut off
altogether their dealings with Iran - in all currencies.
This financial pressure is amplified by the Iranian regime's economic
mismanagement. President Ahmadinejad has failed to deliver on his promises to
Improve the lot of average Iranians, WhlCil IS having real consequences:
- Unemployment and Inflation rates are up the regime claims their unemployment
rate to be only 11 %, whel'eas most independent experts estimate It to be double
that.
- Inflation IS on the rise: experts estimate the Inflation rate to be close to 40% - well
beyond the 16.8% suggested by the regime Further, Ahmadinejad ordered the
Central Bank to cut interest rates far below the IIlflation rate - an act of economic
malpractice - and he fired Ilis central bank governor for questioning this harmful
deciSion.
- Corruption IS widespread: the Iranian regime awards lucrative "no-bid" contracts to
the Iranian Revolutionary Guard Corps, whose leadership has been sanctioned
under UN resolutions.
- Iran's state-owned banks are finding themselves increasingly isolated, threatenlllg
the viability of their foreign-based branches and subsidiaries.
- The country's oil revenue reserve fund should be growing to benefit the future of
the Iranian people Instead of being spent down to mask the effects of the regime's
misguided economic poliCies
Iran is tllUS experiencing the consequences of its deceptive fillancial conduct and
defiant policies Iran's leaders are inflicting hardship on their people and steadily
making their country an International pariah regime. Whether to continue down thiS
path of Isolation IS a chOice Iran must make.
Conclusion
These examples of our engagement on Issues such as Iraq and Iran Illustrate
Treasury's evolving and expanding role in our government's national security
strategy. Treasury ilas an important role to play by boosting growth and economic
activity In key countries like Iraq, and ensuring that our financial systems are not
only safe and sound, but also secure from exploitation by illicit actors like Iran Our
engagement also helps ensure we take a comprehensive view to the security
challenges we face - that we examine them not only from a military and political
perspective, but from an economic perspective as well.
Looking forward, I see a world in which economic issues will play an even more
prominent role in our nation's security, and Treasury will continue to IIltegrate its
activities even closer With other national security agencies. To address our security
challenges, we must take a broad-based approach that draws from the knowledge
and expertise across all of government. As you Cadets step into your future lives of
service, during which you will exploit the opportunities and confront the challenges
of the 21st century, I encourage all of you to think In these broader terms as you
serve and protect our great Nation. I can assure you that your Treasury
Department, your transformed Treasury Department. is doing just that every day.
Thank you again for your kind InVitation and may God bless you all and your
families
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2/112008
787: Statem~nt by Secretary Paulsen on House Passage <br>of Economic Growth Legislation
Page I of I
January 29, 2008
HP-787
Statement by Secretary Paulson on House Passage
of Economic Growth Legislation
"I commend the House for quick bipartisan action today on an economic growth
package that IS simple, temporary, broad-based and effective. If enacted qUickly, as
I hope It will be, the House package will Inject money IIlto our economy In time to
help create more than 500,000 Jobs before the end of the year.
"I am confident that Senate leaders understand that speed and simplicity are key to
getting a bipartisan agreement enacted. The time to act is now."
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788: Remar~~ hy Treasury Under Secretary <br>for International Affairs David H. McCormick at t...
Page I of 4
January 30, 2008
HP-788
Remarks by Treasury Under Secretary
for International Affairs David H. McCormick at the
Council on Foreign Relations
U.S.-China Economic Engagement: The Road to Faster, Deeper Reform
New York - Thank you Paul for that warm introduction, and thanks to all of you for
coming this morning. I am grateful to the Council on Foreign Relations for bringing
us together to discuss an issue of great long-term Importance U.S.-China
economic relations. Indeed, maintaining a mutually beneficial, open, and politically
sustainable economic relationship with China is one of the United States' most
pressing challenges - and greatest opportunities - in the realm of International
economic policy.
The challenge is great because the stakes are high - for the United States, for
China. and for the global economy. For the United States, China is the world's
fastest growing major market for our goods and services. Since China's accession
to the World Trade Organization in 2001, US. exports to China have grown five
times faster ttlan our exports to the rest of the world.
At the same time, China's prosperity depends on the United States. Last year,
American consumers and companies purchased one-fifth of Ctlina's exports Even
as China diversifies ItS export markets, American demand continues to shape
China's economy. Investment flows between our two countries are also expanding
rapidly. Between Just 2002 and 2006, U.S. foreign direct investment (FDI) in China
grew from roughly $10 to $22 billion while in 2007 alone, Chinese direct and
portfolio investment In the United States totaled nearly $10 billion.
As a consequence of thiS growth, the U.S.-China economic relationship has been
forced to mature very qUickly With the increasing volume of trade and investment,
it was Inevitable that we would experience a range of frictions as we do in our
economic relationships with other major trading partners. These fricllons include
growing concerns about trade imbalances, product safety, the Chinese
government's large holdings of foreign exchange reserves, and China's foreign
exchange policies.
While not surpriSing, these frictions have nevertheless caused some in the United
States to question the benefits of maintaining an open and expansive economic
relationship With China. The Bush Administration's answer to this defining question
IS unwavering: We are committed to strengthening our economic relationship with
China and opening ItS markets to create new opportunities for American firms and
American workers. In thiS effort. we are making full use of the poliCY tools at our
disposal, and we have developed new approaches. most notably the Strategic
Economic Dialogue (SED) launched by PreSidents Bush and Hu In 2006.
In spite of the continuing frustrations and inevitable tensions In our economic
relations With China, thiS Administration is taking a thoughtful and effective
approach to accelerating reform and promoting US. interests. Would we like more
rapid, deeper reform? Of course But we are making steady progress and bnnglng
clear benefits to America's workers, businesses, and consumers
China's Growth Challenge
China's growth over the past three decades has been nottling short of miraculous. It
has transformed Itself from a poor. mostly agrarian. and almost closed economy
into the world's third most important trading nation In tile process, Chilla has
benefited from economic growth averaging nearly 10 percent per year that has lifted
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hundreds of millions of Chinese citizens out of poverty.
The growth model that produced this enormous success has also been highly
resource-intensive, and driven by heavy investment In Industnal production and
exports rather than growth in domestiC household consumption. We see eVidence
that this model IS no longer sustainable in China's increasingly wasteful investment,
rising Inequality, a large and growtrlg current account surplus, and accelerating
environmental degradation. We also see eVidence of this In weak growth in Chinese
employment and in Ilousehold Income growth that lags well behind the rise in GOP.
China's Imbalances at home are Ilmrored by the imbalances China conttnues to
generate abroad Higil national savtrlg - and its counterpart, weak consumer
demand - provide the structural basIs for large Chinese trade and current account
surpluses that make China's economic growth Increasingly dependent upon foreign
demand, sometimes creattrlg friction between China and its trading partners
This IS not Simply an American critique of China's economy China's most senior
leaders tell us they are committed to addressing the Imbalances between growth in
rural and urban areas, between the coastal and Interior regions, between reliance
on domestic and foreign demand to dnve growth, between rich and poor
households, and between economic development and environmental protection
They are coming to realize, as we do, that their success In addressing these
challenges would have enormous benefits for China and the United States.
Exchange Rate Policy
The critical question for US. policymakers IS how we can best support and
encourage thiS economic transformation. For our part. we understand that we Will
be judged by our success in helping the Chinese address this rebalancing
challenge in a manner that bnngs continued benefits, while minimizing the nsks, to
the U.S. economy China's exchange rate IS one issue that has been viewed by
some, I think mistakenly, as a litmus test for our success.
The untold story of our approach to China's currency poliCY is that It is working,
albeit more slowly than we would like. Initially, after moving away from a pegged
exchange rate in July 2005, China's actions were cautious, with the RMB
appreCiating slowly. More recently, however, the pace of appreciation has
increased sharply, to roughly 7 percent in 2007, and 4 percent in the last three
months alone, or 17 percent annualized. Since China abandoned the peg to the
dollar, the RMB has appreciated roughly 15 percent against the dollar and 9
percent against other major currencies on a real trade-weighted baSIS. The foreign
exchange market In China is also developing dally RMB fluctuations are larger, the
market IS deeper, and we have seen rapid expansion In the use of foreign currency
hedglllg instruments
Although RMB adjustment IS still far from complete, the accelerated pace of
appreciation IS significant and welcome, and it should continue. China and the
United States must be careful not to derail thiS reform through protectionist actions
on either side that risk disrupting the relationship. The leadership and interest of the
U.S. Congress on China's currency reform - and Chtrla's economic reform more
broadly - are both needed and welcome. But it IS especially important now, during a
time of turmOil in global markets, that we remain steadfast in our commitment to an
open and expanding trade and investment relationship between the United States
and China.
As Secretary Paulson has often said, greater exchange rate flexibility is in China's
own interest. The RMB movement that I have noted reflects the Chinese
leadership's growing recognllton that more rapid exchange rate adjustment allows
for more effective management of the Chinese economy, Including the risk of rising
inflation. A continuation of the recent pace of RMB appreCiation IS also Important to
the United States, although it will not eliminate, or even decrease significantly, the
U.S global trade deficit or mitigate the challenges that American industries face
from overseas competition. It will. however, remove a major source of perceived
unfairness In the U.S.-China economic relationShip, permltltng us to devote greater
attention to other issues with even more significant Impact on our economic
relationship.
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211/2008
.788: RemarKs hy Treasury Under Secretary <br>for International Aftairs David H. McConnick at t...
Page 3 of 4
Strategic Economic Dialogue
Under Secretary Paulson's leadership, the Strategic Economic Dialogue has
created an unprecedented cl,annel of communication between senior U.S
policymakers and their counterparts at the highest levels of the Chinese
government that is focused on doing Just that. Specifically, the SED IS premised on
the fact that China and the United States have shared economic interests and that
we benefit from expanding our cooperation over the longer term Central to our
shared interests is leveraging US expertise and support In helping China tranSition
to a new model for economic growth that addresses ItS Imbalances. ThiS reform
agenda runs broad and deep, ranging from macroeconomic policy to domestic
regulation, investment policy to environmental protection
For example, to assure China's future growth - Without heavy domestic costs and
huge trade surpluses - China must put more Income in the hands of households
and change poliCies Hlat force these households to save so much of what they
earn ThiS involves increaSing the dividend payments from China's profitable
companies, Including state-owned enterprises, a reform that China has recently
started. It also requires a stronger SOCIal safety net that reduces Hie need for
Cilinese households to over-save for a rainy day or old age On these Issues, we
can contribute much in terms of expertise and capabilities In our ongoing dialogue
With China's leaders.
To create more sustainable growth, Chllla will also need to develop a Vibrant and
effiCient financial sector, to provide Chinese households and firms with better
opportunities to build wealth and hedge risk, and to fuel innovation as an engine of
economic growth. Clearly, the American financial services industry has much to
offer China in thiS regard As you know, we are working to Improve access to
China's market for the American finanCial services Industry. Like you, we are
unsatJsfied With the progress to date. but the SED has produced some Significant
Chinese commitments In financial services, such as China's agreement to allow
greater market access in the banking, securities, insurance, and asset management
markets. As I have argued to my Chinese counterparts, building a modern financial
sector is not an easy task - but foreign participation, and the knowledge and skills
that come With It, can playa big role in accelerating this process
Ensuring markets remain open to investment is every bit as important as ensuring
that they remain open to trade, so we are also committed to focusing within the
SED on maintallllng and expanding Investment flows between our two countries.
This is a critical component of rebalancing China's future growth from coastal to
interior regions. As an example, we are IntensifYlllg diSCUSSions on the prospects
for negotiating a Bilateral Investment Treaty and we have also recently established
a US.-Chllla Investment Forum to discuss the full range of Investment issues that
the United States anel China face
The SED has also made important progress III helping China address other barriers
to its continued developillent. For exaillple, in the area of product safety, China
recently agreed to allow U.S quality Inspectors to conduct on-site audits of key
Chinese exporters, a step that Will help China develop improved standards and
capabilities for critical export industries. Silllilarly, the SED has provided a forum to
collaborate with China on addreSSing the terrible enVJronlllental cost of rapid growth
to ItS air, SOil, and water which looms as a significant challenge to ItS next chapter of
econoillic prosperity. At last December's SED, the United States and China agreed
to work together to tackle thiS problem by developing an ambitious ten-year plan for
cooperation
The Way Forward
As these examples demonstrate, the SED is focused on critical strategic Issues of
interest to both of our countries that require long-term policy prescriptions ThiS is
why it IS so important that we look past next month, next year, or the next election
as we consider our econOllllC engagement with China. In practical terlllS, that
means we have an obligation to turn over to a new Adillinistration a healthy USChina economic relationship and a robust and endUring dialogue capable of
continuing the progress I have Just described As I hope I have made clear this
morning, I think we're on track. Through the SED we are making progress across a
full, rich agenda of opportunities and challenges that are every bit as Important to
the United States as they are to China
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Page 4 of 4
I understand and share the frustration of those who believe the Chinese are moving
too slowly on many issues. On those, we must push We must both cajole and
support. We have been - and must continue to be - firm and clear when engaging
with China that accelerated reform is as much In their interests as In ours. And
when we are unsuccessful througll dialogue In resolving key differences, we will not
hesitate to take cases to the WTO or to make full use of WTO-sanctioned trade
remedies established under U.S law. But we must also take care not to vent our
frustration in the form of punitive legislation or elevated rhetoric that could ultlnlately
cost the American economy and set back the process of reform in Chilla
America's economic relationship With China is of equal importance to Republicans
and Democrats, Congress and the Executive Branch, this Treasury Secretary and
the next. I firmly believe the next Administration will Inherit a U.S.-China economic
relationship that reflects more meaningful progress across a broader territory than
ever before. To be sure, the road ahead is long. But we are taklllg important steps
in the right direction
Thank you.
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789: Treasury Expands Sanctions 00 Zimbabwean Companies and Individuals
Page 1 of 1
January 30, 2008
HP-789
Treasury Expands Sanctions on Zimbabwean Companies and Individuals
The U S Department of the Treasury's Office of Foreign Assets Control (OFAC)
announced sanctions today against two Zimbabwean entities and two individuals
that contrrbute to the undermmlng of democratic processes and mstltutions in
Zimbabwe.
"The U.S finanCial system IS closed to Robert Mugabe, his cohorts and tiielr
businesses," said OFAC Director Adam J Szubin. "Today's designations are part
of an increased effort to pressure those who are aiding Mugabe's efforts to cripple
Zimbabwe, IIIcludlng through Violence and mtimldatlon."
Today's designations mclude ZIDCO Holdings, a ZANU-PF financial holding
company, as welt as the ZANU-PF's publishing arm, Jongwe Prrntmg and
Publishmg Company. Both ZIDCO Holdings and Jongwe Printing and Publishing
Company are owned or controlled by key components of the Mugabe regime that
have already been deSignated. Also named today are Happy ton Bonyongwe and
Leo Mugabe. Happy ton Bonyongwe is the Director of Zimbabwe's Central
Intelligence Organization (CIO), and IS considered Zimbabwe's "spy chief." Leo
Mugabe is a Member of the Zimbabwe Parliament and the nephew of Robert
Mugabe.
These deSignations are made pursuant to Executive Order 13391, which authorizes
the Secretary of the Treasury to designate any mdlvidual or entity that has
engaged In actions or poliCies that undermme Zimbabwe's democratic processes or
Institutions: has materially assisted entities or mdivlduals already designated by
OFAC: IS an immediate family member of an individual already designated pursuant
to the Order: or, IS owned or controlled by any entity or mdlvidual already
designated pursuant to the Order. As a result of Treasury's designations, any
assets of these mdividuals and entities that are within the United States or in the
possession or control of any U.S. person must be blocked, and US. persons are
prohibited from dealmg With them
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790: Secret~ Paulson's Remarks co the Economy <br>Before the Real Estate Roundtable
Page I Of 4
January 30, 2008
HP-790
Secretary Paulson's Remarks on the Economy
Before the Real Estate Roundtable
Washington, D.C - Good afternoon Thank you. Chris. and thanks to Hle Real
Estate Roundtable for Ilwiting me As you know, we have a lot on our economic
plate right now I Will give you my perspective and then look forward to hearing your
thoughts.
U.S. Economy and Fiscal Growth Package
The US economy IS undergoing a significant hOUSing correction. That, combined
with high energy prices and capital market turmoil caused economic growth to slow
rather markedly at the end of 2007, as reflected in the GOP numbers released this
morning. I am confident our economy Will continue to grow, although not as rapidly
as we have seen In recent years.
The U.S economy IS diverse and reSilient, and our long-term fundamentals are
healthy. Yet. ttle risks are clearly to the downside and PreSident Bush knows that
economiC security IS of the utmost Importance to the American people. We have
been tracking economic signals closely for some time now, and are aclively
engaged with pollcymakers around the world as we monitor global markets.
In recent weeks, the potential benefits of qUick action to support our economy
became clear. and the potential costs of dOing nothing too great. So, the PreSident
asked me to work with Congress to develop a fiscal growth package to minimize the
Impact on ttle real economy as we weather this hOUSing correction. At the outset,
the PreSident suggested a few principles to use as a foundation for discussion --that a fiscal growth plan must be enacted quickly: It must be robust. temporary and
broad-based. and must get money Into our economy qUickly. We found common
ground with the Congress In those principles. and began Intense discussions.
In eight days the Administration and Democratic and Republican House leadership
reached agreement. Yesterday. in additional eVidence of bipartisan cooperation and
commitment. the House passed a bill based on thiS agreement For WaShington,
this is action at the speed of light. and I am optimistiC the next few weeks will be
equally productive
The House bill is a balanced. bipartisan compromise that Will provide immediate
relief for American families and incentives for businesses to invest and hire. If
enacted swiftly, the House bill is expected to help create more than half a million
Jobs by the end of 2008. We know from experience that both immediate tax relief for
Income tax payers and incentives for busillesses to IIlvest and hire are effective in
creating growth and Jobs III the short-term
Speaker Pelosi and MinOrity Leader Boehner have shown discipline and leadership.
and the House has set a high standard. Certainly, House members from both Sides
of the aisle wanted additional prOVISions added to the bill. But both Leaders kept
this effort limited and focused in order to reach agreement. Strong leadership III the
House has prOVided deCISive steps towards quick action to boost Hle ecol1omy.
The task now moves to the Senate. Senators, like their House colleagues. know
time IS of the essence I thlllk they also undel'stand that a Simple package can move
quickly. while a complex package can upset the current balance. If the process
bogs down. the American people will lose patience and we will also lose the
momentulll that's absolutely needed for qUick action and qUick results. House
leaders carefully crafted a balanced agreement. They recogl1ized that a simple plan
offered the most expedient and effective path I am confident Senate leaders will
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.790: Secrem-y pa.ulson's R.emarks on the Economy <br>Before the Real Estate Roundtable
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see the wisdom of this approach, and I don't believe the Senate has any Interest In
derailing the cooperation and speed with which Washington has acted so far.
If we keep moving along this fast-track, and wlthlll a few weeks Congress sends the
President a bill he can sign, rebate payments would start in May. But until the
President signs a bill Into law and checks are in the mail, I won't say that thiS shortterm effort IS complete
And of course we will continue to press for economic policies which are in our
country's long-term best interest --- a pro-growth tax system, entitlement reform and
a balanced budge\. We are addressing a short-term economic need, and the
Administration remains committed to vigorous debate With the Congress over ttle
need for longer-term, structural reforms.
Housing Markets
While a SWift, simple and substantive fiscal growth package will provide a boost and
add to Job creation thiS year, it is not Intended or expected to slow down the
hOUSing correction After years of unsustainable home price appreciation, this IS a
necessary correction. On Monday, the Commerce Department reported that over
the 12 months of 2007, new homes sales dropped 41 percent and new home prices
declined by 10.4 percent. Other measures also show roughly flat or falling home
prices over the last year. The Admlnlstralion's focus has been --- and In addition to
this fiscal growth plan will continue to be --- aggressive action to try to minimize the
impact of ttle houslllg downturn on homeowners and the real economy by
preventing avoidable foreclosures.
Last fall, we encouraged the creation of the HOPE NOW alliance, a coalition
representing over 90 percent of the subprlme serviCing market and non-profit
mortgage counsellllg organizations, trade associations and IIIvestors. This industryWide effort employs multiple tools to reach and help struggling homeowners,
Including streamlining subprlme borrowers into refinanCings and loan modifications
to avoid a market failure. And they are doing so without asking American taxpayers
to pay the bill.
There are promising developments. According to HOPE NOW, the industry assisted
370,000 homeowners III the second half of 2007, and mortgage servicers modified
subprlme loans during the fourth quarter at a rate three times faster than in the third
quarter. In its first two months, HOPE NOW sent over 480,000 letters to at-risk
borrowers who had not reached out for help preViously. Servicers estimate that, as
a result of the first wave of letters approXimately 16 percent, or 77,000
homeowners, have called theil' servlcer or a non-profit counselor to see if
foreclosure can be aVOided
We will receive regular progress reports In the coming months. As we learn more,
we will look for additional measures to reach more borrowers and prevent as many
avoidable foreclosures as pOSSible.
The Admillistration has also, through FHASecure, expanded affordable mortgage
options. Working With Congress. we have Increased funding for mortgage
counselors who assist struggling homeowners We have also temporarily eliminated
taxes on forgiven mortgage debt. But more action IS needed In the housing sector,
action that IS as Important as a sllort-term fiscal growth plan.
We have urged Congress to move qUickly to finalize ItS work on the FHA
modernization bill --- that Will prOVide financing for about 250,000 borrowers.
Congress should also allow states to issue tax-exempt bonds to raise funds for
innovative refinanclllg programs.
And it is vitally important that Congress pass GSE reform legislation to enhance
regulatory oversight for Fannie Mae and Freddie Mac. The House leaders decided
to include a temporary increase In the GSEs' conforming loan limits in the economic
growth bill. This could be helpful to Jumbo mortgage borrowers: however, higher
limits are inconsistent with tile GSEs' affordable hOUSing mission Under the House
bill, these higher limits expire at the end of thiS year, and thiS should not be an
excuse for postponing much-needed reform The House has already passed GSE
reform legislation and Senate Banking Chairman Dodd has assured me that he Will
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790: Secrel.~ Pa.ulson's Remarks bn the Economy <br>Before the Real Estate Roundtable
Page 3 of4
take legislation up soon. We will continue to press Congress for this reform and
stronger GSE regulatory oversight.
Capital Markets
Predictably. our capital markets are being Impacted as we weather the housing
correction and uncertainty in tile houSing sector Investors' concerns about credit
have Increased dramatically. and market liqUidity has been. In turn. similarly
Impacted. The plentiful flow of liqUidity that fueled the boom in borrowing and
leverage across asset classes --- from home mortgages to leveraged buyouts --has been reduced. with significant consequences
Short-term funding markets were stressed and Inter-bank funding spreads rose to
unprecedented levels. Mortgage origination and other asset securitization dropped
markedly. adding to the challenges In the housing sector Given the
interconnectedness of our capital markets, other stresses emerged as finanCial
institutions grappled With valUing assets and balance sheets came under pressure
These developments led to significant actions by major central banks and
tremendous financial sector strains. Since August, financial Institutions have written
off over $153 billion of assets. Numerous issuers and structures have been
downgraded and over $136 billion in off-balance sheet assets have been
consolidated.
During the past nine weeks, we have also seen some encouraging signs. US
financial institutions have raised over $95 billion In new capital. The hOUSing
Government Sponsored Entitles (GSEs), Freddie Mac and Fannie Mae, have raised
eqUity A number of our finanCial Institutions have strengthened balance sheets by
raising capital from a variety of US and foreign sources.
Our markets are stili working through these strains, and certainly your industry lias
been impacted as well These events underscore the need for strong market
diSCipline, prudent regulatory poliCies. and robust risk management. Whlie thiS
transition period is difficult, and will take more time, It is appropriate and reflects a
healthy return to fundamentals. I have great confidence In our markets. They have
recovered from Similar stressful periods in the past, and they will again.
As we work to better understand the causes of the distress in the hOUSing and
mortgage markets and the capital market turmoil, some lessons are very clear. For
instance, an abundant supply of easy credit and a decline In lending standards
were major contributors. Complex and opaque finanCial IIlstruments and structures,
such as the use of conduits and SIVs contributed, as did investor practices and
rating agency Issues.
Through the President's Working Group on Financial Markets, we are reviewing the
underlying poliCY issues Our reviews' focus on Issues ranging from enhanCing risk
management, including liqUidity and counterparty credit risk, to market
Infrastructure. to reporting and disclosure, to ratings and investor practices. Working
through the current stress IS our first concern, getting the long-term poliCY right is
just as important
We also need to streamline and modernize the patchwork regulatory structure that
oversees the mortgage process, prOVide consumers with clear, understandable
mortgage disclosure and bring a higher level of IIltegrity to the mortgage origination
process.
Conclusion
I am optimistiC that Congress will pass a growth package qUickly enough to have a
real impact on our economy, to help individuals and families, and to increase
business investment now when it IS most needed. Our economy is resilient, as are
the American people. We will work through this period and share a future of
continued opportunity and prosperity.
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791: Statement hy Secretary Paulson on EITe Awareness Day
Page I of2
January 31, 2008
hp-791
Statement by Secretary Paulson on EITe Awareness Day
Washington, DC-- Good morning and welcome. Thanks to all for JOining us today
as we highlight a valuable, but often overlooked, tax credit that IS specifically
designed to help working Americans.
The Earned Income Tax Credit, the EITC, was created over thirty years ago as an
Incentive for working Americans, for the men and women who hold one, sometimes
two or three, jobs to make ends meet and to create better lives for themselves and
their families. They understand as well as any that hard work brings reward.
By allowing lower-income people to keep more of their own money, EITC helps
Americans create doors of opportunity and step through them to higher standards
of living.
In 2006, over 22 million taxpayers received almost $44 billion through the EITC, yet
the IRS estimates that between 20 and 25 percent of taxpayers who are eligible
don't claim the credit Qualifying taxpayers can claim up to $4,700 dollars,
depending on their Income and the size of their family, on their 2007 returns. That's
money to pay bills and rent, to buy gasoline, books, and clothes: money that can
provide a real benefit thiS spring
As our economy has begun to slow down, we know that the Impact often falls
hardest on those struggling to make ends meet We are working with Congress to
qUickly enact balanced, bipartisan legislation that will provide immediate rebate
payments for working families and incentives for businesses to invest and hire.
This boost to our economy will benefit low Income taxpayers, this year, and is in
addition to the EITe.
The House has passed legislation that IS simple, broad-based and temporary. If
enacted soon, it Will Inject money into our economy quickly. The Senate has begun
its legislative process as well, and I am concerned that as they add provisions to
their bill, there IS a real risk that the process will bog down and slow our efforts to
get money into the economy
With timely action, the House economic growth bill would help create more than half
a million Jobs by the end of 2008. That means even more opportunities for hardworking Americans.
Ensuring that more eligible families receive their EITC is Important thiS year, as it IS
every year. I encourage people all across America to check to see if you are eligible
for the Earned Income Tax Credit. Treasurer Anna Cabral and Acting IRS
Commissioner Linda Stiff will provide details on where to get more Information.
I also encourage tax professionals, particularly those providing comlllunity-based
serVices, to look carefully at eligibility, so that all those who can benefit from the
Earned Income Tax Credit, do. When sOlllething thiS Simple IS so effective, we need
to make sure those who can gain thiS advantage, do.
Thanks to the IRS and all those around the country who are educating people about
the Earned Income Tax Credit. You can, and are, helping millions of Americans to
help themselves into better lives,
-30-
http://www treas.gov/presslreleases/hp79I .l1tm
2/1/2008
792: Under Secretary for Domestic Fmance <br>Robert K. Steel <br>Testimony before the Senate ...
Page I of 4
January 31, 2008
HP-792
Under Secretary for Domestic Finance
Robert K. Steel
Testimony before the Senate Committee on
Banking, Housing and Urban Affairs
Washington - Chairman Dodd, Ranking Member Shelby, Members of the
Conllllittee, good morning, I very much appreciate the opportunity to appear before
you today to present the Treasury Department's perspective on "Foreclosure
Prevention and Nelghborllood Preservation." These are Important and challenging
issues; addreSSing them Will require collaborative work on all our parts, and I look
forward to hearing your perspectives and working together.
Let me begin by broadly examining the characteristics of foreclosure, in both good
times and bad, then deSCribe how our approach to this issue has developed, and
finally provide an update on the progress we are making to address current
challenges.
Characteristics of Foreclosure
We are experiencing a period of adjustment In the housing sector of our economy.
Fortunately, our economy is resilient and diverse, and our long-term economic
fundamentals remain strong. Nevertheless, the Administration recognizes the
importance of housing to our economy, and as Secretary Paulson has said many
times, the hOUSing decline IS the most significant current risk to our economy.
In addition to the housing decline exacting a penalty on economic growth, many
individual families will experience firsthand strain due to resetting mortgage rates
and home price depreCiation. Too many American homeowners face the frightening
prospect of losing their home in foreclosure - and a Significant number of other
families already have. Foreclosures also pose negative externalities, placing
hardships on neighboring homes and undermining the financial stability of broader
commuflltles and the families who live there. Many homeowners who are paying
their mortgages on time face lower property values due to foreclosures in their
neighborhood
The latest available data (from the third quarter of last year) Indicate that 2007 was
on track for a foreclosure starts rate of 2.7 percent. To put that number into
perspec\ive we should recognize t11at many homes end up in foreclosure every
year, even when housing markets are strong. Between 2001 and 2005, for
example, the U.S annual rate of foreclosure starts averaged approximately 1.7
percent, meaning more than 650,000 homeowners began the foreclosure process
each year. This baseline rate of foreclosure can result from events such as Job loss,
credit problems, changes in family circumstances, or other sources of economic
instability
Over the course of the next two years, we expect the foreclosure rate to remain
elevated above its historic level. A rising foreclosure rate during a period of housing
price depreciation IS not surprising. Yet, largely because of relaxed underwriting
standards in recent years - particularly in the subprime market - and resetting
mortgages, the number of homeowners facing hardship will be higher than during
other recent hOUSing downturns.
In total, approximately 1.8 million subprlme mortgages are expected to reset over
the next two years, but not all Will end In foreclosure Many homeowners will be
able to afford their new payments Without trouble or may be able to qualify for
refinanced, flxed-I-ate mortgages on their own. In fact, of the 2/28 subprime ARMs
originated In 2005, 88 percent had not defaulted as of late last year. Others,
http://wwwtreas.gov/presslreleases/hp792.htm
2/1/2008
12: Under Secretary for Domestie Fmance <br>Robert K. Steel <br>Testimony before the Senate...
Page 2 of 4
however. have stretched far beyond their means. and unfortunately, foreclosure
may be unavoidable In fact, many loans enter into foreclosure before ever reaching
the reset date. A third group of homeowners faclllg resets falls somewhel'e In the
middle. The challenge IS to Identify the homeowners in thiS middle group, who With
a focused and timely response can stay In their homes.
Treasury's Response
The Admimstration's goal is to prevent foreclosures for homeowners It is not about
assisting lenders or bailing out investors.
Our response IS based upon a three POlilt plan: (1) to better identify, reach and
connect with counselors those at-risk homeowners who can be helped, (2) to assist
in developing additional products for homeowners, and (3) to increase the speed
and efficiency of moving these at-risk borrowers Into affordable solutions.
Whenever faCing a challenging public policy issue, such as this one, the first step is
full understanding. While we are continuing to learn, our response to date
represents months of listening Congress to leading academics, servicers, mortgage
counselors, lenders, homeowners, and investors to understand the causes of
foreclosures and the best ways to help people keep their homes.
Last March, In a meeting hosted by Chairman Bair at the Federal Deposit Insurance
Corporation (FDIC), we heard from several housing experts to help us understand
the scope and scale of these challenges. In April and May, the Treasury
Department hosted two large meetlllgs, inviting all the relevant regulators to help us
gain a greater understandlilg of the problem and map out potential policy
responses. Over the course of the summer months, we sought the sound counsel
of outSide experts. We spoke With dozens of indiViduals, including leadlllg
counselors, mortgage serVlcers, academics, housing and consumer advocates, and
other experts, such as the late Ned Gramlich, a former Federal Reserve Governor
and preSCient housing scholar who predicted the Significance of these challenges
before anyone else.
On August 31, President Bush announced an aggressive, comprehensive plan to
help at-risk homeowners stay In their primary reSidences. The PreSident charged
Secretary Jackson and Secretary Paulson to lead thiS effort.
As the Treasury Department and the Department of Housing and Urban
Development (HUD) met with a varrety of mortgage market partiCipants and nonprofit credit counselors in the late summer and early fall of 2007, It became clear
that while many market partiCipants were working diligently on their own trying to
reach and help homeowners, but It was inadequate given the scale and pace of
pendlllg resets.
On October 10, HOPE NOW was formed as an alliance among counselors,
serVlcers, investors, and other mortgage market participants to maXimize outreach
efforts to at-risk homeowners and help them stay in their homes. The Alliance grew
and today servicers partiCipating In HOPE NOW comprise over 94 percent of the
subprime mortgage loan market
HOPE NOW adopted a centralized hotline for telephonic foreclosure prevention
counsellllg (888-995-HOPE, operated by the Homeownershlp Preservalion
Foundation). Expandlllg and sustainlllg the capacity of the HOPE hotllne was
essential as outreach efforts Increased Servlcers and Investors now reimburse
HOPE hotline counselors $100 for every counseling session completed. ThiS is an
Important step toward maintaining a sustainable funding model for counseling, as
government and foundation funding have traditionally been the sole source of
counselor support.
Additionally, HOPE NOW servicers are contacting all adjustable-rate mortgage
borrowers at a minimum of 120 days prror to their mortgage reset. This Will allow
servlcers' early Identification of borrowers who Will have challenges - greatly
increasing their options for help. While some servlcers were already dOing thiS, we
believe it was an important step to standardize this practice for all HOPE NOW
servicers.
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2/112008
792: Under 3("cretary tor Uomestte Fmance <br>Robert K. Steel <br>Testimony before the Senate ...
Page 3 of 4
Furthermore, through coordinated outreach efforts, HOPE NOW members are
reaching out to all at-risk bOITowers and offering help through both mortgage
servicers and non-profit credit counselors. A direct mail campaign began in
November to contact all borrowers who are 60 days or more delinquent on their
loans with no prior servlcer contact. This letter informs them that help is available.
Secretary Paulson has also encouraged HOPE NOW members to expand and
expedite mortgage solutions for at-risk borrowers On December 6, PreSident Bush
announced a new private-sector framework to streamline the process for modlfYlllg
and refillancing subprime mortgages for eligible homeowners These new industry
guidelines, issued by the American Securitization Forum (ASF), created an effiCient
process for identifying borrowers who qualify for refinanclllg or loan modifications.
This, in turn, will free up resources and allow mortgage servicers to focus on those
borrowers who require more in-depth analYSIS.
Lastly, HOPE NOW servlcers and counselors have finalized best practices that Will
increase efficiency in communication among servicers, counselors and
homeowners. Through these best practices, Including the continued development of
cross-lildustry technology, more homeowners Will be helped as counselors are
more effectively able to connect with servicers.
Early Progress
As Secretary Paulson has said, we are committed to measuring the success of this
program as it is Implemented Before the establishment of HOPE NOW the industry
did not have a thorough, standardized set of metrics With which to evaluate
servicers' loss-mitigation performance or to evaluate counselors' effectiveness.
Today, the Alliance IS standardizing a variety of measures which policymakers,
homeowners and investors need in order to monitor performance These
performance measurements Include data such as the number of loans In default,
outcomes for these loans, and success rates for modifications and refinances.
These metrlcs will allow us to Identify categories of borrowers who can be helped,
determille successful treatments, and measure the rate of successful outcomes.
Early sets of numbers have already been reported, and these demonstrate that
material progress is being made.
For instance, early data indicate that Alliance members are identifying and
connecting witil more at-nsk borrowers than Just a few months ago.
•
•
Sillce its launch, HOPE NOW has worked to increase significantly the
awareness and capacity of the HOPE ilotiine - in August the hotllne was
recelvlllg an average of 625 phone calls a day: the HOPE hotline is now
receiving 4.000 new phone calls a day. That IS a 540 percent Increase.
Moreover, In the first two months of a new monthly mailing campaign,
HOPE NOW and ItS members have mailed 483,000 letters to dellilquent
homeowners who had previously aVOided contact, with a response rate to
date of over 16 percent. That is an estimated 77,000 borrowers who called
for help after receivlllg a letter
In addition to outreach, new affordable mortgage solutions are being developed to
help homeowners
•
•
•
On August 31, the Administration announced FHASecure to offer
homeowners foreclosure alternatives: since then, over 75,000 Federal
Houslllg Administration (FHA) IIlsured loans have been closed putting over
$10 billion to work In addition, It is estimated that about 100,000 more
applications are III the pipelille.
Just last month, Congress passed a temporary mortgage debt tax relief act
that will provide homeowners relief from taxes that would have otherwise
been due from prinCipal forgiveness. This tax relief Will help homeowners
avoid nearly $200 million in taxes a year for tile next three years
The Administration has advocated temporarily raising the cap on tax-exempt
bonds for state houslllg authOrities to help borrowers refinance. This
proposal would IIlcrease the total annual cap on eXisting programs by $15
billion over three years, with thiS extra cap targeted at refinancing existing
loans of subprlme borrowers. This IS important because real estate markets
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2/1/2008
.792: Under ~rretary for Domestic Fmance <br>Robert K. Steel <br>Testimony before the Senate ...
Page 4 of 4
are regional and states are well-positioned to tailor programs that meet the
specific needs of their communities
We also have made a great deal of progress in IIlcreasing the speed and efficiency
of moving borrowers into affordable solutions. The ASF program announced last
month IS helping fast-track eligible bormwers Into a refinancing or loan modification,
and It IS freeing up resources, allOWing servlcers and counselors to focus on
bormwers who need detailed case-by-case help. The ASF streamlilled plan IS only
one part of our effort, but we expect the results to show a meaningful IIlcrease In
the number of modifications and refinances as reportmg beginS.
The Mortgage Bankers Association and HOPE NOW have both made good
pmgress III helplllg us evaluate performance to date. Although a more in-depth
analySIS of recent actiVity, Including the beginning progress of the fast-track plan,
Will be available in the cOllllng weeks and months, HOPE NOW reported that:
•
•
The Industry helped 370,000 homeowners with subprlme loans In the
second half of 2007 through modifications or new repayment plans, and
120,000 of those homeowners received modifications.
Moreover, the rate of modifications of subprlme loans tripled from the third
quarter to the fourth quarter of calendar year 2007, and even more are
expected as we move forward in 2008 and the ASF framework begins to
take effect.
The Administration also has requested that the Congress do its part and we are
appreciative that significant progress has been made. As you know, the Congress
appropriated an additional $180 million to NeighborWorks to fund counselor
networks. We also applaud the SWift action taken by Congress to pass the
PreSident's tax relief proposal, which was Signed into law In December
FHA modernization is moving through the Congress, and we are hopeful that it will
reach the President's desk soon. Additionally, government sponsored enterprise
(GSE) reform has cleared the House of Representatives, and we look forward to
working with this Committee as Members consider legislation on the subject. The
Treasury Department also looks forward to working with the Congress on the
Administration's proposal to allow state hOUSing authorities to Issue tax-exempt
bonds to help refinance borrowers Into affordable mortgage products
Conclusion
Mr. Chairman, in conclusion, let me thank you for holding thiS hearing Under the
PreSident's leadership, the Administration is working diligently to help mitigate the
impact of rising foreclosures on homeowners and the economy. We have made
substantial progress Since August and there is much Illore work to do. We will
continue to learn as we move forward and look for additional measures to help
aVOid preventable foreclosures
Thank you and I look forward to your questions
-30-
http://www treas.gov/presslreleases/hp792.litm
2/1/2008
793: Treasury Assistant Secretary Swagel to <br>Hold Monthly Economic Briefing
Page 1 of 1
January 31, 2008
HP-793
Treasury Assistant Secretary Swagel to
Hold Monthly Economic Briefing
U.S. Treasury Assistant Secretary for Economic Policy Phillip Swagel will hold a
media briefing to review economic indicators from the last month as well as discuss
the state of the U.S. Economy. The event is open to the media:
Who
U. S. Treasury Assistant Secretary Phillip Swagel
What
Economic Media Briefing
When
Friday, February 1,2008, 11 :00 a.m. EST
Where
Treasury Department
Media Room (Room 4121 )
1500 Pennsylvania Ave, NW
Washington, D.C.
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or Frances.Anderson@do.treas.gov with the following information:
full name, Social Security number, and date of birth.
http://wwwtreas.gov/presslreleases/hP793.htm
2/1/2008
794: Treasury, TRS Provide Transition Guidance <br>on Pension Protection Act Funding Rules
10 vIew or pnnt tne
J-'U~
Page I of 1
content on thIS page. aown/oaa the tree AaoDe® AcroDat® Heaaer®.
January 31. 2008
HP-794
Treasury, IRS Provide Transition Guidance
on Pension Protection Act Funding Rules
Washington, D.C.--The Treasury Department and the Internal Revenue Service
today issued guidance that relates to new pension funding rules that were included
in the Pension Protection Act of 2006.
Notice 2008-21 announces that none of the proposed funding regulations will be
effective before the first plan year beginning on or after January 1. 2009. although
employers may rely on these regulations during 2008. For plan years beginning
before January 1, 2009, the notice provides that employers may generally rely on a
reasonable interpretation of the funding rules in the statute and may rely on the
proposed regulations for this purpose.
The notice also provides transitional relief to small plans for purposes of applying
the applicable benefit restrictions for underfunded penSion plans for 2008.
REPORTS
•
Notice 2008-21
http://wwwtreas.gov/presslreleases/hp794.htm
211 12008
Part III - Administrative, Procedural and Miscellaneous
Transition Guidance for New Funding Rules and Funding-Related Benefit
Limitations under PPA '06
Notice 2008-21
I.
PURPOSE
This notice announces a later effective date than originally proposed for certain
proposed regulations under §§ 430 and 436 of the Internal Revenue Code (Code), as
added by the Pension Protection Act of 2006, Public Law 109-280 (PPA). In addition,
this notice provides transitional guidance for 2008 under § 436 for small plans with endof-year valuation dates.
II.
BACKGROUND
Section 412 provides minimum funding requirements that generally apply for defined
benefit pension plans. Section 430, which was added by PPA, specifies the minimum
funding requirements that apply to single employer pension plans (including multiple
employer plans) pursuant to § 412.
Section 430(h)(3) provides rules regarding the mortality tables to be used for purposes
of determining any present value or making any other computation under § 430.
Section 430(h)(3)(C) provides rules for a plan sponsor's use, with the approval of the
Secretary, of employer-specific substitute mortality tables in lieu of the standard
mortality tables that are otherwise used under § 430(h)(3)(A). On May 31, 2007,
proposed regulations under § 430(h)(3)(C) were published in the Federal Register as
§ 1.430(h)(3)-2 (72 FR 29456). Rev. Proc. 2007-37, 2007-25 I.R.B. 1433, sets forth
standards and procedures for obtaining approval to use substitute mortality tables.
Section 430(f) provides for certain funding balances referred to as the prefunding
balance and the funding standard carryover balance to be used to reduce the otherwise
applicable minimum required contribution for a plan year. On August 31, 2007,
proposed regulations under § 430(f) were published in the Federal Register as
§ 1.430(f)-1 (72 FR 50544).
Section 401 (a)(29) requires that a defined benefit plan (other than a multiemployer plan)
satisfy the requirements of § 436. Section 436 sets forth a series of limitations on the
accrual and payment of benefits under an underfunded plan. Section 436(b) places
limitations on the payment of plant shutdown benefits and other unpredictable
contingent event benefits, § 436(c) places limitations on plan amendments that increase
-2liabilities for benefits, § 436(d) places limitations on the payment of accelerated benefit
distributions, and § 436(e) places limitations on benefit accruals. These limitations are
applied based on the plan's adjusted funding target attainment percentage (AFTAP) for
the plan year, as certified by the plan's enrolled actuary.
Section 4360) provides definitions that are used under § 436, including the definition of
a plan's AFTAP. In general, a plan's AFTAP is based on the plan's funding target
attainment percentage (FTAP) under § 430(d)(2) for the plan year. However, the plan's
AFT AP is determined by adding the aggregate amount of purchases of annuities for
employees other than highly compensated employees (within the meaning of § 414(q))
made by the plan during the two preceding plan years to the numerator and the
denominator of the fraction used to determine the FTAP.
Section 436(h) sets forth a series of presumptions that apply during the portion of the
plan year that is before the plan's enrolled actuary has certified the plan's AFTAP for the
year. Under § 436(h)(3), if any of the § 436 limitations did not apply to the plan for the
preceding year, but the AFTAP of the plan for the preceding year was not more than 10
percentage points greater than the percentage that would have caused a limitation to
apply to the plan for the preceding year and, as of the first day of the 4th month of the
current plan year, the enrolled actuary of the plan has not certified the actual AFTAP for
the current plan year, then, until the enrolled actuary certifies the plan's actual AFTAP
for the current plan year, the plan's AFTAP for the current plan year is presumed to be
equal to 10 percentage points less than the AFTAP of the plan for the preceding plan
year. Under § 436(h)(2), if the plan's enrolled actuary has not certified the plan's
AFTAP by the first day of the 10th month of the current plan year, the plan's AFTAP for
the current plan year is conclusively presumed to be less than 60 percent as of that day.
Section 430(g)(1) provides that all determinations made under § 430 for a plan year
(including the determination of a plan's FTAP and AFTAP) must be made as of the
plan's valuation date. Section 430(g)(2) provides that, other than for small plans with
100 or fewer participants (determined as provided in § 430(g)(2)(B) and (C)), the
valuation date for a plan year must be the first day of the plan year.
Section 436(k) provides that, for purposes of § 436, in the case of plan years beginning
in 2008, the FTAP for the preceding plan year may be determined using such methods
of estimation as the Secretary may provide.
Proposed regulations under § 436 were published as § 1.436-1 on August 31, 2007 (72
FR 50544 )).1 Section 1.436-10)(2) and (3) of the proposed regulations would provide
rules for determining the FTAP and AFTAP for purposes of applying the § 436 benefit
limitations. Section 1.436-1 0)(3)(iii)(B) provides that, for purposes of determining the
plan's AFTAP for the first year § 436 applies to the plan, the adjusted funding target is
equal to the current liability determined pursuant to § 412(1)(7) as of the plan's valuation
date for the plan year that precedes the first plan year for which § 436 applies to the
1 A correction notice was published with respect to this notice of proposed rulemaking in the Federal
Register dated November 9, 2007 (72 FR 63528).
-2-
-3plan, increased by the aggregate amount of purchases of annuities for employees other
than highly compensated employees (as defined in § 414(q)) which were made by the
plan during the preceding 2 plan years.
Proposed § 1.436-1 U)(3)(iv) provides that, in any case in which the plan's enrolled
actuary has not issued a certification of the AFT AP of the plan for the plan year
preceding the plan year § 436 first applies to the plan (the pre-effective plan year), the
AFTAP of the plan for the plan year is presumed to be less than 60 percent until the
AFTAP of the plan for that pre-effective plan year has been certified. Under the
proposed regulations, this rule applies for purposes of § 1.436-1 (b) and (c) at the
beginning of the first plan year that § 436 applies to the plan and applies for purposes of
§ 1.436-1 (d) and (e) as of the first day of the fourth month of the first plan year that
§ 436 applies to the plan. The guidance set forth in the proposed § 436 regulations with
respect to application of these presumptions does not address how the rules of § 436(h)
apply to a plan with a valuation date that is not the first day of the plan year. See
proposed § 1.436-1 (h)(5).
On December 31, 2007, proposed regulations under §§ 430(d), 430(g), 430(h), and
430(i) were published in the Federal Register (72 FR 74215). Those regulations are
proposed to apply to plan years beginning on or after January 1, 2009.
III.
TRANSITIONAL GUIDANCE
A. Delay of effective date of regulations under §§ 430(f), 430(h)(3)(C), and
436
In order to maintain a uniform effective date for guidance under § 430, this notice
announces that, when regulations proposed under § 1.430(f)-1 (regarding maintenance
of certain funding balances) and § 1.430(h)(3)-2 (regarding substitute mortality tables)
are finalized, those final regulations will not apply to plan years beginning before
January 1,2009. 2 In addition, because of the close interaction between the § 430 and
§ 436 rules and requirements, when regulations proposed under § 1.436-1 are finalized,
those final regulations also will not apply to plan years beginning before January 1,
2009. For plan years beginning during 2008, taxpayers must follow applicable statutory
provisions and can rely on the proposed regulations for compliance with those statutory
provisions. Taking into account the items with respect to which guidance is provided in
this Part III(A), the Service will not challenge a reasonable interpretation of an
applicable statutory provision under § 430 or 436 for plan years beginning during 2008.
In applying the statutory provisions of §§ 430 and 436 for plan years beginning during
2008, taxpayers should note the following:
It is planned that, when proposed § 1.430(h)(3)-1 (which provides generally applicable mortality tables)
is finalized, that section will apply to plan years beginning on or after January 1, 2008, as originally
proposed.
2
-3-
-4 .Although § 1.430(h)(3)-2 will not apply to plan years beginning before January 1, 2009,
taxpayers can use substitute mortality tables for plan years beginning during 2008 only
if those mortality tables are approved by the Service under the procedures set forth in
Rev. Proc. 2007-37 .
• Under § 430(g)(3)(8), the use of averaging methods in determining the value of plan
assets is permitted only in accordance with methods prescribed in Treasury regulations.
Accordingly, under current law, for plan years beginning in 2008, taxpayers cannot use
asset valuation methods other than fair market value (as described in § 430(g)(3)(A))
except as provided in the Treasury regulations. The final regulations will permit the
averaging method set forth in the proposed regulations to apply for plan years beginning
during 2008 .
• Under § 436(k), for purposes of § 436, in the case of plan years beginning in 2008,
the FTAP for the preceding plan year may be determined using such methods of
estimation as the Secretary may provide. Thus, methods of estimating the FTAP for the
2007 plan year can be used for purposes of applying the rules of § 436 for the 2008
plan year only if those methods are permitted in Treasury regulations. Final regulations
will permit the estimation methods set forth in the proposed regulations to be used for
the 2008 plan year, and will also permit the rules set forth in Part 111(8) to be used for
this purpose for small plans with end-of-year valuation dates. Taxpayers should not
assume that other methods will be permitted except as set forth in published guidance.
For plan years beginning during 2008, benefit restrictions under § 436(d) and (e) will
apply beginning with the first day of the fourth month of the plan year if no certification of
the plan's AFTAP for either the prior plan year or the current plan year is received by
that date. In addition, in the case of a plan amendment or plant shutdown or other
unpredictable contingent event occurring on or after the first day of a plan year
beginning during 2008, the benefit limitations of § 436(b) and (c) must be applied based
on the AFTAP certified for the current plan year, or, if no such certification has yet been
received, on the AFTAP certified for the prior plan year except as provided under
§ 436(h)(2) or § 436(h)(3). Without the transition guidance provided in Part 111(8) of this
notice, the enrolled actuary's certification of the prior year AFTAP for a small plan with
an end of year valuation date could not readily be made before these rules would apply.
Therefore, in the absence of such transition guidance, the AFTAP of such a plan for the
plan year beginning in 2008 would be presumed to be less than 60 percent as of the
first day of the fourth month of that plan year for purposes of the limitations under
§ 436(d) and (e) (and the AFTAP of such a plan would generally be considered to be
less than 60 percent in the case of a plan amendment or plant shutdown or similar
event as of the first day of the 2008 plan year pursuant to the rules of § 436(b) and (c)).
B. Transition rule for application of § 436 benefit limitations by small plans
with end of the plan year valuation dates
In the case of a plan that, under § 430(g), has a valuation date that is the last day of the
plan year for each of the plan years beginning in 2006, 2007, and 2008, for purposes of
-4 -
-5applying the benefit limitations of § 436 for the plan year beginning during 2008, a
certification of the plan's AFT AP for the prior plan year (the 2007 plan year) is permitted
to be made by determining the FT AP for the 2007 plan year as follows:
.The FTAP for the 2007 plan year is equal to a fraction (expressed as a percentage),
the numerator of which is the value of net plan assets as determined below, and the
denominator of which is the plan's current liability determined pursuant to § 412(1)(7) on
the valuation date for the second plan year that begins before 2008 (the 2006 plan
year), including the increase in current liability for the 2006 plan year .
• For purposes of determining the FTAP for the 2007 plan year, the value of net plan
assets is determined as the value of plan assets under § 412( c)(2) as in effect for the
2006 plan year, adjusted as follows: (1) contributions made for the 2006 plan year are
taken into account, regardless of whether those contributions are made during the plan
year or after the end of the plan year and within the period specified under § 412(c)(1 0);
(2) the value of plan assets taking into account the amount of contributions made for the
2006 plan year is increased or decreased, as necessary, so that it is neither less than
90 percent of the fair market value of plan assets nor greater than 110 percent of the
fair market value of plan assets on the valuation date for the 2006 plan year (taking into
account assets attributable to contributions for the 2006 plan year); and (3) the plan's
funding standard account credit balance as of the end of the 2006 plan year is
subtracted (unless the value of plan assets is greater than or equal to 90 percent of the
plan's current liability determined under § 412(1)(7) on the valuation date for the 2006
plan year).
A plan that determines the prior year AFT AP for the 2008 plan year in accordance with
the rules of this Part 111(8) cannot increase plan assets for purposes of this computation
through elective reduction of the 2008 prefunding balance. If the plan sponsor wishes
to increase plan assets for purposes of determining the prior year AFTAP through
elective reduction of the prefunding balance, the plan sponsor should use generally
applicable rules for determination of the prior year AFTAP (which would require use of
the plan's 2007 valuation rather than the plan's 2006 valuation).
IV.
COMMENTS REQUESTED AND FUTURE REGULATIONS
The transitional guidance provided in Part III applies for plan years beginning in 2008.
Section 2(c)(2)(F) of both S. 1974 (passed by the Senate on December 19, 2007) and
H.R. 3361 (as introduced in the House of Representatives), which would provide
technical corrections to provisions enacted under PPA, would add a new provision to
§ 436 to provide the Secretary of the Treasury with authority to prescribe rules for the
application of § 436 to plans with valuation dates other than the first day of the plan
year. If statutory authority similar to that in these technical correction provisions is
enacted, the IRS and the Treasury Department are considering including rules in the
final regulations substantially similar to those set forth in Part 111(8) for the determination
of the prior year AFTAP for a plan with an end-of-year valuation date with respect to
plan years after 2008. Similarly, if such authority is enacted, the IRS and the Treasury
-5-
-6Department are considering including rules in the final regulations under which the
certification of an AFT AP as of the last day of the prior plan year will be treated as the
certification of the AFT AP for the current plan year for a plan with an end-of-year
valuation date. The IRS and the Treasury Department are not contemplating any
additional special rules under § 436 for small plans that have a valuation date other than
the first day of the plan year. Thus, a plan with a mid-year valuation date may have
difficulty in obtaining the required actuarial certification in time to avoid the imposition of
benefit limitations under § 436. Comments are requested regarding the proposals set
forth in this Part IV and whether there is a need for any other special rules for plans with
valuation dates other than the first day of the plan year.
Written comments should be submitted by April 21, 2008. Send submissions to
CC:PA:LPD:DRU (Notice 2008-21), Room 5203, Internal Revenue Service, POB 7604
Ben Franklin Station, Washington, D.C. 20044. Comments may be hand delivered
between the hours of 8 a.m. and 4 p.m., Monday through Friday, to CC:PA:LPD:DRU
(Notice 2008-21), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue,
NW., Washington, DC, or sent electronically via the Federal eRulemaking portal at
http://www.regu/ations.gov (Notice 2008-21). All comments will be available for public
inspection.
DRAFTING INFORMATION
The principal authors of this notice are David Ziegler of the Employee Plans, Tax
Exempt and Government Entities Division, and Lauson C. Green and Linda S. F.
Marshall of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt
and Government Entities). For further information regarding this notice, please contact
Mr. Ziegler via e-mail at RetirementPlanQuestions@irs.gov, or you may contact Mr.
Green and Ms. Marshall at (202) 622-6090 (not a toll-free number).
-6-
795 Treasury To Hold Briefing on G7 Finance Ministers Meeting
Page I of 1
Februal-y 1, 2008
HP-795
Treasury To Hold Briefing on G7 Finance Ministers Meeting
Under Secretary David H_ McCormick will hold an on-camera briefing Tuesday on
the upcoming G7 Finance Mlnlstel-s meeting_
Who
Ullder Secretary David H. McCormick
What
Briefing on G7 Finance Ministers Meetillg
When
Tuesday, February 5, 10:00 a_m_ EST
Where
U.S Treasury Department
Media Room (4121)
1500 Pennsylvania Avenue, NW
Washington, D.C
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or frances_anderson@do_treas_90v with the following information
full name, Social Security number and date of birth
http://wwwtreas.gov/presslreleases/hp795.htm
3/3/2008
796: TreasUI/ TRS Provide Guidance on Backloading in Pension Plans
r
Page I of I
/0 view or pnnt tne put- content on tnlS page, aown/oaa tne free AaObe® Acrobat® Keaaer®.
February 1. 2008
HP-796
Treasury, IRS Provide Guidance on Backloading in Pension Plans
Washington, D.C.--The Treasury Department and the Internal Revenue Service
(IRS) today issued Revenue Ruling 2008-7 that addresses the application of the
accrual rules for pension plans under section 411 (b)( 1) of the Internal Revenue
Code (commonly referred to as "backloading" rules).
Revenue Ruling 2008-7 analyzes a traditional pension plan that was converted into
a cash balance pension plan prior to the effective date of the new conversion
requirements under the Pension Protection Act of 2006. The scenario analyzed in
the revenue ruling is one in which certain participants had their pensions
determined using the greater of (1) the benefit under a continuation of the preconversion plan formula for a limited number of years after the conversion date and
(2) the benefit under the new cash balance formula.
The ruling illustrates how. under the current regulations, the backloading rules apply
to this scenario. The ruling provides relief to ensure that plans that have requested
or received a determination letter from the IRS and certain other plans will not be
disqualified for plan years beginning before January 1, 2009 solely because the
plan provides benefits based on the greatest of two or more formulas.
In addition, Treasury and the IRS anticipate proposing amendments to the
regulations that will allow separate testing of backloading with respect to the
scenario under the revenue ruling and other "greater of" formulas. It is expected
that the regulations will be issued soon and will be proposed to be effective for plan
years beginning on or after January 1, 2009.
REPORTS
•
Rev. Ruling 2008-7
http://www treas.gov/presslreleases/hp796.him
3/3/2008
Part I
Section 411. - Minimum Vesting Standards
26 CFR 1.411 (b)-1: Accrued benefit requirements.
(Also, § 7805; § 301.7805-1.)
Rev. Rul. 2008-7
ISSUE
Does the defined benefit plan described below that was converted from a
traditional benefit formula to a lump sum-based benefit formula satisfy the
accrual rules of § 411 (b)(1 )(A), (8), and (C) of the Internal Revenue Code for the
2002 plan year?
FACTS
Plan A is a defined benefit pension plan that (prior to the amendment described
below) provided a normal retirement benefit payable in the form of a straight life
annuity commencing at the age 65 normal retirement age under the plan equal to
the product of 1.1 % of average compensation for the three consecutive years of
service with the highest such average multiplied by the number of years of
service at normal retirement age. Under Plan A, the accrued benefit (prior to the
amendment described below) of a participant at any point prior to attainment of
normal retirement age is the benefit, payable in the form of a straight life annuity
commencing at the age 65 normal retirement age, equal to the product of 1.1 %
of the participant's highest average compensation at such point multiplied by the
participant's number of years of service at such point. Plan A provides that an
employee commences participation in the plan on the first day of the first month
after commencing employment, or, if later, the first day of the first month
following attainment of age 21.
Plan A was amended in 2001 to change the plan's benefit formula effective for
plan years beginning on or after January 1, 2002. The new benefit formula is a
"lump sum-based" benefit formula as further described below. Under the lump
sum-based benefit formula, a hypothetical account is created for each
participant. For participants who were employees on December 31, 2001, the
opening account balance was equal to the actuarial present value of the
participant's accrued benefit determined as of that date. Under Plan A, this
actuarial present value was determined using the applicable interest rate, post-
retirement mortality using the applicable mortality table specified under
§ 417(e)(3) for 2002, and no pre-retirement mortality. Thereafter, the
hypothetical account balance is credited with hypothetical interest at the rate of
interest on 3-year Treasury Constant Maturities for the month prior to the first day
of the plan year plus 25 basis points (for the 2002 plan year, the rate of interest
was determined as 3.87%, which is 3.62%, the yield on 3-year Treasury
Constant Maturities for December 2001, plus 25 basis points). Additionally, the
hypothetical account for each participant is credited at the end of each accrual
computation period (which is the plan year) with pay credits that are determined
as a percentage of compensation for the participant for the plan year. The
percentage is determined, based upon the age of the participant at the beginning
of the plan year, in accordance with the following table:
Age at Beginning of Year
Percentage
25 or less
26-40
41-50
51-60
61 or more
3
4
5
6
7
The annual benefit payable at the age 65 normal retirement age under the new
benefit formula is determined by converting the hypothetical account balance at
that time to a straight life annuity. The plan provides for the conversion to a
straight life annuity to be made using the applicable interest rate and applicable
mortality table, defined as the 30-year Treasury rate as published by the
Commissioner of Internal Revenue under § 417 (e )(3) for the month prior to the
beginning of the plan year, and the mortality table published by the
Commissioner under § 417( e )(3). For 2002, that applicable interest rate was
5.48% and that applicable mortality table was the mortality table set forth in
Revenue Ruling 2001-62, 2001-2 C.B. 632.
The amendment to Plan A also changed how the accrued benefit of a participant
is determined under the plan. For participants who were employed on December
31,2001, had completed 15 years of service, and had attained age 50 as of that
date, Plan A provides that the accrued benefit will be the greater of the accrued
benefit provided by the hypothetical account balance at the age 65 normal
retirement age (determined as described above) and the accrued benefit
determined under the pre-conversion formula as in effect on December 31, 2001,
taking into account compensation and years of service after December 31, 2001,
but not taking into account compensation and years of service after December
31,2005. Plan A refers to such participants as grandfathered participants. The
accrued benefit provided by the hypothetical account balance at the age 65
normal retirement age is equal to the hypothetical account balance at that age
(including projected interest credits under the plan to age 65), converted to a
2
straight life annuity commencing at age 65 using the applicable interest rate and
applicable mortality table.
For participants who were employed on December 31,2001, and who either had
not completed 15 years of service or had not attained age 50 as of that date (i.e.,
participants who are not grandfathered participants), Plan A provides that the
accrued benefit at any point in time is determined as the greater of (1) the
accrued benefit determined under the terms of the plan under the pre-conversion
formula immediately before the amendment, but taking into account only service
and compensation through December 31, 2001, and (2) the accrued benefit
provided by the hypothetical account balance at the age 65 normal retirement
age (determined as described above). Accordingly, compensation increases and
years of service after December 31,2001, are not taken into account in
determining the accrued benefit under the pre-conversion formula.
For all new participants (i.e., those employees who commenced participation on
or after January 1, 2002), the accrued benefit at any point is the accrued benefit
provided by the hypothetical account balance at the age 65 normal retirement
age (determined as described above).
LAW
Section 401 (a)(7) provides that a trust is not a qualified trust under § 401 unless
the plan of which such trust is a part satisfies the requirements of § 411 (relating
to minimum vesting standards).
Section 411 (a) requires a qualified plan to provide that an employee's right to the
normal retirement benefit is nonforfeitable upon attainment of normal retirement
age and that an employee's right to his or her accrued benefit is nonforfeitable
upon completion of the specified number of years of service under one of the
vesting schedules set forth in § 411 (a)(2). Section 411 (a) also requires that a
defined benefit plan satisfy the requirements of § 411 (b)( 1).
Section 411 (a)(7)(A)(i) defines a participant's accrued benefit under a defined
benefit plan as the employee's accrued benefit determined under the plan,
expressed in the form of an annual benefit commencing at normal retirement
age, subject to an exception for § 411(c)(3). Under § 411(c)(3), the accrued
benefit is the actuarial equivalent of the annual benefit commencing at normal
retirement age in the case of a plan that does not express the accrued benefit as
an annual benefit commencing at normal retirement age.
Section 1.411 (a)-7(a)(1) of the Income Tax Regulations provides that, for
purposes of § 411 and the regulations thereunder, the accrued benefit of a
partiCipant under a defined benefit plan is either (A) the accrued benefit
determined under the plan if the plan provides for an accrued benefit in the form
of an annual benefit commencing at normal retirement age or (8) an annual
3
benefit commencing at normal retirement age which is the actuarial equivalent
(determined under § 411 (c)(3) and § 1.411 (c)-1) of the accrued benefit under the
plan if the plan does not provide for an accrued benefit in the form of an annual
benefit commencing at normal retirement age.
Section 411 (b)( 1) provides that a defined benefit plan must satisfy one of the
three accrual rules of § 411(b)(1)(A), (8), and (C) with respect to benefits
accruing under the plan. The three accrual rules are the 3% method of
§ 411(b)(1)(A), the 133 1/3% rule of § 411(b)(1)(8), and the fractional rule of
§411(b)(1)(C).
Section 411 (b)( 1)(A) provides that a defined benefit plan satisfies the
requirements of the 3% method if, under the plan, the accrued benefit payable
upon the participant's separation from service is not less than (A) 3% of the
normal retirement benefit to which the participant would be entitled if the
participant commenced participation at the earliest possible entry age under the
plan and served continuously until the earlier of age 65 and the normal retirement
age under the plan, multiplied by (8) the number of years (not in excess of 33 1/3
years) of his or her participation in the plan. Section 411 (b)( 1)(A) provides that,
in the case of a plan providing retirement benefits based on compensation during
any period, the normal retirement benefit to which a participant would be entitled
is determined as if the participant continued to earn annually the average rate of
compensation during consecutive years of service, not in excess of 10, for which
his or her compensation was highest. Section 411 (b )(1 )(A) also provides that
Social Security benefits and all other relevant factors used to compute benefits
are treated as remaining constant as of the current plan year for all years after
the current year.
Section 411 (b)(1 )(8) provides that a defined benefit plan satisfies the
requirements of the 133 1/3% rule for a particular plan year if, under the plan, the
accrued benefit payable at the normal retirement age is equal to the normal
retirement benefit, and the annual rate at which any individual who is or could be
a participant can accrue the retirement benefits payable at normal retirement age
under the plan for any later plan year is not more than 133 1/3% of the annual
rate at which the individual can accrue benefits for any plan year beginning on or
after such particular plan year and before such later plan year.
For purposes of applying the 133 1/3% rule, § 411 (b)(1 )(8)(i) provides that any
amendment to the plan which is in effect for the current year is treated as in
effect for all other plan years. Section 411 (b)( 1)(8 )(ii) provides that any change
in an accrual rate which does not apply to any individual who is or could be a
participant in the current plan year is disregarded. Section 411 (b)( 1)(8 )(iii)
provides that the fact that benefits under the plan may be payable to certain
participants before normal retirement age is disregarded. Section
411 (b)(1 )(8)(iv) provides that Social Security benefits and all other relevant
4
factors used to compute benefits are treated as remaining constant as of the
current plan year for all years after the current year.
Section 411 (b)(1 )(C) provides that a defined benefit plan satisfies the fractional
rule if the accrued benefit to which any participant is entitled upon his or her
separation from service is not less than a fraction of the annual benefit
commencing at normal retirement age to which the participant would be entitled
under the plan as in effect on the date of separation if the participant continued to
earn annually until normal retirement age the same rate of compensation upon
which the normal retirement benefit would be computed under the plan,
determined as if the participant had attained normal retirement age on the date
on which any such determination is made (but taking into account no more than
10 years of service immediately preceding separation from service). The fraction
is a fraction, not exceeding 1, the numerator of which is the total number of the
participant's years of participation in the plan (as of the date of separation from
service) and the denominator of which is the total number of years the participant
would have participated in the plan if the participant separated from service at
normal retirement age. Section 411 (b)(1 )(C) also provides that Social Security
benefits and all other relevant factors used to compute benefits are treated as
remaining constant as of the current plan year for all years after the current year.
Section 1.411 (b )-1 (a)(1) provides that a defined benefit plan is not a qualified
plan unless the method provided by the plan for determining accrued benefits
satisfies at least one of the three alternative methods in § 1.411 (b )-1 (b) for
determining accrued benefits with respect to all active participants under the
plan. The three alternative methods are the 3% method, the 133 1/3% rule, and
the fractional rule. A defined benefit plan may provide that accrued benefits for
participants are determined under more than one plan formula. Section 1.411 (b)1(a)( 1) provides that, in such a case, the accrued benefits under all such
formulas must be aggregated in order to determine whether or not the accrued
benefits under the plan for participants satisfy one of these methods. Under
§ 1.411 (b)-1 (a)(1), a plan may satisfy different methods with respect to different
classifications of employees, or separately satisfy one method with respect to the
accrued benefits for each such classification, provided that such classifications
are not so structured as to evade the accrued benefit requirements of § 411 (b)
and § 1.411(b)-1.
Section 1.411 (b )-1 (b)( 1)(i) provides that a defined benefit plan satisfies the
requirements of the 3% method for a plan year if, as of the close of the plan year,
the accrued benefit to which each participant is entitled, computed as if the
participant separated from service as of the close of such plan year, is not less
than 3% of the 3% method benefit, multiplied by the number of years (not in
excess of 33 1/3) of his or her participation in the plan, including years after
normal retirement age. The 3% method benefit is the normal retirement benefit
to which the participant would be entitled if the participant commenced
participation at the earliest possible entry age for any individual who is or could
5
be a participant under the plan and served continuously until the earlier of age 65
and the normal retirement age under the plan.
Section 1.411 (b )-1 (b )(2)(i) provides that a defined benefit plan satisfies the
133 1/3% rule for a particular plan year if (A) under the plan the accrued benefit
payable at the normal retirement age (determined under the plan) is equal to the
normal retirement benefit (determined under the plan), and (8) the annual rate at
which any individual who is or could be a participant can accrue the retirement
benefits payable at normal retirement age under the plan for any later plan year
cannot be more than 133 1/3% of the annual rate at which the participant can
accrue benefits for any plan year beginning on or after such particular plan year
and before such later plan year.
Pursuant to § 411 (b)( 1)(8)(i), § 1.411 (b )-1 (b )(2)(ii )(A) provides that, for purposes
of the 133 1/3% rule, any amendment to the plan which is in effect for the
current plan year is treated as if it were in effect for all other plan years.
Pursuant to § 411 (b )(1 )(8)(ii), § 1.411 (b )-1 (b )(2)(ii)(8) provides that any change
in an accrual rate which change does not apply to any individual who is or could
be a participant in the current plan year is disregarded. The regulations provide
an example illustrating this rule under which, for the plan year 1980, a plan
provides an accrued benefit of 2% of the highest 3 years' compensation for each
year of service and provides that, for the plan year 1981, the accrued benefit is
3% of the highest 3 years' compensation. The regulations then state that the
change in rate does not cause the plan to fail to satisfy the 133 1/3% rule
because in the plan year 1980 the change in the accrual rate does not apply to
any individual who is or could be a participant in the plan year 1980. However,
the regulations further state that if, for example, a plan were to provide for an
accrued benefit of 1% of the highest 3 years' compensation for each of the first
10 years of service and 1 .5% of such compensation for each year of service
thereafter, then the plan would fail to satisfy the 133 1/3% rule for the plan year
even though no participant is actually accruing at the 1 .5% rate because an
individual who could be a participant and who has over 10 years of service would
accrue at the 1.5% rate, which exceeds 133 1/3% of the 1.0% rate.
Section 1.411 (b)-1 (b)(2)(ii) provides that the fact that certain benefits under the
plan may be payable to certain participants before normal retirement age is
disregarded. Section 1.411 (b )-1 (b )(2)(ii) further provides that a plan does not
satisfy the requirements of § 1.411 (b )-1 (b )(2) if the base for the computation of
retirement benefits changes solely by reason of an increase in the number of
years of participation.
Section 1.411 (b )-1 (b )(2)(iii) provides examples illustrating the 133 1/3% rule. One
of these examples, Example (3), concludes that a plan fails to satisfy the
133 1/3% rule where the plan provides for an annual benefit commencing at age
65 equal to a percentage of a participant's highest 3 years of compensation
equal to 2% for each of the first 5 years of participation, 1% for each of the next 5
6
years of participation, and 1.5% for each subsequent year of participation (even
though the average rate of accrual in this case is not less rapid than ratable).
Section 1.411 (b )-1 (b)(3 )(i) provides that a defined benefit plan satisfies the
fractional rule if the accrued benefit to which any participant is entitled is not less
than the fractional rule benefit multiplied by a fraction (not exceeding one) (A) the
numerator of which is the participant's total number of years of participation in the
plan, and (B) the denominator of which is the total number of years the
participant would have participated in the plan if he or she separated from service
at the normal retirement age under the plan.
Section 1 .411 (b )-1 (b )(3 )(ii) provides that the "fractional rule benefit" is the annual
benefit commencing at normal retirement age under the plan to which a
participant would be entitled if the participant continued to earn annually until
normal retirement age the same rate of compensation upon which the
participant's normal retirement benefit would be computed. The rate of
compensation is computed on the basis of compensation taken into account
under the plan (but taking into account average compensation for no more than
the 10 years of service immediately preceding the determination). For purposes
of the fractional rule benefit, the normal retirement benefit is determined as if the
participant had attained normal retirement age on the date any such
determination is made. Section 1.411(b)-1(b)(3)(ii) further provides that, for
purposes of the fractional rule, for any plan year, Social Security benefits and all
relevant factors used to compute benefits, e.g., consumer price index, are treated
as remaining constant as of the beginning of the current plan year for all
subsequent plan years.
Section 1.411 (b)-1 (b)(3)(iii) provides examples illustrating the fractional rule. One
of these examples, Example (2), concludes that, in the case of a plan that
provides a normal retirement benefit of 1% of average compensation multiplied
by the number of years of plan participation completed by the participant, the
plan fails to satisfy the fractional rule with respect to a participant whose annual
compensation over an 11-year period varies from $17,000 up to $32,000. If the
participant were to separate from service at the end of the period, the
participant's annual benefit under the plan would be $2,530 commencing at age
65 (based on the 11 years of compensation), which is less than $2,561, which,
taking into account only the last 10 years of compensation, is the minimum
annual benefit under the fractional rule.
Notice 96-8, 1996-1 C.B. 359, states that benefits attributable to interest credits
under a cash balance plan are in the nature of accrued benefits within the
meaning of § 1.411 (a)-7(a). Notice 96-8 further states that, in order for a plan's
interest credits to satisfy the accrual rules of § 411 (b )(1), the interest must be
frontloaded. In order for interest to be frontloaded, the benefits attributable to
future interest credits with respect to a hypothetical allocation accrue at the same
time as the benefits attributable to the hypothetical allocation. Thus, in
7
determining the accrued benefit of a participant under a cash balance plan at any
time prior to normal retirement age, the balance in the cash balance account
must be projected with interest credits to normal retirement age. (See, however,
§ 411 (a)(13), as added by the Pension Protection Act of 2006, Public Law 109280 (PPA '06), for special rules which apply to certain hybrid pension plans for
purposes of the vesting and distribution rules of §§ 411 (a)(2), 411 (c), and
417( e), but which do not apply for purposes of the benefit accrual rules of
§ 411(b)(1)(A)-(G).)
Notice 2007-6,2007-3 I.R.B. 272, states that, on September 15,1999, the
Service's Director, Employee Plans, issued a field directive (the 1999 Field
Directive) requiring that open determination letter applications and examination
cases that involved the conversion of a defined benefit plan formula into a benefit
formula commonly known as a cash balance formula be submitted for technical
advice with respect to the conversion's effect on the qualified status of the plan.
Notice 2007-6 further states that in Announcement 2003-1, 2003-1 G.B. 281, the
Service announced that the cases that were the subject of the 1999 Field
Directive would not be processed pending issuance of regulations addressing
age discrimination. Further, Notice 2007-6 states that the Service will resume
processing the determination letter and examination cases that were the subject
of the 1999 Field Directive and Announcement 2003-1. Notice 2007-6 refers to
these plans as "moratorium plans."
ANALYSIS
A plan satisfies the accrual rules of § 411 (b)(1 )(A), (B), and (G) if, for all
participants, the accrued benefit of each participant satisfies one of the three
alternative methods (the 3% method, the 133 1/3% rule, or the fractional rule). In
applying each of the three alternative methods to a participant (including, in the
case of the 133 1/3% rule, anyone who could be a participant), § 1.411 (b )-1 (a)( 1)
requires that the benefits under all formulas applicable to the participant must be
aggregated. Therefore, even if one formula applicable to a participant by itself
would produce a benefit that satisfies the 133 1/3% rule, and another formula by
itself would produce a benefit that satisfies the fractional rule, the total benefit
provided by the interaction of the two formulas must accrue in a manner that
satisfies at least one of the three alternative methods.
If the benefits of all participants do not satisfy the same accrual rule, the plan is
permitted to satisfy one of the accrual rules for some participants and another
accrual rule for other participants, but only if the different classification of
participants is not so structured as to evade the accrued benefit requirements of
§ 411 (b)( 1)(A), (B), and (G). Pursuant to § 1.411 (b )-1 (a)( 1), this determination of
whether the different classification of participants is not so structured as to evade
the accrued benefit requirements is made with consideration of which
classification of participants is satisfying which of the three accrual rules.
8
Another consideration in this determination is whether the assignment of a
participant to a classification will change merely because of the passage of time.
When determining the accrued benefit for purposes of whether a plan satisfies
the accrued benefit requirements of § 411 (b)(1 )(A), (8), and (C), the accrued
benefit as determined for purposes of § 411 is tested regardless of how the
accrued benefit may be defined in the plan. Thus, if the plan does not define the
accrued benefit as an annual benefit commencing at normal retirement age, the
annual benefit commencing at normal retirement age that is the actuarial
equivalent of the accrued benefit under the plan is tested to determine whether
the plan satisfies the accrued benefit requirements of § 411 (b )(1 )(A), (8), and
(C).
Analysis of 133 1/3% Rule in General 1
Under the 133 1/3% rule, the annual rate at which the retirement benefits
payable at normal retirement age accrue under the plan (the annual rate of
accrual) must be determined under the terms of the plan for anyone who is or
could be a participant in the plan. The annual rate of accrual with respect to a
participant is determined for the current plan year and all future plan years. Then
the annual rate of accrual for any future plan year is compared to the annual rate
of accrual for any year beginning on or after the current plan year, and before
such future plan year, to see whether the ratio of the later annual rate of accrual
to the earlier annual rate of accrual exceeds 133 1/3%.
Pursuant to § 1.411 (b )-1 (a)( 1), the annual rate of accrual for a plan year is
determined by aggregating all benefit formulas. Furthermore, the value of all
relevant factors used to determine benefits for the current plan year is kept
constant in determining the annual rates of accrual for future years. Thus, for
example, for the plan year under consideration, which is 2002, the 3.87% interest
crediting rate, the 5.48% applicable interest rate under § 417(e)(3), and the
applicable mortality table under § 417(e)(3) are assumed to remain constant in
determining the annual rate of accrual for each plan year after 2002.
If a plan has a single benefit formula, the annual rate of accrual for a plan year is
generally determined as the increase in the accrued benefit under that benefit
formula for the plan year. If a plan has more than one benefit formula applicable
to a participant, the annual rate of accrual for the participant for the plan year
must be determined using a single methodology, such as the increase in the
dollar amount of the accrued benefit or the increase in the dollar amount of the
accrued benefit expressed as a percentage of compensation for the plan year.
Thus, the annual rate of accrual may be determined as the difference between
(A) the dollar amount of the accrued benefit as a percentage of average
1 Because the benefits provided by Plan A, both before and after the conversion, accrue over a
period of years in excess of 33 1/3 years, Plan A fails to satisfy the 3% method. Accordingly, the
analysis starts with the 133 1/3% rule.
9
compensation at the beginning of the plan year and (B) the dollar amount of the
accrued benefit as a percentage of average compensation at the end of the plan
year. In applying the 133 113% rule for a plan year, whichever methodology is
used to determine the annual rate of accrual must be used consistently for all
plan years (that is, the current plan year and all future plan years).
In applying the 133 1/3% rule, the analysis considers at least three groups of
employees. The three groups are (1) those who became employed after
December 31,2001 (who will accrue benefits solely under the lump sum-based
benefit formula), (2) those who were not grandfathered participants but who were
employed on December 31,2001 (who will accrue some benefits under the lump
sum-based benefit formula, but whose benefits were "frozen" under the preconversion formula), and (3) the grandfathered participants (who will accrue
benefits for a time under both the pre-conversion formula and the lump sumbased benefit formula).
Analysis of the 133 1/3% Rule for New Employees
For the group of new employees, the annual rate of accrual for a plan year is
most easily determined as the increase in the dollar amount of the accrued
benefit payable at the age 65 normal retirement age for a plan year expressed as
a percentage of compensation for the plan year. Thus, for any year, the annual
rate of accrual is determined by multiplying the compensation of a participant for
the plan year by the percentage from the table of pay credit percentages set forth
under the facts above, accumulating such result with hypothetical interest to age
65, converting the accumulation at age 65 to a single life annuity, and dividing
the result by compensation for the year. Accordingly, the annual rate of accrual
for a year will depend on the pay credit for the year, future interest credits, and
the conversion factor. For purposes of applying the 133 1/3% rule to the plan,
the interest crediting rate (the current year's value of the three-year Treasury
Constant Maturity rate plus 25 basis points) and the conversion factor for future
years (using the applicable interest rate and the applicable mortality table under
§ 417(e)(3) for 2002) are assumed to be the same as for the current plan year.
For 2002, the three-year Treasury Constant Maturity rate is 3.62% (which is the
rate for December 2001), and the resulting hypothetical interest crediting rate is
3.87%. For 2002, the 30-year Treasury rate is 5.48% (the rate for December
2001) and the applicable mortality table is the table set forth in Rev. Rul. 200162. The following table shows the annual rates of accrual for each age assuming
that these values for 2002 remain the same for future plan years:
Age at Beginning of Plan Year
Annual Rate of Accrual
21
22
23
1.41%
1.35%
1.30%
10
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
1.26%
1.21%
1.55%
1.49%
1.44%
1.38%
1.33%
1.28%
1.24%
1.19%
1.15%
1.10%
1.06%
1.02%
0.98%
0.95%
0.91%
1.10%
1.06%
1.02%
0.98%
0.94%
0.91%
0.87%
0.84%
0.81%
0.78%
0.90%
0.87%
0.84%
0.80%
0.77%
0.75%
0.72%
0.69%
0.66%
0.64%
0.72%
0.69%
0.67%
0.64%
As may be seen by inspection of the table, the annual rate of accrual for any later
year is not more than 133 1/3% of the annual rate of accrual for any earlier year
and, thus, the lump sum-based benefit formula standing alone satisfies the 133
1/3% rule. For example, in considering a participant who is age 21 in 2002, the
11
highest ratio of any future annual rate of accrual to any earlier rate is 128.1 %
(which is less than 133 1/3%). This occurs at age 26, where the ratio of 1.55%
(which also happens to be the highest rate of accrual) to the 1.21 % rate for age
25 (which is the smallest rate between ages 21 and 26) is 128.1 %.
Analysis of the 133 1/3% Rule for Participants Who Are Not Grandfathered
Participants
For participants who were employed on December 31, 2001, and who were not
grandfathered participants, the accrued benefit under the pre-conversion formula
does not increase after 2001, and the participants will only accrue benefits under
the lump sum-based benefit formula. However, whether there is any increase in
the accrued benefit of a participant will depend on the extent to which the new
lump sum-based benefit formula provides a benefit that exceeds the benefit that
had been accrued under the pre-conversion formula as of December 31,2001.
If, for a period of years, the lump sum-based benefit formula does not provide a
greater benefit than the frozen accrued benefit under the pre-conversion formula
as of December 31, 2001, then there is a period where the annual rate of accrual
is zero. After that period, there will be a period of a positive annual rate of
accrual as the lump sum-based benefit formula begins to provide a benefit that
exceeds the frozen accrued benefit under the pre-conversion formula.
Ordinarily, a period of a zero annual rate of accrual followed by a period of
positive annual rates of accrual would result in a plan failing to satisfy the 133
1/3% rule. However, because there is no ongoing accrual under the preconversion formula for these participants for service after the January 1, 2002
effective date of the conversion amendment, the lump sum-based benefit formula
is the only formula under the plan (other than the § 411 (d)(6) protected benefit),
and, pursuant to the special rule of § 411 (b)(1 )(B)(i), that formula is treated as if it
were in effect for all other plan years. Accordingly, the benefits under the lump
sum-based benefit formula are the only benefits that need to be considered for
purposes of applying the 133 1/3% rule (and the § 411(d)(6) protected benefit
under the pre-conversion formula accrued through the date of conversion is
disregarded in applying § 411 (b)(1 )(B)). As illustrated above, the lump sumbased benefit formula standing alone satisfies the 133 1/3% rule, and Plan A
thus satisfies the rule for participants who are not grandfathered participants.
Analysis of the 133 1/3% Rule for Grandfathered Participants Age 61 and Above
For participants who are grandfathered participants, the pre-conversion formula
continues for a period of four years after the effective date of the amendment and
thus is not disregarded pursuant to the special rule of § 411 (b)(1 )(B)(i). For
grandfathered participants who are age 61 or above on January 1, 2002, the preconversion formula continues at least through normal retirement age (age 65),
and, based upon calculations using the 3.87% crediting rate and the applicable
interest rate and applicable mortality table, such participants have an annual rate
12
of accrual of 1.1 %, the rate of accrual under the pre-conversion formula (because
the lump sum-based benefit formula never provides a higher benefit). Thus, the
annual rate of accrual through normal retirement age will continue to be 1.1 % of
highest average compensation, and the plan satisfies the 133 1/3% rule with
respect to those participants.
Analysis of the 133 1/3% Rule for Grandfathered Participants Below Age 61 Who
Do Not Accrue Additional Benefits Under the Lump Sum-Based Benefit Formula
Before Normal Retirement Age
For grandfathered participants who are at least age 50 and not yet age 61 on
January 1, 2002, the pre-conversion formula provides a greater benefit for the
next four years after the amendment (assuming, as required under
§ 411 (b)(1 )(B)(iv), that the relevant factors used to compute benefits as of 2002
are held constant in the future). Thereafter, the accrued benefit under the preconversion formula does not increase, and the participants will only accrue
benefits under the lump sum-based benefit formula. However, whether there is
any increase in the accrued benefit of a participant after 2005 and before normal
retirement age will depend on the extent to which the new lump sum-based
benefit formula provides a benefit that exceeds the benefit that had been accrued
as of December 31, 2005. If there is a period of time after December 31, 2005
when the benefit under the pre-conversion formula (taking into account service at
least through December 31,2005) remains larger than the benefit under the lump
sum-based formula, then there will be a period of zero annual rates of accrual.
Assuming that the relevant factors in effect for the 2002 plan year remain the
same for all future plan years, for grandfathered participants who are at least age
55 and not yet age 61 on January 1,2002, the period of zero annual rates of
accrual extends at least through the age 65 normal retirement age, because the
benefit payable at age 65 under the plan will be the accrued benefit under the
pre-conversion formula as of December 31, 2005. Because the annual rate of
accrual for these participants changes from 1.1 % to zero, and then does not
increase prior to normal retirement age, Plan A satisfies the 133 1/3% rule with
respect to these participants for 2002.
Analysis of the 133 1/3% Rule for Grandfathered Participants Below Age 61 Who
Do Accrue Additional Benefits Under the Lump Sum-Based Benefit Formula
Before Normal Retirement Age (Age 50 to 55)
For grandfathered participants who are at least age 50 and not yet age 55 on
January 1,2002, assuming as required under § 411 (b)(1 )(B)(iv) that the relevant
factors used to compute benefits as of 2002 remain constant in the future, the
period of zero accruals after 2005 will be followed by a period of annual rates of
accrual prior to normal retirement age greater than zero. In such a case, the
later annual rate of accrual which is greater than zero will exceed 133 1/3% of
the zero annual rate of accrual, and thus Plan A does not satisfy the 133 1/3%
rule with respect to these participants for 2002.
13
The effect on grandfathered participants who are at least age 50 and not yet age
55 on January 1, 2002, may be illustrated by a participant who commenced
participation at age 35 with compensation of $40,000. Assume that the
participant's compensation increased at the rate of 3% per year in the years
before 2002. The participant on December 31, 2001, was age 50, had 15 years
of service, and had highest average compensation of $58,758. Accordingly, the
participant's accrued benefit at that date is $9,695 per year (1.1 % of $58,758
multiplied by 15 years of service) payable at normal retirement age. At age 54, 4
years after the conversion, assuming the participant's compensation remains
constant at the 2001 level, the participant would have an accrued benefit under
the pre-conversion formula of $12,645 per year (1.1 % of $60,504 multiplied by 19
years of service) payable at normal retirement age. The opening account
balance at January 1, 2002, is $49,352. Taking into account expected
hypothetical contributions to the account in accordance with the table of pay
credit percentages above, and assuming that the hypothetical account is credited
with interest at 3.87%, the cash balance account would provide a benefit of less
than $12,645 for the first 9 plan years after conversion. Therefore, there would
be a period of approximately 5 plan years (after the 4-year period of continued
accruals under the pre-conversion formula) for which the participant has no
increase in his or her accrued benefit (Le., effectively an annual rate of accrual of
zero). In approximately the 10th plan year after the conversion, the participant
would have a small annual rate of accrual and the participant would have a
relatively larger annual rate of accrual in the remaining 5 plan years until age 65.
Thus, there are some grandfathered participants who are at least age 50 and not
yet age 55 with respect to whom Plan A fails to satisfy the 133 1/3% rule for
2002. Accordingly, Plan A cannot satisfy the accrual rules unless it can satisfy
the accrual rules through the use of the fractional rule. While the fractional rule
cannot effectively be used on a permanent basis for Plan A (for the reasons
discussed below), the post-conversion transitional accruals under the preconversion formula result in a pattern of accrued benefits that may satisfy the
fractional rule on a temporary basis for the grandfathered participants who are at
least age 50 and not yet age 55 on January 1, 2002. Therefore, Plan A may be
able to satisfy the accrual rules using the fractional rule for these participants,
and the 133 1/3% rule for the other participants.
Analysis of Fractional Rule for Grandfathered Participants Age 50 to 55
In order to apply the fractional rule to the grandfathered participants in Plan A
who do not satisfy the 133 1/3% rule, the fractional rule benefit must be
determined for each such participant. This benefit is determined under the terms
of the plan by assuming that participation continues to normal retirement age,
and that all relevant factors used to determine benefits are kept constant as of
the current year for all years after the current year. The fractional rule benefit for
a participant is also determined by reflecting all of the participant's prior
14
compensation and years of participation, and assuming that the participant
continues to earn the same rate of compensation in future years that is taken into
account under the plan, but taking into account no more than 10 years of
compensation. For this purpose, the number of years of compensation that
would be taken into account under the plan, pursuant to § 411 (b )(1 )(C) and
§ 1.411 (b )-1 (b )(3)(ii)(A), is determined as if the participant had attained normal
retirement age on the date the determination is made.
The fractional rule benefit, as so determined, is multiplied by a fraction, the
numerator of which is the number of years of participation at each future point,
and the denominator of which is the number of years of participation the
participant will have if participation continues through normal retirement age. If,
for the current plan year and each future plan year, the accrued benefit under the
plan equals or exceeds the result obtained by multiplying the fractional rule
benefit by the applicable fraction for that year, the plan satisfies the fractional rule
with respect to that participant for the current plan year.
For grandfathered participants who are at least age 50 and not yet 55 on January
1, 2002, the fractional rule benefit is the greater of the benefit that is projected to
be provided by the pre-conversion benefit formula and the benefit that will be
provided by the hypothetical account of each participant, based upon the
participation and compensation history of the participant. In determining the
benefit that will be provided by the hypothetical account, future pay credits are
determined by assuming that compensation for each future year is equal to the
average of the compensation taken into account under the plan for the
immediately preceding 10 years of participation (or for all years of participation
for employees with less than 10 years of participation).
The fractional rule benefit for a participant may be determined at a date as
illustrated by the following steps:
(1) Assuming that the participant had no additional service, participation, or
compensation after the date of determination, determine which benefit formula
would provide the benefit payable at normal retirement age under the plan
(based on all other relevant factors on such date).
(2) For the formula determined in step (1), determine the number of years of
service for which compensation is taken into account under that formula as of the
determination date. For this purpose, where the lump sum-based benefit formula
is the formula in step (1) and the plan provided for the establishment of an
opening account balance equal to the present value of the accrued benefit
determined under the pre-conversion formula, the number of years of service is
the number of years of service taken into account in determining that balance,
plus one year for each year since the initial account balance was determined.
15
(3) Determine the participant's average compensation as of the determination
date for the immediately 10 preceding years or, if less, the number of years
determined in step (2).
(4) Assume that the participant's compensation for each future year of
participation until attainment of normal retirement age is the average
compensation determined in step (3).
(5) Determine the participant's fractional rule benefit as the benefit that would be
payable upon attainment of normal retirement age under the plan by applying the
plan formulas based on future participation using the compensation determined
under step (4) and based on the assumption that all other relevant factors remain
constant through normal retirement age at the values for the date on which the
determination is being made.
Under these facts, where the pattern of accruals results from a transition from a
final average pay formula that satisfies the fractional rule to an accumulation
formula that satisfies the 133 1/3% rule by providing the greater of the benefit
under the final average pay formula or the benefit under the lump sum-based
benefit formula during the transition period, the classification of participants
between at least age 50 and not yet age 55 on January 1, 2002 (including the
use of the fractional rule with respect to such participants) is not a classification
that is structured to evade the accrued benefit requirements of § 411 (b)(1 )(A),
(8), and (C) or § 1.411 (b)-1. Accordingly, the grandfathered participants in Plan
A whose annual rate of accrual fails the 133 1/3% rule may pass the accrual
rules of § 411(b)(1 )(A), (8), and (C) by using the fractional rule.
To illustrate this, consider the grandfathered participant described above who
commenced participation at age 35. For the plan year under consideration,
which is 2002, this participant had a projected benefit at the age 65 normal
retirement age under the pre-conversion 1.1 % formula (based on service through
the end of the grandfathering period and using the compensation determined
under Steps 1 through 4 above, which is $58,758) equal to $12,281. The
projected benefit from the hypothetical account balance at the age 65 normal
retirement age (assuming the pay credit percentages under the table above and
future compensation of $58,758, and that the 3.87% interest crediting rate, the
5.48% applicable rate, and the applicable mortality table remain the same for
future years) is $13,999. Therefore, the fractional rule benefit is $13,999. As
may be seen from the following table, the accrued benefit under the plan (the
greater of the $12,281 benefit under the prior 1.1 % formula and the benefit
provided by the hypothetical account balance) is not less than the pro rata
portion of the fractional rule benefit at the end of each future year. Accordingly,
the benefit with respect to this participant satisfies the fractional rule for 2002.
16
Age
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
2
Fraction
16/30
17/30
18/30
19/30
20/30
21/30
22/30
23/30
24/30
25/30
26/30
27/30
28/30
29/30
30/30
Fraction times $13,999
$7,466
$7,933
$8,399
$8,866
$9,333
$9,799
$10,266
$10,733
$11,199
$11,666
$12,132
$12,599
$13,066
$13,532
$13,999
Accrued Benefit at
End of Year Per Plan
$10,341
$10,998
$11,634
$12,281
$12,281
$12,281
$12,281
$12,281
$12,281
$12,281
$12,461
$12,867
$13,259
$13,636
$13,999
Because the accrued benefit of this participant at any future point will not be less
than the result obtained by multiplying the fractional rule benefit by the ratio of
the number of years of participation to that point to the total number of years of
participation the participant will have at normal retirement age, Plan A satisfies
the fractional rule for this participant for 2002.
If Plan A can make a similar demonstration for all grandfathered participants at
least age 50 and not yet age 55 on January 1, 2002, then Plan A can satisfy the
fractional rule for these participants and the 133 1/3% rule for all other
participants. Under the facts presented, it is expected that such a demonstration
will show that, for 2002, the fractional rule is satisfied for all participants whose
3
accrual patterns were unable to satisfy the 133 1/3% rUle.
HOLDING
Plan A satisfies the 133 1/3% rule of § 411 (b)(1 )(B) for 2002 for all participants
except the grandfathered participants who are at least age 50, but not yet age
55, on January 1, 2002. Under the above facts, the class of grandfathered
partiCipants who are at least age 50, but not yet age 55, on January 1, 2002, is
not a classification that is structured to evade the accrued benefit requirements of
2
Age at the end of the plan year.
It is similarly likely that a demonstration will show that, for 2002, the fractional rule is satisfied for
all grandfathered participants age 55 or above on January 1, 2002. Also, the use of the fractional
rule with respect to all such participants is not a classification that is so structured as to evade the
accrued benefit requirements of § 411 (b )(1 )(A), (B), and (C) and § 1.411 (b )-1.
3
17
§ 411 (b)(1 )(A), (8), and (C) and § 1.411 (b)-1 so that the fractional rule may be
used for these participants. With respect to the grandfathered participants who
are at least age 50, but not yet age 55, on January 1, 2002, if the accrued
benefits of these participants satisfy the fractional rule of § 411 (b)(1 )(C) as set
forth in this revenue ruling, Plan A satisfies the accrual rules of § 411 (b )(1 )(A),
(8), and (C) for 2002.
Satisfaction of Accrual Rules in Future Years
The analysis and holding in this revenue ruling only address the 2002 plan year.
It is possible for a plan described in the facts of this revenue ruling to fail to
satisfy the accrual rules of § 411 (b)(1 )(A), (B), and (C) for a subsequent year,
either due to changes in relevant factors that are treated as constant for any
given year or due to changes in facts relating to plan participants. For example,
in the facts addressed in this revenue ruling, whether the pattern of increasing
pay credits results in an annual rate of accrual which is more than 133 1/3% of
the annual rate of accrual for any earlier year is affected by the rate of interest
that is credited under the plan (which is treated as constant for all future years for
purposes of applying the accrual rules of § 411 (b)(1 )(A), (B), and (C) to any
year). In the year 2002, that interest rate is 3.87%. If the rate of interest credited
under the plan for a later year were to be less than 1.58%, Plan A would not
satisfy the 133 1/3% rule for that later year for participants who are not
grandfathered participants and thus would need to be amended in order to satisfy
the 133 1/3% rule.
As another example, if the grandfathered participant described above who did
not satisfy the 133 1/3% rule were to continue to have compensation increases in
years after 2002 at an annual 3% rate, then by 2013 the fractional rule benefit
would be so large that the aggregate accrued benefit of the participant for that
year would be less than the result obtained by multiplying that larger fractional
rule benefit by the applicable fraction (the number of years of participation to that
time to the total number of years of participation the participant will have at
normal retirement age). Accordingly, even compensation increases that are
regular and predictable can result in Plan A failing to satisfy the fractional rule for
the grandfathered participants. Moreover, the possible volatility resulting from
unpredictable future compensation increases is a major reason why the fractional
rule cannot effectively be used on a permanent basis for plans such as Plan A.
If changes to relevant factors such as a decrease in the interest crediting rate or
an increase in future compensation were to result in a failure to satisfy the
accrual rules, the plan's benefit formula would need to change. Some of the
types of changes that may be used are outlined below with respect to Plan A.
Any change would need to satisfy applicable qualification requirements, including
satisfaction of the anticutback rules of § 411 (d)(6) and the requirement that a
plan provide benefits that are definitely determinable.
18
In order to bring the plan into compliance in the event of a decrease in the
interest crediting rate, Plan A's benefit formula could be changed to increase the
hypothetical pay credits at the earlier ages, reduce the hypothetical pay credits at
the higher ages, or a combination of an increase at the lower ages and a
reduction at the higher ages. The resulting pattern of pay credits would have to
be less steep than before in order for the 133 1/3% rule to be satisfied using the
lower interest crediting rate. Plan A could also provide an interest crediting rate
higher than 1.58% for that year and all future years for participants for whom the
133 1/3% rule is not satisfied, but any such minimum rate could not result in a
rate of interest which exceeds a market rate of interest under § 411(b)(5)(8)(i)(I),
as added to the Code by PPA '06.
It may be possible that Plan A could be changed to adjust the hypothetical pay
credits to ensure compliance with the accrual rules of § 411 (b)(1 )(A), (8), and (C)
for future years. Such a provision would need to provide that if the interest
crediting rate at the beginning of any plan year is less than 1.58%, the
hypothetical pay credits are adjusted so that the resulting pattern of pay credits
satisfies the 133 1/3% rule using the interest crediting rate for the year. Any such
possible provision would need to include specific rules on how the adjustment is
made, which would typically be dependent on the extent to which the interest
crediting rate is less than 1.58%. Furthermore, the provision would need to be
clear as to what happens in future years should the interest crediting rate again
change. Note that it may be difficult to design such provisions and, furthermore,
difficult to put them into effect in actual plan operations on a timely basis.
With respect to the possibility that compensation increases for any future year
may result in a plan failing to satisfy the fractional rule for that year, provisions
would be necessary either to ensure that the plan could instead satisfy the 133
1/3% rule for that year (as described in the preceding two paragraphs) or to
provide a combination of increases in the accrued benefit for earlier years or
decreases in the accruals for future years (but § 411 (d)(6) would not permit
decreases for service before the applicable amendment date) in order to satisfy
the fractional rule for that year. However, unlike the discussion above
concerning interest crediting rates, it is not clear how a provision to alter accrual
rates or accrued benefits could be implemented annually by a plan provision in
the absence of relevant participant information such as the compensation history
through the plan year. It may be possible to limit the compensation taken into
account for any participant by providing that only compensation increases up to
some specified percentage are taken into account. However, any such provision
would be difficult to design and extremely difficult to put into effect in actual plan
operations on a timely basis.
Section 7805(b) Relief
Under the authority of § 7805(b), this paragraph provides relief for plans under
which a group of employees specified under the plan receives a benefit equal to
19
the greatest of the benefits provided under two or more formulas (an applicable
"greater-of' benefit), provided that each such formula standing alone would
satisfy an accrual rule of § 411 (b)(1 )(A), (8), or (C) for the years involved. This
relief applies to a plan only if either: (1) as of February 19, 2008, the plan
provisions under which the applicable "greater-of' benefit is provided have been
the subject of a favorable determination letter; (2) as of February 19, 2008, a
remedial amendment period under § 401 (b) for the plan provisions under which
the applicable "greater-of' benefit is provided has not expired; or (3) the plan is
otherwise a "moratorium plan" as defined in Notice 2007-6. Under the relief set
forth in this paragraph, for plan years beginning before January 1,2009, the
Service will not treat a plan described in the preceding sentence as failing to
satisfy the accrual rules of § 411 (b )(1 )(A), (8), and (C) solely because the plan
provides an applicable "greater-of' benefit, where the separate formulas,
standing alone, would satisfy an accrual rule of § 411 (b )(1 )(A), (8), and (C). For
this purpose, a plan described in (2) that provides a group of employees
specified under the plan an applicable "greater-of' benefit can be retroactively
4
amended so that each formula, standing alone, would satisfy an accrual rule of
§ 411 (b)(1 )(A), (8), and (C) for the years involved. For example, a moratorium
plan that has a determination letter request pending under which the lump-sum
based benefit formula standing alone fails to satisfy the accrual rules of
§ 411 (b)(1 )(A), (8), and (C) for a plan year beginning before January 1,2009
(because the interest credits under the plan are insufficient to compensate for the
effect of age-based or service-based pay credits) can be retroactively amended
so that the lump-sum based benefit formula satisfies an accrual rule of
§ 411 (b)(1 )(A), (8), and (C) for the years involved.
The relief under the prior paragraph does not extend to other issues under § 411.
Accordingly, before a favorable determination letter can be issued, the plan must
otherwise satisfy the requirements of § 411. 5 Thus, for example, in order to avoid
a forfeiture of the accrued benefit under the plan for purposes of § 411, or to
ensure compliance with the accrual rules of § 411 (b)(1 )(A), (8), and (C), the
annual benefit payable at normal retirement age attributable to the lump sumbased benefit formula at the end of the current year must not change thereafter,
assuming that no change were to occur in any relevant factor used to determine
benefits and disregarding any future pay credits (e.g., under the plan, the annual
benefit payable at normal retirement age attributable to the lump sum-based
benefit formula as of the end of a year cannot increase or decrease after that
year due merely to operation of the plan and the passage of time, as opposed to
additional pay credits or changes in a relevant factor used to determine benefits).
DRAFTING INFORMATION
Any such amendment must satisfy the anticutback rules of § 411 (d)(6).
As provided by Notice 2007-6, issues as to whether the conversion satisfies the requirements of
§ 411 (b)(1 )(H) will generally not be considered for plans where the conversion is before June 30,
4
5
2005.
20
The principal author of this revenue ruling is James E. Holland, Jr. of the
Employee Plans, Tax Exempt and Government Entities Division. Mr. Holland
may be reached bye-mail at RetirementPlanQuestions@irs.gov.
21
797: Under ~,..cretw¥ Steel tG Di.seuss Housing <br>at American Securitization Forum Conference
Page 1 of 1
February 1, 2008
HP-797
Under Secretary Steel to Discuss Housing
at American Securitization Forum Conference
Under Secretary for Domestic Finance Robert K. Steel will deliver the keynote
address Tuesday at the American Securitization Forum's Annual Conference in Las
Vegas, Nev. The Under Secretary will discuss housing and the progress of the
organization's streamlined process to reach more borrowers, which Secretary
Henry M. Paulson, Jr. welcomed in December 2007.
The following event is open to the media
Who
Under Secretary for Domestic Finance Robert K. Steel
What
Keynote Address
When
Tuesday, February 5, 9:00 a.m. PST
Where
American Securitizalion Forum 2008 Annual Conference
The Venetian Resort Hotel
3355 Las Vegas Blvd.
Las Vegas, Nev
Note
Media must register in advance. Contact Katrina Cavalli at (212) 313-1181.
http://www,treas.gov/prcss/releases/hp 197.tnm
3/3/2008
799: TreasUl1 to Hold Teclmical 8nefing on Blue Book
Page 1 of 1
February 1, 2008
HP-799
Treasury to Hold Technical Briefing on Blue Book
Assistant Secretary for Tax Policy Eric Solomon and Assistant Secretary for
Economic Policy Phillip Swagel will hold a technical briefing of the General
Explanations of the Administration's Fiscal Year 2009 Revenue Proposals, also
known as the "Blue Book'"
Who
Assistant Secretal-y for Tax PoliCY Eric Solomon
ASSistant Secretary for Economic PoliCY Phillip Swage I
What
Pen and Pad Technical Briefing on Budget Blue Book
When
Monday, February 4, 1 15 p.m. EST
Where
Media Room (4121)
Treasury Department
1500 Pennsylvania Avenue, NW
Washlllgton, D.C.
Note
Cameras will not be allowed into the briefing.
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or i.
or r: " i i ' ,,:, J
with the following information:
full name, Social Security number and date of birth.
httn://www.treas.gov/press/releases/hp 799 .him
3/3/2008
800: Treasury Economic Update 2.1.08
Page I of I
February 1, 2008
HP-800
Treasury Economic Update 2.1.08
"Recent data indicate that economic growth and the pace of job creation have
slowed. At the same time, the unemployment rate remains low and core
inflation is contained. We expect that the economy will continue to expand,
even as the housing downturn and credit market strains remain a drag on
growth. Rapid enactment of the bipartisan growth package passed by the
House of Representatives would provide important support for the economy
this year."
Assistant Secretary Phillip Swagel, February 1, 2008
Job Creation Has Slowed:
Job Growth: Payroll employment fell by 17,000 In January, following a gain of
82,000 jobs in December, The United States has added 1 million jobs in the past 12
months and 8.3 million jobs since August 2003. Employment increased in 47 states
and the District of Columbia over the year ending in December. (Last updated:
February 1, 2008)
Low Unemployment: The unemployment rate edged down to 4.9 percent in
January from 5.0 percent in December. Unemployment rates have declined in 12
states and the District of Columbia over the year ending in December. (Last
updated February 1, 2008)
There Are Still Many Signs of Economic Strength.
Business Investment: Business spending on commercial structures and
equipment rose solidly in the fourth quarter. Healthy corporate balance sheets
should support continued investment growth (Last updated: January 30, 2008)
Exports: Strong global growth is boosting U.S exports, which grew by 7.7 percent
over the past 4 quarters. (Last updated. January 30, 2008)
Inflation: Core inflation remains contained. The consumer price index excluding
food and energy rose 2.4 percent over the 12 months ending in December. (Last
updated.' January 16, 2008)
Tax Revenues: Tax receipts rose 6.7 percent in fiscal year 2007 (FY07) on top of
FY06's 11.8 percent increase. As a share of GOP, FY07 receipts exceeded their
40-year average. (Last updated. October 12, 2007)
Americans Are Keeping More of Their Hard-Earned Money:
Real after-tax income per person increased 1.1 percent over the past 12
months (ending in December). (Last updated' January 31, 2008)
Pro-Growth Policies Will Enhance Long-Term U.S. Economic Strength:
We are on track to make significant further progress on the deficit. The FY07
budget deficit was down to 1.2 percent of GOP, from 1.9 percent in FY06. Much of
the improvement in the deficit reflects strong revenue growth, which in turn reflects
strong economic growth. Looking ahead, higher spending on entitlement programs
dominates the future fiscal situation: we must squarely face up to the challenge of
reforming these programs.
www.treas.gov/economic-plan
http://www.treas.gov/press/releases/hp 800.httR
3/3/2008
ted States - Department of Th~ Tr-ensllry - Economy
COINS &
:lJRRENCY
FlGH11NG ILUCIT
FINANCE
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FINANCIAL
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The U.S. economy is fundamentally strong, but the housing
correction, credit turmoil, and high oil prices are weighing on growth
this year and short-term risks are to the downside. The Economic
Stimulus Act of 2008, signed into law on February 13, will help
protect the strength of our economy as we weather the housing
downturn and other challenges. This agreement includes short-term
incentives to bolster business investment and consumer spending to
keep our economy growing and creating jobs this year.
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Economic Growth Package
• Fact Sheet: State-by-State Benefit of the Economic Stimulus
Act of 2008 lEI
• Fact Sheet: Examples of How the Economic Growth
Package will Benefit Americans
• Paulson Statement on Senate Passage of Economic Growth
P(jckage
• P(julson StCltement on t!QLJS~ F'assa-fje ofEconornic Growth
'--~-fj i~!ClJi()n
• EqlJLs_Qn,A~nswE3r~QlJe_$tion$ _onEGQnornic Growth
Agreement
• Paulson Press Briefing on the Bipartisan Economic Growth
Agreement
• White House Fact Sheet: New Growth Package Meets
Criteria to Keep Our Economy Healthy
• Bush Statement on Economic Growth Agreement
• Paulson Remarks on the Economy
• Paulson Tqkes Questions at tht:) Whitt:) House
• PClj.Jlson He'marks at White t!Qu$e_ Press Briefing
• WhiteJ-IQuseFClct Sbeet Takir]9Action to Keep Our
Economy Healthy
• Transcript: President's Remarks
"Recent data indicate that econo
rowth and the pace of job creatl
have slowed. At the same time, t
unemployment rate remains low
core inflation is contained. We e)
that the economy will continue tc
expand, even as the housing dOl
and credit market strains remain
on growth. Rapid enactment of tI
bipartisan growth package paSSE
the House of Representatives w(
rovide important support for the
economy this year. "
- Assistant Secretary Phillip Swa
. February 1, 2008
MORE INFORMATION
Economic Report of the Presi
The White House Economy a
Budget
Bureau of Economic Analysis
Bureau of Labor Statistics
The Federal Reserve
Economic Data Tables
RELATED OFFICES
Treasury's Office of Economi(
Policy
Treasury Releases Social Security Papers
To build on the discussions that Secretary Paulson has had with
members of Congress in both parties, Treasury will release a series
of issue briefs that will discuss Social Security reform, focusing on
the nature of the problem and those aspects of reform that have
broad support.
/IWWw.treas.gov/cconomic-planl
3/3/2008
ed States ~ Departrntmt of The 'fulAsury ~ Economy
Page 2 of2
• pell.ilson Statement on Treasury Social Security Papers on
Common Ground
• Issue Brief 1: Social Security Reform: The Nature of the
Problem
• Issue Brief 2: Social Security Reform: A Framework for
Ana!y~i§;
• Issue Brief 3 : Social Security Reform: Benchmarks for
Assessing Fairness and Benefit Adequacy
U.S. Economic Strength
Job Creation Has Slowed:
Job Growth: Payroll employment fell by 17,000 in January,
following a gain of 82,000 jobs in December, The United States has
added 1 million jobs in the past 12 months and 8.3 million jobs since
August 2003. Employment increased in 47 states and the District of
Columbia over the year ending in December. (Last updated:
February 1, 2008)
Low Unemployment: The unemployment rate edged down to 4.9
percent in January from 5.0 percent in December. Unemployment
rates declined in 12 states and the District of Columbia over the year
ending in December. (Last updated: February 1, 2008)
There Are Still Many Signs of Economic Strength:
Business Investment: Business spending on commercial
structures and equipment rose solidly in the fourth quarter. Healthy
corporate balance sheets should support continued investment
growth. (Last updated: February 27, 2008)
Exports: Strong global growth is boosting U.S. exports, which grew
by 7.9 percent over the past 4 quarters. (Last updated: February 27,
2008)
Inflation: Core inflation remains contained. The consumer price
index excluding food and energy rose 2.5 percent over the 12
months ending in January. (Last updated: February 20, 2008)
The Economic Stimulus Package Will Provide a Temporary
Boost to Our Economy:
The package will help our economy weather the housing
correction and other challenges. The Economic Stimulus Act of
2008, signed into law by President Bush has two main elementstemporary individual tax relief so that working Americans have more
money to spend and temporary tax incentives for businesses to
invest and grow. Together, the legislation will provide about $150
billion of tax relief for the economy in 2008, leading to the creation of
over half a million additional jobs by the end of this year.(Last
updated: February 29, 2008)
Pro-Growth Policies Will Enhance Long-Term U.S. Economic
Strength:
We are on track to make significant further progress on the
deficit. The FY07 budget deficit was down to 1.2 percent of GOP,
from 1.9 percent in FY06. Much of the improvement in the deficit
reflects strong revenue growth, which in turn reflects strong
economic growth. Looking ahead, higher spending on entitlement
programs dominates the future fiscal situation; we must squarely
face up to the challenge of reforming these programs.
Last Updated February 29. 2008
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3/3/200)\
801: Propostil Treasury Bud~et for fV 2009
Page lof2
February 4, 2008
HP-S01
Proposed Treasury Budget for FY 2009
The President's proposed budget for the Treasury Department's fiscal year 2009
reflects the Department's continued dedication to promoting economic growth and
opportunity, strengthening national security, and exercising fiscal discipline
"The President's proposed budget for Treasury supports the Department's progrowth priorities and commitment to promoting economic growth and stability, and
ensuring the safety, soundness, and security of the US and international financial
systems," said Treasury Secretary Henry M. Paulson, Jr.
The Treasury appropriations request for FY 2009 is $12.5 billion, an IIlcrease of 3.S
percent over the FY 2008 enacted budget of $120 billion
Promoting Economic Growth and Opportunity
The Treasury Department's offices of International Affairs, Tax POliCY, Economic
PoliCY. and Domestic Finance provide technical analysis, economic forecasting, and
policy gUidance on issues ranging from federal finanCing to responding to
international financial crises.
The FY 2009 budget provides an additional $3.0 million to Domestic Finance's
Office of Debt Management to update their information technology systems to
ensure accurate and timely projections can be made.
Additional funds of $.07 million are requested to recruit investment flow analysts
and other specialists. This funding is necessary to provide additional support for.
and measure progress toward. achieving the International Affairs objective of
ensuring national security and increasing economic growth.
Strengthening National Security
The Office of Terrorism and Financial Intelligence marshals the Treasury
Department's Intelligence and enforcement functions, aimed at safeguarding the
financial system against illicit use and combating national security threats from
rogue regimes, terrorism, proliferation of weapons of mass destruction, and
narcotics trafficking. To support these efforts. Treasury requests an $11.0 million
Increase for TFI, including $5.5 million for the FlIlancial Crimes Enforcement
Network to ensure effective management of the Bank Secrecy Act.
Exercising Fiscal Discipline
One of Secretary Paulson's top priOrities is keeping the US on the path to achieve
the President's goal of redUCing budget deficits and balancing the budget by 2012
The Treasury Department is committed to reducing the defiCit by managing the
nation's finances effectively and ensuring the most efficient use of taxpayer dollars
and collecting the revenue due to the federal government.
Enforcing the Nation's Tax Laws Fairly and Efficiently
The budget requests $11.4 billion for the Internal Revenue Service, an increase of
4.3 percent over the FY 2008 enacted budget for the IRS to expand its enforcement
activities and to continue improvements in taxpayer service.
http://www.treas.gov/press/releases/hp.801.htm
3/3/2008
801: Propo~tI Treasury Budget fOf FY 2009
Page 2 of2
An in-depth press briefing on the revenue proposals, Including release of the "Blue
Book" will be held at 1.15 PM (EST) today in room 4121 of the Treasury Building
(Media without Treasury press credentials shoLJlrU;ontact Frances Anderson at
(202) 622-2960, or frances.anderson@do.treas.gov with full name, Social Security
number, and date of birth)
Summary of Treasury's FY 2009 Budget Request
httpJltreas.gov/offices/managementlbudgetlbudgetinbrief/fy2009/index.shtml
http://www.treas.gov/press/releases/hp801.htm
3/3/2008
Page 1 of 1
Treasury - Offic.e of Performance Budgeting - FY 2006
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BUDGET DOCUMENTS: FY 2009
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FY 2009 Budget-in-Brief
FY 2009 Budget-in-Brief
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Last Updated: January 31, 2008
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Last Updated: February 4, 2008
Jltr-Wlv/offl'e'-'8/managemenffbllllgeCibudgetinbrief/fy2009/index.shtml
3/3/2008
802: Under Secret~ Steel 'to 9tscuss Regulatory Blueprint
Page 1 of 1
February 4, 2008
HP-802
Under Secretary Steel to Discuss Regulatory Blueprint
Under Secretary for Domestic Finance Robert K. Steel will speak Thursday at the
New York Society of Security Analysts Annual Wall Street Forum in New York City.
His remarks will focus on Treasury's progress creating a blueprint to improve the
U.S financial regulatory structure.
The following event is open to the media:
Who
Under Secretary for Domestic Finance Robert K. Steel
What
Remarks
When
Thursday, February 7,8:00 a.m EST
Where
New York Society of Secunty Analysts 3rd Annual Wall Street Forum
Reuters America
3 Times Square
7th Avenue and 42nd Street
New York, NY
http://www.treas.gov/press/releases/hp802.1Hm
3/3/2008
03: Treasuty Rel4Mwes FY'~ Bluebook
{ii\
PRESS ROOM
.". ~,~ us. DEPARTMENT OF THE TREASURY
i
1~
Page 1 of 2
,,'
•
•
'"".
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February 4, 2008
HP-803
Treasury Releases FY 2009 Bluebook
Washington, DC--The U.S. Treasury Department today released its General
Explanations of the Administration's Fiscal Year (FY) 2009 Revenue Proposals,
often referred to as the Bluebook.
The Administration's FY 2009 Budget includes measures to permanently extend the
President's tax relief enacted in 2001 and 2003, promote savings and investment
and improve compliance with the U.S. tax system. The FY 2009 Budget also
includes initiatives to:
• Provide a new standard deduction for health insurance
• Encourage entrepreneurship and investment
• Provide alternative minimum tax (AMT) relief
• Strengthen home ownership
• Provide incentives for charitable giving
• Extend various expiring tax provisions
Extend Permanently the President's 2001 and 2003 tax relief
The President's tax relief enacted in 2001 and 2003 helped make the tax code
fairer, simpler, and more pro-growth. The FY 2009 Budget proposals include
making the 2001 and 2003 tax relief permanent, which is essential for promoting
economic growth and higher living standards in the future. The FY 2009 Budget
also includes proposals to promote savings for all Americans and encourage
investment by entrepreneurs.
AMT Relief
The Administration is concerned that the individual AMT may impose substantial
burdens upon taxpayers who were not the originally intended targets of the
individual AMT. The President's FY 2009 Budget proposes to extend for one year
through 2008 provisions that address the rapid rise in the number of taxpayers
affected by the AMT. The Administration believes the longer term solution to the
problems aSSOCiated with the individual AMT is best addressed within the context of
other reforms to the tax system.
The proposal would increase the AMT exemption levels for 2008 to $46,250 for
single and head of household filers, $70,050 for married taxpayers filing jOint
returns, and $35,025 for married taxpayers filing separate returns. In addition, the
proposal would allow an individual to reduce 2008 tax liability by the full amount of
nonrefundable personal credits.
Improving Tax Compliance
In September 2006, the Treasury Department released a comprehensive strategy
to improve tax compliance. The strategy builds upon the demonstrated experience
and current efforts of the Treasury Department and the Internal Revenue Service
(IRS) to improve compliance with a commitment to taxpayer service. In August
2007, the IRS issued a report: Reducing the Federal Tax Gap: A Report on
http://www.treas.gov/press/releases/h~.htm
6/20/2008
13: Treasury Releft!eS FY ~ Bluebook
Page 2 of 2
Improving Voluntary Compliance, setting forth the steps the IRS is taking to
implement the 2006 Treasury strategy.
The Treasury Department has put forward 16 proposals in the FY 2009 Budget to
help improve compliance, with an emphasis on improving information reporting
without creating excessive burdens on compliant taxpayers. The Treasury
Department also asked for $489 million for the IRS to increase compliance efforts.
Click here for more information on the IRS' August 2007 reporl on improving
voluntary compliance.
Click tlere for more information on Treasury's September 2006 strategy to improve
tax compliance.
Click here 10 view the FY 2009 Blue Book.
-30-
REPORTS
•
FY 2009 Bluebook
http://www.treas.gov/press/releases/hp803.hfm
'")(\ I'J{)()Q
Page 1 of 2
l"".~"·f\
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PRESS ROOM
'~U.s. DEPARTMENT OF THE TREASURY
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August 2, 2007
Hp-524
Treasury, IRS Release Report on Improving Voluntary Compliance
Washington, D.C.--The Treasury Department and the Internal Revenue Service
(IRS) released today an IRS report addressing the agency's implementation of the
2006 strategy to improve voluntary compliance with federal tax laws. A copy of the
report is attached.
The IRS report, "Reducing the Federal Tax Gap: A Report on Improving Voluntary
Compliance," details steps currently being taken by the IRS, as well as those under
development, to address key elements of the "tax gap." The report builds on the
seven components of the "Comprehensive Strategy for Reducing the Tax Gap,"
which the Treasury Department released in September 2006. Those components
are:
1.
2.
3.
4.
5.
6.
7.
Reducing Opportunities for Evasion
Making a Multi· Year Commitment to Research
Continuing Improvements in Information Technology
Improving Compliance Activities
Enhancing Taxpayer Service
Reforming and Simplifying the Tax Law
Coordinating with Partners and Stakeholders
In each of these areas, tlie report sets out compliance objectives and initiatives,
along with targeted completion dates, that the IRS is implementing to improve tax
compliance over the next several years.
Detailed information is provided on each step currently being taken to reduce
opportunities for tax evasion, leverage technology, and support legislative
proposals that, as implemented, will improve compliance. At the same time, the
report reaffirms that taxpayer rights must be respected and burdens on compliant
taxpayers must be minimized. The report also presents an outreach approach to
ensure all taxpayers understand their tax obligations. Additionally, it recognizes the
importance of having a multi-year research program that will assist in understanding
both the scope of and reasons for noncompliance.
Full implementation of the initiatives outlined in the report will have a positive effect
on the rate of voluntary compliance. The report reflects the commitment of the IRS
to apply its resources where they are of most value in reducing noncompliance
while ensuring fairness, observing taxpayer rights, and minimizing the burden on
taxpayers who comply.
The overall compliance rate achieved under the U.S. revenue system is quite high.
For the 2001 tax year, the IRS estimates that over 86 percent of tax liabilities were
collected, after factoring in late payments and recoveries from IRS enforcement
activities. Nevertheless, an unacceptable amount of the tax that should be paid
every year is not, short-Changing the vast majority of Americans who pay their taxes
accurately and giving rise to the tax gap. The gross tax gap was estimated to be
$345 billion in 2001. After enforcement eHects and lale payments, this number was
reduced to a net tax gap of approximately $290 billion.
A copy of the Treasury Department's 2006 strategy is available at:
http://www.treas.gov/press/releases/hp524.htm
6/2012008
Page 2 of 2
http://www .t reas. gov /p ress/releases/ repo rts/ otptaxgapstr at egy~/o20fi n a I. pdf.
-30-
REPORTS
•
IRS Report on Improving Voluntary Compliance
Ittp:llwww.treas.gov/press/releases/hp514.htm
6/2012008
Page I of I
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
September 26. 2006
HP-111
A Comprehensive Strategy for Reducing the Tax Gap
U.S. Department of the Treasury
Office of Tax Policy
September 26, 2006
Executive Summary
In fiscal year 2005. Federal receipts totaled over $2.2 trillion. More than 95 percent
of net receipts were collected by the Internal Revenue Service (IRS) through its
administration of the income, transfer and excise tax provisions of the Internal
Revenue Code. The vast majority of these receipts is collected through our
vOluntary compliance system, under which taxpayers report and pay their taxes with
no direct enforcement and minimal interaction with the government. The overall
compliance rate achieved under this system is quite high. In 2001, the compliance
rate was over 86 percent, after including late payments and recoveries from IRS
enforcement activities. Nevertheless, an unacceptably large amount of the tax that
should be paid every year is not, requiring compliant taxpayers to make up for the
shortfall and giving rise to the "tax gap'"
The Administration is committed to working with Congress to reduce the tax gap
This document outlines the Administration's aggressive strategy for addressing the
tax gap. The strategy builds upon the current efforts of the Treasury Department
and the IRS to improve compliance. As part of the deliberations in preparing the
Administration's fiscal year 2008 budget request to Congress, the Treasury
Department and the IRS are working
with the Office of Management and Budget to further develop this strategy to
reduce the tax gap. This document is intended to provide a broad base on which to
build. The more detailed elements of the tax gap strategy are, in part, contingent
upon the budget process for fiscal year 2008 and beyond. Accordingly, the
Treasury Department and the IRS will provide a more detailed outline of steps they
will take to address the tax gap following
release of the Administration's fiscal year 2008 budget request early next year.
Four key principles guided the development of this strategy
•
•
•
•
First, unintentional taxpayer errors and intentional taxpayer evasion should
both be addressed.
Second, sources of noncompliance should be targeted with specificity.
Third, enforcement activities should be combined with a commitment to
taxpayer service.
Fourth, policy positions and compliance proposals should be sensitive to
taxpayer rights and maintain an appropriate balance between enforcement
actiVity and Imposition of taxpayer burden.
REPORTS
•
Treasury ComprehenSive Strategy for AddreSSing tile Tax Gap
http://www.treas.gov/press/releases/hpll1.htFJ,
3/3/2008
General Explanations
of the
Administration's Fiscal Year 2009
Revenue Proposals
Department of the Treasury
February 2008
This document is available in Adobe Acrobat format on the Internet at:
http://www.treas.gov/offices/tax-policy/library/bluebk08.pdf
The free Adobe Acrobat Reader is available at http://www.adobe.com/products/acrobat/readstep2.html
Table of Contents
GENERAL EXPLANATIONS OF THE ADMINISTRATION'S FISCAL YEAR 2009 REVENUE
PROPOSALS ............................................................................................................................................................... 1
STIMULATE ECONOMIC GROWTH AND JOB CREATION IN
2008 .................................................................................. 1
IMPROVE THE TAX SYSTEM AND MAKE THE UNITED STATES MORE COMPETITIVE ..................................................
1
MAKE PERMANENT CERTAIN TAX RELIEF ENACTED IN 2001 AND 2003 .............................................. 3
PERMANENTLY EXTEND CERTAIN PROVISIONS OF THE
2001
TAX RELIEF AND THE
2003
JOBS AND GROWTH TAX
RELIEF ....................................................................................................................................................................... 3
TAX INCENTIVES ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 5
SIMPLIFY AND ENCOURAGE SAVING ......................................................................................................................... 5
Expand tax-free savings opportunities ................................................................................................................... 5
Consolidate employer-based savings accounts .................................................................................................... 12
ENCOURAGE ENTREPRENEURSHIP AND INVESTMENT .............................................................................................. 17
Increase expensingfor small business ......... ....... ,. ......................................................... ......... .......... ........
........ 17
INVEST IN HEAL TH CARE .........................................................................................................................................
19
Provide a new standard deduction for health insurance (SDHI) ($15,000 for family coverage and $7,500 for
single coverage) ............................................................................................................................................ 19
Expand and make health savings accounts (HSAs) morejlexible ........................................................................ 23
Allow the orphan drug tax credit for certain pre-designation expenses ............................................................... 27
PROVIDE INCENTIVES FOR CHARITABLE GIVING ..................................................................................................... 28
Permanently extend tax-free withdrawals from lRAsfor charitable contributions ............................................. 28
Permanently extend the enhanced charitable deductionfor contributions offood inventory ............................. 30
Permanently extend the enhanced deductionfor corporate contributions of computer equipmentfor
educational purposes .............................................. ....................................................................................... 32
Permanently extend increased limits on contributions ofpartial interests in real property for conservation
purposes ........................................................................................................................................................ 33
Permanently extend the basis adjustment to stock ofS corporations contributing appreciated property ............ 35
Reform excise tax based on investment income ofprivate foundations ................................................................ 36
STRENGTHEN EDUCATION ....................................................................................................................................... 38
Permanently extend the above-the-line deduction for qualified out-ol-pocket classroom expenses ..................... 38
Allow the Saver's Credit for contributions to qualified tuition programs ............................................................ 39
STRENGTHEN HOUSING ........................................................................................................................................... 41
Allow tax-exempt qualified mortgage bonds to refinance home mortgages to provide relieffor subprime
borrowers ..................................................................................................................... ................................. 41
PROTECT THE ENVIRONMENT .................................................................................................................................. 43
Permanently extend expensing of brownfields remediation costs ........................................................................ 43
Eliminate the volume cap for private activity bonds for water infrastructure ...................................................... 45
RESTRUCTURE ASSISTANCE TO NEW YORK CITy ................................................................................................... .4 7
Provide tax incentives for transportation infrastructure ............................ ......................................................... 4 7
SIMPLIFY THE TAX LAWS FOR FAMILIES .................................................................................................... 51
ClarifY uniform definition of a child ........................................................ ............................................................ 51
SimplifY EITC eligibility requirements regarding filing status, presence of children, and work and immigrant
status ........................................................................................................................................................... 55
Reduce computational complexity of refundable child tax credit ......................................................................... 59
IMPROVE TAX COMPLIANCE •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••.•••••••••••••••• 61
INTRODUCTION ........................................................................................................................................................ 61
EXPAND INFORMATION REPORTING ........................................................................................................................ 63
Require information reporting on payments to corporations ........
.................................................... 63
Require basis reporting on security sales ............................................................................................................. 64
Require information reporting on merchant payment card reimbursements....................
...................... 65
Require a certified Taxpayer Identification Number from contractors. ................ ......... ........
....... 67
Require increased information reportingfor certain government payments for property and services ............... 69
Increase information return penalties ......................................................................................................... ......... 70
1lJ
Improve the foreign trust reporting penalty............... .... ........... ......... .... ...... ...
...................
..72
IMPROVE COMPLIANCE BY BUSINESSES .................................................................................................................. 74
Require e-jiling by certain large organizations..... ............................
..74
Implement standards clarifYing when employee leasing companies can be held liable for their clients'
Federal employment taxes ................................................................ ............................................................ 76
STRENGTHEN TAX ADMINISTRATION ...................................................................................................................... 78
Expand IRS access to information in the National Directory of New Hires for tax administration purposes .. ... 78
Permit disclosure ofprison tax scams .. .............................................................................................................. 79
Make repeated willful failure to file a tax return a felony .... ............................................................................. 80
Facilitate tax compliance with local jurisdictions....................................
..............
.. ........... 81
Extension of statute of limitations where State tax adjustment affects Federal tax liability.....................
.82
Improve investigative disclosure statute ................ ............................................................................................. 84
PENALTIES ............................................................................................................................................................... 85
Impose penalty on failure to comply with electronic filing requirements.. .... ..............
.. .................. 85
IMPROVE TAX ADMINISTRATION AND OTHER MISCELLANEOUS PROPOSALS .............................. 87
Make Section 1203 of the IRS Restructuring and Reform Act of 1998 more effective andfair.....
. .............. 87
Allow for the termination of installment agreements for failure to file returns andfor failure to make
deposits .............................................. ........................................................................................................... 89
Eliminate the monetary thresholdfor counsel review of offers in compromise .................................................... 90
Extend IRS authority to fund undercover operations .... ....................................................................................... 91
Increase transparency of the cost of employer-provided health coverage ......................................................... 92
Conform penalty standards between preparers and taxpayers ............................................................................ 93
Eliminate the special exclusionfrom unrelated business taxable incomefor gain or loss on the sale or
exchange of certain brownfields ........... ....................................................................................................... 95
Limit related party interest deductions............ ..... ..............
................................ ........................
.. 97
Repeal telephone excise tax on local service ........................................... ............................................................. 99
ModifY financing of the Airport and Airway Trust Fund ....................... ................................................. .......... 101
ModifY financing of the Inland Waterways Trust Fund .......... ...................... .................................................... 103
IMPROVE UNEMPLOYMENT INSURANCE ................................................................................................... 105
Strengthen the financial integrity of the unemployment insurance system by reducing improper benefit
payments and tax avoidance ........................................................................ ............................................. . 105
Extend unemployment insurance surtax ............................................................................................................ 107
ENERGY PROVISIONS ........................................................................................................................................ 109
Repeal reduced recovery period for natural gas distribution lines ...... .................. ........................................... 109
ModifY amortization for certain geological and geophysical expenditures ......... ...................................... ....... 110
EXTEND EXPIRING PROVISIONS .................................................................................................................... 111
Extend minimum tax relieffor individuals ................................ ......................................................................... 111
Permanently extend the Research & Experimentation (R&E) tax credit ............
.. ................... 113
Extend the first-time homebuyer credit for the District of Columbia ................................................................. 115
Extend deferral ofgains from the sale of electric transmission property .......................... ................................. 116
Extend the New Markets Tax Credit ................................................................................................................... 118
Extend subpart F active financing exception.. ...................
......................
... ... 119
Extend subpart F look-through exception ........ ............................................................................................... . 121
Qualified retirement plan distributions to individuals called to active duty .................................................... 122
Disclosure of tax return information related to terrorist activity ...................... ................................................ 124
Disclosure of tax return informationfor administration of veterans programs....
...............
.. .. 125
Excise tax on coal......
................................. ............ ..............................
.. .................. . 126
.............
.......... 12 7
Election to include combat pay as earned income for EITC .........................
REVENUE ESTIMATES TABLE ......................................................................................................................... 129
IV
GENERAL EXPLANATIONS OF THE ADMINISTRATION'S FISCAL YEAR 2009
REVENUE PROPOSALS
Stimulate Economic Growth and Job Creation in 2008
Our most pressing immediate economic priority is for the Administration and the Congress to
work together to enact a temporary economic stimulus package to keep our economy growing
and create jobs. The package should take effect as quickly as possible, provide broad-based tax
relief for individuals, and include tax incentives for business investment. The Administration will
work with the Congress in a bipartisan manner to enact initiatives that provide timely, temporary,
and effective support to the Nation's economy.
Improve the Tax System and Make the United States More Competitive
As a longer-term consideration, Americans deserve a tax system that is simple, fair, and progrowth - in tune with our dynamic, 21 st century economy. The tax system should promote the
competitiveness of American workers and businesses in the global economy. The report,
Approaches to Improve the Competitiveness of the u.s. Business Tax System for the 2]'" Century,
released by the Treasury Department in December 2007 outlines several broad approaches to
business tax reform and lays the groundwork for discussion of ways to ensure that the Nation's
business tax system better meets the needs of businesses in today's global economy and
improves living standards for all Americans.
The President's tax relief enacted in 2001 and 2003 helped make the tax code fairer, simpler, and
more pro-growth. The FY 2009 Budget proposals include making the 2001 and 2003 tax relief
permanent, which is essential for promoting economic growth and higher living standards in the
future. The Administration has made additional proposals that would improve the tax code
further. These proposals affect a wide range of areas, including simplifying and encouraging
saving, encouraging entrepreneurship and investment, making health care more affordable and
consumer-driven, providing incentives for charitable giving, strengthening education, and
protecting the environment. Also included are proposals to simplify the tax law for families,
improve tax compliance, improve tax administration, improve the administration of
unemployment insurance, modify energy tax provisions, and extend expiring tax provisions.
MAKE PERMANENT CERTAIN TAX RELIEF ENACTED IN 2001 AND 2003
Permanently Extend Certain Provisions of the 2001 Tax Relief and the 2003 Jobs and
Growth Tax Relief
Current Law
The Economic Growth and Tax Relief Reconciliation Act of2001 (EGTRRA) created a new
IO-percent individual income tax rate bracket, reduced marginal income tax rates for individuals,
doubled the child credit and extended its refundability, reduced marriage penalties, eliminated
the phase-out of personal exemptions and the limitation on certain itemized deductions for
higher-income taxpayers, provided additional incentives for education, increased Individual
Retirement Account and pension incentives, eliminated the estate and generation-skipping
transfer taxes, and modified the gift tax. These and several other provisions of EGTRRA sunset
on December 31, 2010.
The Jobs and Growth Tax Relief Reconciliation Act of2003 (JGTRRA) increased the amount of
qualifying property that can be expensed in the year of purchase rather than being depreciated
and lowered the tax rates on qualifying dividends and on capital gains. The provisions were
extended by the Tax Increase Prevention and Reconciliation Act of2005 (TIPRA). The
liberalized expensing provision was further extended by the Small Business and Work
Opportunity Tax Act of 2007 (SBWOT A), which also increased the amount that may be
expensed in a single taxable year. These provisions sunset on December 31,2010.
Reasons for Change
The tax relief and incentives to work, save, and invest provided by EGTRRA and JGTRRA, and
expanded by SBWOTA, are essential to the long-run performance of the economy. All
taxpayers should have the certainty of knowing that these provisions will extend beyond 2010.
Taxpayers plan for periods far beyond the scheduled sunset dates of the EGTRRA and JGTRRA
provisions when saving for their children's education, undertaking new business ventures,
planning for retirement, and planning future contributions to charity and bequests for their
children. Permanent extension of the provisions is essential for promoting growth and higher
levels of income in the future.
Proposal
The provisions of EGTRRA that sunset on December 31,2010 would be permanently extended.
The provisions of JGTRRA that sunset on December 31,2010 (as expanded and extended)
would be permanently extended.
3
Revenue Estimate'
Fiscal Years
2008
2009
2010
2011
2012
2013
2009-2013
2009-2018
-255,388
-665,597
-2,185,294
($ in millions)
-422
I
-2,077
-13,095
-158,453
-236,584
The estimate includes both receipts and outlay effects. The outlay effect is $108,524 million for 2009-2018.
4
TAX INCENTIVES
Simplify and Encourage Saving
EXPAND TAX-FREE SAVINGS OPPORTUNITIES
Current Law
Current law provides multiple tax-preferred individual savings accounts to encourage saving for
retirement, education, and health expenses. The accounts have overlapping goals but are subject
to different sets of rules regulating eligibility, contribution limits, tax treatment, and withdrawal
restrictions. Individual Retirement Accounts (lRAs), including traditional, nondeductible, and
Roth IRAs, are primarily intended to encourage retirement saving, but can also be used for
certain education, medical, and other non-retirement expenses. Each of the three types of IRAs
is subject to a different set of rules regulating eligibility and tax treatment. Coverdell Education
Savings Accounts (ESAs) and Section 529 Qualified Tuition Programs (QTPs) are both intended
to encourage saving for education, but each is subject to different rules. Archer Medical Savings
Accounts (MSAs) and Health Savings Accounts (HSAs) are intended to encourage saving for
medical expenses, but each is subject to different rules.
Individual Retirement Accounts: Under current law, individuals under age 70Y2 may make
contributions to a traditional IRA, subject to certain limits. The contributions are generally
deductible; however, the deduction is phased out for workers with incomes above certain levels
who are covered by an employer-sponsored retirement plan. For taxpayers covered by employer
plans in 2008, the deduction is phased out for single and head-of-household filers with modified
adjusted gross income 2 (AGI) between $53,000 and $63,000, for married filing jointly filers with
modified AGI between $85,000 and $105,000, and for married filing separately filers with
modified AGI between $0 and $10,000. For a married filing jointly taxpayer who is not covered,
but whose spouse is covered by an employer-sponsored retirement plan, the deduction is phased
out with modified AGI between $159,000 and $169,000. Account earnings are not includible in
gross income until distributed. Distributions (including both contributions and account earnings)
are includible in gross income for income tax purposes.
To the extent a taxpayer cannot or does not make deductible contributions to a traditional IRA or
a Roth IRA, a taxpayer under age 701;2 may make nondeductible contributions to a traditional
IRA. In this case, distributions representing a return of basis are not includible in gross income,
while distributions representing account earnings are includible in gross income. There is no
income limit for nondeductible contributions to a traditional IRA.
Individuals of any age may make contributions to a Roth IRA. The contributions are not
deductible. Allowable contributions are phased out for workers with incomes above certain
levels. In 2008, contributions are phased out for single or head-of-household filers with
modified AGI between $101,000 and $116,000, for married filing jointly filers with modified
2 AGI plus income from education savings bonds, interest paid on education loans, employer-provided adoption
assistance benefits, IRA deductions, deductions for qualified higher education expenses, and certain other
adjustments.
5
AGI between $159,000 and $169,000, and for married filing-separate filers with modified AGI
between $0 and $10,000. Account earnings accumulate tax free, and qualified distributions
(including account earnings) are not included in gross income for income tax purposes.
Nonqualified distributions from Roth IRAs are included in income (to the extent they exceed
basis) and subject to an additional tax. Distributions are deemed to come from basis first.
The annual aggregate limit on contributions to all of a taxpayer's IRAs (traditional,
nondeductible, and Roth) is the lesser of earnings or $5,000 in 2008, and will be indexed for
inflation after 2008. Individuals age 50 and over may make an additional "catch-up"
contribution of up to $1,000.
Taxpayers with AGI of $100,000 or less and who are not married filing separately can convert a
traditional IRA to a Roth IRA. In general, the conversion amount is included in gross income
(but not for purposes of the $100,000 limit). The Tax Increase Prevention and Reconciliation
Act of2005 repealed the income limitation for conversions from a traditional IRA to a Roth IRA
made after December 31, 2009. Taxpayers who make such conversions in 2010 may include
half of the conversion amount in income in each year 2011 and 2012, and none of the amount in
income in 2010. Conversions made on or after January 1,2011 will be included in gross income
in the year of the conversion.
Early distributions from IRAs are generally subject to an additional 10 percent tax. The tax is
imposed on the portion of an early distribution that is includible in gross income. It applies in
addition to ordinary income taxes on the distribution. The additional tax does not apply to a
rollover to an employer plan or IRA, or if the distribution is made in the cases of death or
disability, certain medical expenses, first-time homebuyer expenses, qualified higher-education
expenses, health insurance expenses of unemployed individuals, or as part of a series of
substantially equal periodic payments.
Minimum distribution rules require that, beginning at age 70Yz, the entire amount of a traditional
IRA be distributed over the expected life of the individual (or the joint lives of the individual and
a designated beneficiary). Roth IRAs are not subject to minimum distribution rules during the
account owner's lifetime.
Coverdell Education Savings Accounts: Taxpayers may elect to contribute up to $2,000 per year
to an ESA for beneficiaries under age 18. The contribution limit is phased out for single filers
with modified AGI between $95,000 and $110,000 and for joint filers with modified AGI
between $190,000 and $220,000. Contributions are not deductible, but earnings on contributions
accumulate tax-free. Distributions are excludable from gross income to the extent they do not
exceed qualified education expenses that are incurred during the year the distributions are made
and that are not used to claim another tax benefit (such as an education tax credit or a tax-free
distribution from a QTP). The earnings portion of a distribution not used to cover qualified
education expenses is includible in the gross income of the beneficiary and is generally subject to
an additional 10 percent tax.
Except in the case of a special needs beneficiary, when a beneficiary reaches age 30, the account
balance is deemed to have been distributed for nonqualified purposes. However, prior to the
6
beneficiary reaching age 30, tax-free (and penalty-free) rollovers of account balances may be
made to an ESA benefiting another family member.
Section 529 Qualified Tuition Programs: Contributions to a QTP are not deductible from income
for Federal tax purposes, but earnings on contributions accumulate tax-free. Taxpayers may
exclude from gross income amounts distributed from a QTP and used for qualified higher
education expenses, so long as the distribution is not used for the same educational expenses for
which another tax benefit (such as an education tax credit or a tax-free distribution from an ESA)
is claimed. Nonqualified distributions are subject to an additional tax. A change in the
designated beneficiary of an account is not treated as a distribution, and therefore is not subject
to income tax, if the new beneficiary is a member of the family of the prior beneficiary and is in
the same or higher generation as the prior designated beneficiary. Neither contributors nor
beneficiaries may direct the investment of the account.
There is no specific dollar cap on annual contributions to a QTP. In addition, there is no limit on
contributions to a QTP account based on the contributor's income, contributions are allowed at
any time during the beneficiary's lifetime, and the account can remain open after the beneficiary
reaches age 30. However, a QTP must provide adequate safeguards to prevent contributions on
behalf of a designated beneficiary in excess of amounts necessary to provide for the qualified
higher education expenses of the beneficiary.
Some States allow contributions to be excluded from income for State income tax purposes.
Saver's Credit: Taxpayers may receive a nonrefundable credit on up to $2,000 contributed to
employer-sponsored elective deferral plans, lRAs, or Roth IRAs. An eligible taxpayer must be
at least 18 years old, must not be eligible to be claimed as a dependent by another taxpayer, and
must not be a full-time student. The credit is equal to a percentage of the amount contributed.
The applicable percentage is based on AGI (adjusted for inflation) and filing status and is
determined according to the following table for 2008:
Joint Return
Over
Not Over
$32,000
$34,500
$53,000
$32,000
$34,500
$53,000
Adjusted Gross Income
Head of a Household
All other cases
Over
Not Over
Not
Over
Over
$16,000
$24,000
$16,000 $17,250
$24,000 $25,875
$17,250 $26,500
$25,875 $39,750
$26,500
$39,750
Applicable
percentage
50
20
10
°
Qualified contributions in determining the credit are reduced by any distributions from an
elective deferral plan or IRA during the current tax year, the two preceding tax years, and the
following year up to the due date of the return, including extensions.
Health Savings Accounts: Individuals who are covered by a qualifying high deductible health
plan and not covered by any non-high deductible health plan other than certain permitted or
disregarded coverage may contribute to an HSA that can be used to reimburse the individuals'
7
and their dependents' health expenses. Employers may also make contributions to employees'
HSAs. The high deductible health plan may be provided by an employer or purchased in the
individual insurance market. Individuals who are eligible for Medicare or to be claimed as a
dependent on someone else's return may not contribute to an HSA. Contributions to HSAs are
deductible and qualified distributions are excluded from gross income. Nonqualified
distributions are subject to income tax and, if taken prior to age 65, an additional 10 percent tax.
Archer Medical Savings Accounts: Self-employed individuals and individuals employed by
small employers maintaining a high deductible health plan (defined more restrictively than under
the HSA provisions) are allowed to accumulate funds in an MSA on a tax-preferred basis to pay
for medical expenses. An individual is eligible to establish an MSA only if the employee (or the
employee's spouse) is covered by a high-deductible health plan (and not covered by any nonhigh deductible health plan). Although individuals with MSAs can continue to contribute to
them as long as they are with an MSA participating employer, no new MSAs are permitted after
the end of 2007 except with respect to individuals being hired after 2007 by an MSAparticipating employer. Contributions to MSAs are deductible and qualified distributions are
excluded from gross income. Nonqualified distributions are subject to income tax and, if taken
prior to age 65, an additional 15 percent tax.
Reasons for Change
The plethora of individual savings accounts, each subject to different rules regarding eligibility,
contributions, tax treatment, and withdrawal, creates complexity and redundancy in the Code.
Taxpayers must determine their eligibility for each account separately and then must decide
which plan or plans are best for them given their circumstances. Furthermore, as their
circumstances change over time, taxpayers must continually re-evaluate their eligibility for each
plan and which best meets their needs. The current list of non-retirement exceptions within IRAs
weakens the focus on retirement saving, and the IRA exceptions and special purpose savings
vehicles place a burden on taxpayers to document that withdrawals are used for certain purposes
that Congress has deemed qualified. In addition, the restrictions on withdrawals and additional
tax on early distributions discourage many taxpayers from making contributions because they are
concerned about the inability to access the funds should they need them. Consolidating the three
types of IRAs under current law into one account dedicated solely to retirement, and creating a
new account that could be used to save for any reason would simplify the taxpayer's decisionmaking process while further encouraging savings.
Saving is further simplified and encouraged by recent administrative changes to the tax filing
process that allow taxpayers to direct that their tax refunds be directly deposited into more than
one account. Consequently, under the proposal described below, taxpayers would be able to
direct that a portion of their tax refunds be deposited into a Retirement Savings Account or
Lifetime Savings Account. Simplifying the rules, making savings opportunities universally
available, and making it easier for people to set money aside through direct deposit will
complement the Administration's commitment to programs focusing on financial education and,
specifically, retirement planning.
8
Proposal
The proposal would consolidate the three types of current law IRAs into a single account: a
Retirement Savings Account (RSA). RSAs would be dedicated solely to retirement savings;
other withdrawals would be subject to tax and penalty as described below. Instead of a list of
exceptions for penalty-free early withdrawals, a new account, a Lifetime Savings Account (LSA)
would be created that could be used to save for any purpose, including retirement savings, health
care, emergencies, and education.
Individuals could contribute up to $5,000 per year (or earnings includible in gross income, if
less) to their RSA. A married couple filing a joint return could contribute up to $10,000 per year
(or earning includible in gross income, if less). No income limits would apply to RSA
contributions. Contributions would have to be in cash. Contributions would be nondeductible,
but earnings would accumulate tax-free, and qualified distributions would be excluded from
gross income. The RSA contribution limit would be indexed for inflation.
Qualified distributions from the RSA would be distributions made after age 58 or in the event of
death or disability. Any other distribution would be a nonqualified distribution and, as with
current nonqualified distributions from Roth IRAs, would be includible in income (to the extent
it exceeds basis) and subject to a 10 percent additional tax. Distributions would be deemed to
come from basis first. As with current law Roth lRAs, no minimum required distribution rules
would apply to RSAs during the account owner's lifetime. Married individuals could roll
amounts from their RSA over to their spouses' RSA.
Existing Roth IRAs would be renamed RSAs and be made subject to the new rules for RSAs.
Existing traditional and nondeductible lRAs could be converted into an RSA by taking the
conversion amount into gross income, similar to a current-law Roth conversion. However, no
income limit would apply to the ability to convert. Taxpayers who convert lRAs to RSAs before
January 1, 20 I 0, could include the conversion amount in income ratably over 4 years.
Conversions made on or after January 1,2010, would be included in income in the year of the
conversion. Existing traditional or nondeductible IRAs that are not converted to RSAs could not
accept any new contributions. New traditional IRAs could be created to accommodate rollovers
from employer plans, but they could not accept any new individual contributions. Individuals
wishing to roll an amount directly from an employer plan to an RSA could do so by taking the
rollover amount (excluding basis) into gross income (i.e., "converting" the rollover, similar to a
current law Roth conversion).
Amounts converted to an RSA from a traditional IRA or from an Employer Retirement Savings
Account (ERSA, discussed in next section) would be subject to a 5-year holding period.
Distributions attributable to a conversion from a traditional IRA or ERSA (other than amounts
attributable to a Roth-type account in an ERSA) prior to the end of the 5-year period starting
with the year the conversion was made or, if earlier, the date on which the individual turns 58,
becomes disabled, or dies would be subject to an additional 10 percent early distribution tax on
the entire amount. The 5-year period is separately determined for each conversion contribution.
To determine the amount attributable to a conversion, a distribution is treated as made in the
following order: regular contributions; conversion contributions (on a first-in-first-out basis);
9
earnings. To the extent a distribution is treated as made for a conversion contribution, it is
treated as made first from the portion, if any, that was required to be included in gross income
because of the conversion.
Individuals could contribute up to $2,000 per year to their LSA, regardless of wage income. No
income limits would apply to LSA contributions. Contributions would have to be in cash. The
time period for which the contribution limit applies is the calendar year. Contributions would be
nondeductible, but earnings would accumulate tax-free, and all distributions would be excluded
from gross income, regardless of the individual's age or use of the distribution. As with current
law Roth IRAs, no minimum required distribution rules would apply to LSAs during the account
owner's lifetime.
Contribution limits would apply to all accounts held in an individual's name, rather than to
contributors. Thus, contributors could make annual contributions of up to $2,000 each to the
accounts of other individuals, but the aggregate of all contributions to all accounts held in a
given individual's name could not exceed $2,000. The LSA contribution limit would be indexed
for inflation.
Control over an account in a minor's name would be exercised exclusively for the benefit of the
minor, until the minor reached the age of majority (determined under applicable State law), by
the minor's parent or legal guardian acting in that capacity. Married individuals could roll
amounts from their LSAs over to their spouses' LSAs.
Taxpayers would be able to convert balances in ESAs and QTPs to LSA balances. All
conversions made before January 1, 2010, would be on a tax-free basis, subject to the following
limitations. An amount can be rolled into an individual's LSA from a QTP only if that
individual was the beneficiary of the QTP or ESA as of December 31,2007. The amount that
can be rolled over to an LSA from an ESA is limited to the sum of the amount in the accounts as
of December 31,2007, plus any contributions to and earnings on the accounts in 2008. The
amount that can be rolled over to any LSA from a QTP is limited to the sum of (i) the lesser of
$50,000 or the amount in the QTP as of December 31, 2007, plus (ii) any contributions and
earnings to the QTP during 2008. Total rollovers to an individual's LSA attributable to 2008
contributions from the individual's ESAs and QTPs cannot exceed $2,000 (plus any earnings on
those contributions).
QTPs would continue to exist as separate types of accounts, but could be offered inside an LSA.
For example, State agencies that administer QTPs could offer LSAs with the same investment
options available under the QTP. The plan administrator would be freed from the additional
reporting requirements of a QTP for investments in an LSA, but investors would be subject to
the annual LSA contribution limit. Distributions for purposes other than education would not be
subject to Federal income tax or penalties. However, States would be free to provide State tax
incentives, and administrators would be free to provide investment incentives, for savings used
for educational purposes.
The Saver's Credit would apply to contributions to an RSA but would not apply to contributions
to an LSA.
10
Both LSAs and RSAs would become effective beginning on January 1,2009.
Revenue Estimate
2008
2009
2010
Fiscal Years
2011
2012
($ in millions)
0
1,527
3,545
3,023
1,075
11
2013
2009·2013
2009-2018
·1,314
7,856
-592
CONSOLIDATE EMPLOYER-BASED SAVINGS ACCOUNTS
Current Law
Oualified Retirement Plans: Under Code section 401, employers may establish for the benefit of
employees a retirement plan that may qualify for tax benefits, including a tax deduction to the
employer for contributions, a tax deferral to the employee for elective contributions and their
earnings, and a tax exemption for the fund established to pay benefits. To qualify for tax
benefits, the plan must satisfy multiple requirements. Among the requirements, the plan may not
discriminate in favor of highly-compensated employees (HCEs) with regard either to coverage or
to amount or availability of contributions or benefits. The following covers certain, but not all,
of the defined-contribution plan rules.
Contribution Limits. For 2008, the total annual contribution to a participant's account may not
exceed the lesser of $46,000 (adjusted annually for inflation) or 100 percent of compensation.
General Nondiscrimination Requirement. Qualified plans, both defined-benefit and definedcontribution, must comply with the section 401(a)(4) prohibition on contributions or benefits that
discriminate in favor of HCEs. Detailed regulations spell out the calculations required for
satisfying this provision, including optional safe harbors and a general test for nondiscrimination.
Contribution Tests. In addition to the general nondiscrimination requirement, definedcontribution plans that have after-tax contributions or matching contributions are subject to the
actual contribution percentage (ACP) test. This test measures the contribution rate to HCEs'
accounts relative to the contribution rate to non-highly-compensated employees' (NHCEs')
accounts. To satisfy the test, the ACP of HCEs generally cannot exceed the following limits:
200 percent of the NHCEs' ACP if the NHCEs' ACP is 2 percent or less; 2 percentage points
over the NHCEs' ACP if the NHCEs' ACP is between 2 percent and 8 percent; or 125 percent of
the NHCEs' ACP if the NHCEs' ACP is 8 percent or more.
Three "safe-harbor" designs are deemed to satisfy the ACP test automatically for employer
matching contributions (up to 6 percent of compensation) that do not increase with an
employee's rate of contributions or elective deferrals. In the first, vested employer matching
contributions on behalf ofNHCEs are made equal to 100 percent of elective deferrals up to 3
percent of compensation, and 50 percent of elective deferrals between 3 and 5 percent of
compensation (or vested employer matching contributions follow an alternative matching
formula such that the aggregate amount of matching contributions is no less than it would be
under the basic design). In the second safe harbor, vested employer non-elective contributions of
at least 3 percent of compensation are made on behalf of all eligible NHCEs. In the third
design, the employer adopts an automatic contribution arrangement under which an employee is
automatically enrolled at a specified contribution level unless the employee makes an affirmative
election for another contribution level and the employer also makes specified contributions on
behalf of the NHCEs. The specified contributions could be either matching contributions equal
to 100 percent of elective deferrals up to 1 percent of compensation, and 50 percent of elective
deferrals between 1 and 6 percent of compensation (or an alternative formula providing
equivalent an level of matching contributions) or non-elective contributions that are at least 3
12
percent of compensation. Under this third safe harbor, the employer contributions must be
vested after completion of 2 years of service.
Vesting. In general, employer contributions must vest at least as quickly as under one of the
following schedules. Under graded vesting, 20 percent of the benefit is vested after three years
of service and an additional 20 percent vests with each additional year of service, so that the
employee is fully vested after seven years of service. Under cliff vesting, the employee has no
vested interest until five years of service has been completed, but is then fulIy vested. However,
matching contributions must vest more quickly: under graded vesting, the first 20 percent must
vest after two years of service, so that the employee is fully vested after six years of service, and
under cliff vesting, the employee becomes fulIy vested after three years of service.
401(k) plans. Private employers may establish 401(k) plans, which alIow participants to choose
to take compensation in the form of cash or a contribution to a defined-contribution plan
("elective deferral"). In addition to the rules applying to qualified defined-contribution plans,
401(k) plans are subject to additional requirements.
Annual deferrals under a 40 I (k) plan may not exceed $15,500 in 2008. Participants aged 50 or
over may make additional "catch-up" deferrals of up to $5,000. These contribution limits are
indexed annually for inflation. Elective deferrals are immediately fulIy vested.
401(k) plans are subject to an actual deferral percentage (ADP) test, which generally measures
employees' elective-deferral rates. In applying the ADP test, the same numerical limits are used
as under the ACP test. Three 401 (k)-plan "safe-harbor" designs (similar to the safe-harbor
designs for the ACP test described above) are deemed to satisfy the ADP test automatically.
SIMPLE 401 (k) plans. Employers with 100 or fewer employees and no other retirement plan
may establish SIMPLE 401 (k) plans. Deferrals of SIMPLE participants may not exceed
$10,500. SIMPLE participants aged 50 or over may make additional "catch-up" deferrals of up
to $2,500. All contributions are immediately fully vested. In lieu of the ADP test, SIMPLE
plans are subject to special contribution requirements, including a lower annual elective deferral
limit and either a matching contribution not exceeding 3 percent of compensation or non-elective
contribution of 2 percent of compensation. Employer contributions and employee deferrals may
be made to SIMPLE IRAs under rules very similar to those applicable to SIMPLE 401 (k) plans.
Thrift plans. Employers may establish thrift plans under which participants may choose to make
after-tax cash contributions. Such after-tax contributions, along with any matching contributions
that an employer elects to make, are subject to the ACP test (without the availability of an ACP
safe harbor). Employee contributions under a thrift plan are not subject to the $15,500 limit that
applies to employee pre-tax deferrals.
Roth-treatment of contributions. Effective after December 31, 2005, participants in 401 (k) and
403(b) plans can elect Roth treatment for their contributions. That is, contributions would not be
excluded from income and distributions would not be included in income. Roth contributions
must be accounted for in a separate account. There are no required minimum distributions
13
during an employee's lifetime, but heirs, other than a spouse, are subject to required minimum
distributions.
Salary reduction simplified employee pensions (SA RSEPs). Employees can elect to have
contributions made to a SARSEP or to receive the amount in cash. The amount the employee
elects to have contributed to the SARSEP is not currently includible in income and is limited to
the dollar limit applicable to employee deferrals in a 401(k) plan. SARSEPs are available only
for employers who had 25 or fewer eligible employees at all times during the prior taxable year
and are subject to a special nondiscrimination test. The rules permitting SARSEPs were repealed
in 1996, but employee deferral contributions can still be made to SARSEPs that were established
prior to ] anuary 1, 1997.
403(b) plans: Section 501 (c )(3) organizations and public schools may establish tax-sheltered
annuity plans, also called 403(b) plans. The rules applicable to these plans are different in
certain respects than rules applicable to qualified plans under section 401. Benefits may
generally only be provided through the purchase of annuities or contributions to a custodial
account invested in mutual funds. Contribution limits (including catch-ups), deferral limits, and
minimum distribution rules are generally the same as for 40 I (k) plans. However, certain
employees with 15 years of service may defer additional amounts according to a complicated
three-part formula. Some 403(b) plans are subject to nondiscrimination rules.
Governmental 457(b) plans: State and local governments may establish eligible plans under
section 457(b). 3 In general, these plans are subject to different rules than qualified plans that are
defined under section 401. Contributions and plan earnings are tax-deferred until withdrawal.
Contributions may not exceed the lesser of 100 percent of compensation or $15,500 in 2008.
However, participants may make additional contributions of up to twice the standard amount in
the last three years before normal retirement age. Additional "catch-up" contributions of up to
$5,000 may be made for participants age 50 or over.
Reasons for Change
The rules covering employer retirement plans are among the lengthiest and most complicated
sections of the Code and associated regulations. The extreme complexity imposes substantial
compliance, administrative, and enforcement costs on employers, participants, and the
government (and hence, taxpayers in general). Moreover, because employer sponsorship of a
retirement plan is voluntary, the complexity discourages many employers from offering a plan at
all. This is especially true of the small employers who together employ about two-fifths of
American workers. Complexity is often cited as a reason the coverage rate under an employer
retirement plan has not grown above about 50 percent overall, and has remained under 25
percent among employees of small firms. Reducing unnecessary complexity in the employer
plan area would save significant compliance costs and would encourage additional coverage and
retirement saving.
J Tax-exempt organizations are also permitted to establish eligible section 457(b) plans, but such plans are not
funded arrangements and are generally limited to management or highly compensated employees.
14
Proposal
The proposal would consolidate those types of defined-contribution accounts that penn it
employee deferrals or employee after-tax contributions, including 401 (k), SIMPLE 401 (k),
Thrift, 403(b), and governmental 457(b) plans, as well as SIMPLE IRAs and SARSEPs, into
Employer Retirement Savings Accounts (ERSAs), which would be available to all employers
and have simplified qualification requirements.
The proposal would become effective for years beginning after December 31, 2008.
ERSAs would follow the existing rules for 401(k) plans, subject to the plan qualification
simplifications described below. Thus, employees could defer wages of up to $15,500 (as
adjusted for inflation) annually, with employees aged 50 and older able to defer an additional
$5,000 (as adjusted for inflation). The maximum total contribution (including employer
contributions) to ERSAs would be the lesser of 100 percent of compensation or $46,000 (as
adjusted for inflation). The taxability of contributions and distributions from an ERSA would be
the same as contributions and distributions from the plans that the ERSA would be replacing.
Thus, contributions could be pre-tax deferrals or after-tax employee contributions or Roth
contributions, depending on the design of the plan. Distributions of Roth and non-Roth after-tax
employee contributions and qualified distributions of earnings on Roth contributions would not
be included in income. All other distributions would be included in the participants' income.
Existing 401 (k) and Thrift plans would be renamed ERSAs and could continue to operate as
before, subject to the simplification described below. Existing SIMPLE 401(k) plans, SIMPLE
IRAs, SARSEPs, 403(b) plans, and governmental 457(b) plans could be renamed ERSAs and be
subject to ERSA rules, or could continue to be held separately, but if held separately could not
accept any new contributions after December 31,2009, with a special transition for collectively
bargained plans and plans sponsored by State and local governments.
Special Rule for Small Employers. Employers that had 10 or fewer employees making at least
$5,000 during the prior year would be able to fund an ERSA by contributing to a custodial
account, similar to a current-law IRA, provided the employer's contributions satisfy the designbased ERSA safe harbor described below. This custodial account would provide annual
reporting relief for small employers as well as relief from most of the ERISA fiduciary rules
under circumstances similar to the fiduciary relief currently provided to sponsors of SIMPLE
IRAs.
ERSA Nondiscrimination Testing. The following single test would apply for satisfying the
nondiscrimination requirements with respect to contributions for ERSAs: the average
contribution percentage ofHCEs could not exceed 200 percent ofNHCEs' percentage if the
NHCEs' average contribution percentage is 6 percent or less. In cases in which the NHCEs'
average contribution percentage exceeds 6 percent, the goal of increasing contributions among
NHCEs would be deemed satisfied, and no nondiscrimination testing would apply. For this
purpose, "contribution percentage" would be calculated for each employee as the sum of all
employee and employer contributions divided by the employee's compensation. The ACP and
ADP tests would be repealed. Plans sponsored by State and local governments or churches
15
would not be subject to this test. A plan sponsored by a section 50 I (c)(3) organization would not
be subject to this nondiscrimination test (unless the plan permits after-tax or matching
contributions) but would be required to permit all employees of the organization to participate.
ERSA Safe Harbor. A design-based safe harbor would be sufficient to satisfy the
nondiscrimination test for ERSAs described above. The design of the plan must be such that all
eligible NHCEs are eligible to receive fully vested employer contributions (including matching
or non-elective contributions, but not including employee elective deferrals or after-tax
contributions) of at least 3 percent of compensation. To the extent that the employer
contributions of 3 percent of compensation for NHCEs are matching contributions rather than
non-elective contributions, the match formula must be one of two qualifying formulas. The first
formula would be a 50 percent employer match for the elective contributions of the employee up
to 6 percent of the employee's compensation. The second would be any alternative formula such
that the rate of an employer's matching contribution does not increase as the rate of an
employee's elective contributions increases, and the aggregate amount of matching contributions
at such rate of elective contribution is at least equal to the aggregate amount of matching
contributions which would be made ifmatching contributions were made on the basis of the
percentages described in the first formula. In addition, the rate of matching contribution with
respect to an HCE at any rate of elective contribution cannot be greater than that with respect to
an NHCE.
Revenue Estimate
2008
2009
2010
Fiscal Years
2011
2012
($ in millions)
o
-80
-120
-132
-141
16
2013
2009-2013
2009-2018
-150
-623
-1,484
Encourage Entrepreneurship and Investment
INCREASE EXPENSING FOR SMALL BUSINESS
Current Law
Section 179 provides that, in place of capitalization and subsequent depreciation, certain
taxpayers may elect to deduct up to $125,000 of the cost of qualifying property placed in service
each taxable year. The $125,000 amount is reduced (but not below zero) by the amount by
which the cost of qualifying property exceeds $500,000. Both limitations are indexed annually
for inflation for taxable years beginning after 2007 and before 2011. (For taxable years
beginning after December 31, 2010, the maximum deduction amount reverts to $25,000, and the
phase-out of the deductible amount begins at $200,000, and neither amount will be indexed for
inflation). Higher expensing amounts are allowed for investments in an empowerment zone or
renewal community.
In general, qualifying property is defined as depreciable tangible personal property and certain
depreciable real property that is purchased for use in the active conduct of a trade or business.
For taxable years beginning after 2002 and before 2011, off-the-shelf computer software is
considered qualifying property even though it is intangible property. An election for the section
179 deduction can be revoked on an amended return for taxable years beginning after 2002 and
before 2011. In other years, elections can only be revoked with the consent of the
Commissioner.
Reasons for Change
The temporary expansion of section 179 provides a number of benefits to small business
taxpayers and the economy. Expensing encourages investment by lowering the after-tax cost of
capital purchases, relative to claiming regular depreciation deductions. Expensing is also simpler
than claiming regular depreciation deductions, which is particularly helpful for small businesses.
Including off-the-shelf computer software in section 179 means that purchased software is not
disadvantaged relative to developed software (for which development costs can generally be
expensed). Allowing revocations of section 179 elections to be made on amended returns helps
less sophisticated taxpayers, who may not always be aware of the implications of section 179
expensing when they file their initial tax return. Inflation-adjusting the specified dollar amounts
ensures that the benefits of section 179 do not apply to an ever-shrinking share of business
taxpayers.
A further expansion of section 179 would extend the benefits of expensing to more taxpayers and
would also simplify tax accounting for them. Making the expansion permanent would allow
these businesses to improve their planning of future investments.
Proposal
The proposal would expand the expensing provisions of section 179. Specifically, the proposal
would increase the maximum amount of qualified property that a taxpayer may deduct under
17
section 179 to $200,000, raise the amount of total qualifying investment at which the phase-out
begins to $800,000 per year, and permanently include off-the-shelf computer software as
qualitying property. Both the deduction limit and phase-out threshold would be indexed
annually for inflation. In addition, the proposal would allow expensing elections to be made or
revoked on amended returns. Furthermore, the Administration also proposes to make the higher
amounts under section 179 permanent.
The proposal would be effective for property placed in service in taxable years beginning on or
after January I, 2009. The $200,000 and $800,000 amounts would be indexed for inflation for
any taxable year beginning in a calendar year after 2009.
Revenue Estimate
2008
2009
2010
o
-1,086
-1,495
Fiscal Years
2011
2012
($ in millions)
-1,083
-85\
18
2013
2009-2013
2009-2018
-688
-5,203
-7,578
Invest in Health Care
PROVIDE A NEW STANDARD DEDUCTION FOR HEALTH INSURANCE (SDHI)
($15,000 FOR FAMILY COVERAGE AND $7,500 FOR SINGLE COVERAGE)
Current Law
The cost of health coverage paid by an employer on behalf of employees is excludible for
income and employment tax purposes. The employee's portion of the cost of employersponsored coverage is also excludible for income and employment tax purposes if it is paid
through a cafeteria plan. Out-of-pocket expenses can also be excluded from income and
employment taxes if they are paid through a health flexible spending arrangement (FSA) under a
cafeteria plan.
Taxpayers' health insurance premiums paid outside of the employment context (or paid outside
of a cafeteria plan) as well as other medical expenses generally are not deductible except by
taxpayers who itemize their deductions and only to the extent they exceed 7.5 percent of adjusted
gross income. Medical expenses and insurance premiums paid outside of the employment
context are never excludible for employment tax purposes.
Medical costs paid through a health savings account (HSA) or Archer medical savings account
(MSA) are generally excludible for income tax purposes, although the ability to pay health
insurance premiums through an HSA is limited.
Premiums for health insurance paid by self-employed individuals who are not eligible for
subsidized employer coverage are deductible in computing adjusted gross income.
Reasons for Change
There are a number of ways the current exclusion for employer-based health coverage
encourages employers to provide more coverage than necessary and has resulted in higher and
less efficient health spending. The value of the current exclusion increases with the amount of
insurance an employee purchases. This creates a tax bias in favor of more expensive insurance.
Such insurance often has low deductibles or first dollar coverage, which reduces consumers'
sensitivity to the cost of health insurance because they are not exposed to the true cost of health
care. As a result, workers tend to channel more of their routine health expenses through their
employer-based insurance.
Workers who do not receive insurance through their employer but who purchase health insurance
directly typically receive no tax benefit for buying health insurance. They pay for insurance after
paying income and payroll taxes on their wages. In contrast, the health insurance premiums for
workers who receive insurance through their jobs are subject to neither income nor payroll taxes.
This disparate tax treatment can increase the after-tax cost of insurance purchased directly by
individuals by as much as 50 percent. The after-tax cost of purchasing insurance is also higher
for the self-employed who receive an income tax deduction, but no deduction for payroll tax
pUrposes.
19
Many people are uninsured because their employers do not offer health benefits. These people
are generally not eligible for tax subsidized health insurance. One way of eliminating the tax
bias towards more expensive coverage and eliminating the disparate tax treatment between
workers who receive insurance through their employers and those who purchase insurance
elsewhere, or who remain uninsured, would be to replace the current law exclusion for employerprovided health insurance with a standard deduction for health insurance as proposed below.
Alternatively the current tax preference could be replaced with a refundable flat credit.
Proposal
A standard deduction for health insurance (SOHI) of$15,000 for family coverage ($7,500 for
single coverage) would be provided to all families who purchase health insurance that meets
minimum requirements, whether directly or through an employer.
One-twelfth of the full SOHI would apply for each month that an individual has qualifying
coverage (determined on the first of the month), regardless of how much a family or individual
spends on health insurance. A family or individual that spends less on health insurance than the
full SOHI would still receive the full SOH!. The SOHI would apply for purposes of both the
income and payroll taxes.
The new SOHI would replace the existing exclusion for employer-based health insurance, the
self-employed premium deduction, and the medical itemized deduction. The SOH I would not be
available for an individual enrolled in Medicare, except that those who are enrolled in Medicare
but are receiving health coverage from an employer as an active employee would be eligible for
the SDHI beginning on January 1,2014. The current deduction or exclusion from income of
health care spending, whether for insurance premiums or out-of-pocket expenses, except under
an HSA, would be repealed. Itemized medical deductions would be available only for taxpayers
enrolled in Medicare. However, beginning on January 1, 2014, eligibility for the itemized
deduction would be broadened somewhat to include anyone not otherwise eligible for the SOH!.
The value of employer-provided health insurance coverage would be subject to withholding and
employment taxes. Employers would exclude a pro-rated portion of the SOHI for purposes of
the employee portion of employment taxes prior to 2013 and for the employee and employer
portion of employment taxes after 2012 for their employees who have qualifying coverage. Prior
to 2013, employees would be entitled to a return of the employer portion of employment taxes
paid on the SOH! when they file their tax return after the end of the year. Withholding and
estimated taxes could be adjusted to reflect the SDH!. Businesses would continue to deduct
employer-based health insurance as a business expense. In addition, the phase-out rate for the
earned income tax credit (EITC) for taxpayers with qualifying children would be reduced to 15
percent.
Insurance coverage that qualifies a taxpayer for the SOHI, must meet certain minimum coverage
requirements, including:
20
•
A limit on out-of-pocket costs to the individual for covered expenses that is not higher
than that currently allowable for HSAs (e.g., for 2008, those limits would be $5,600 for
single coverage and $11,200 for fami ly coverage).
•
A reasonable annual and/or lifetime benefit maximum.
•
Coverage for inpatient and outpatient care, emergency benefits, and physician care.
•
Guaranteed renewability by the provider.
This minimum level of coverage is not intended to pre-empt State laws mandating certain
coverage. Thus, eligible coverage would be subject to applicable State minimum coverage rules.
Under regulations promulgated by the Treasury Department, the SDHI would be denied for
coverage under policies that do not meaningfully limit individual economic exposure to
extraordinary medical expenses. Long-term care insurance and Medicare would not qualify for
the SDH!.
Generally, individuals (including dependents) enrolled in Medicare, Medicaid or the State
Children's Health Insurance Program (SCHIP) would not qualify for the SOH!. Individuals
would not be eligible to claim the SDHI if they claim the health coverage tax credit (available for
certain individuals receiving trade readjustment assistance or a retirement benefit from the
Pension Benefit Guaranty Corporation) or use tax-preferred distributions from HSAs or MSAs to
pay for premiums. An individual who can be claimed as a dependent on another filer's return
would not be eligible to claim the SOH!.
The new SDHI would address the rising cost of health insurance by removing the tax bias for
more expensive insurance, while also providing a potent incentive for the uninsured to purchase
insurance. The proposal would break the link between the value of the tax subsidy and the
amount of insurance a worker purchases. The proposal also would level the playing field
between less expensive and more expensive health insurance, and between wages and employerprovided health insurance.
Individuals and families would have a strong incentive to purchase insurance under the proposal.
However, the insurance they choose to purchase would be based on their needs and
circumstances rather than the tax bias in favor of health insurance and against wages. The tax
bias for overly generous insurance would be eliminated. This change would translate into
greater price sensitivity for health care consumers. Many of those with employer-based
insurance would take advantage of the level playing field between wages and health insurance by
receiving higher wages in exchange for less expensive health insurance.
Treasury estimates that about 8 million more people would have health insurance under the
proposal.
The provision would be effective for tax years after December 31,2008.
21
Revenue Estimate
4
4
2008
2009
2010
0
-23,188
-32,100
Fiscal Years
2011
2012
($ in millions)
-25,853
-17,946
2013
2009-2013
2009-2018
-6,581
-105,668
32,533
The estimate includes both receipt and outlay effects. The outlay effect is $8,518 million for 2009-2018.
22
EXPAND AND MAKE HEALTH SAVINGS ACCOUNTS (HSAs) MORE FLEXIBLE
Current Law
Eligible individuals are allowed to accumulate funds in a Health Savings Account (HSA) on a
tax-preferred basis to pay for medical expenses and retiree health coverage.
Eligibility: In order to contribute to an HSA, an individual must be covered by a high-deductible
health plan (HDHP) and generally no other health plan except for certain permitted or
disregarded coverage. Individuals who can be claimed as a dependent on someone else's return
or who are enrolled in Medicare may not contribute to an HSA. An HSA may only be
established on or after the first day of the first month that an individual is an eligible individual
with HDHP coverage on the first day.
Tax Treatment o/Contributions and Earnings: Employer contributions to HSAs are excluded
from employee income for income and employment tax purposes. Individual contributions to
HSAs are deductible in computing the individual's adjusted gross income (AGI), but are not
deductible from payroll taxes. Earnings in an HSA accumulate tax-free.
Tax Treatment 0/ Distributions: Withdrawals for qualified medical expenses of the HSA owner,
the owner's spouse or dependent are not taxable. Qualified medical expenses are generally
medical expenses as defined for the itemized medical expense deduction, with the addition of
nonprescription drugs. However, qualified medical expenses do not include payments for
insurance except in certain limited situations - a health plan during any period of continuation
coverage under COBRA or other Federal law; qualified long-term care insurance, a health plan
while an individual is receiving unemployment compensation under Federal or State law, or
individuals who have reached age 65 (other than Medicare supplemental policies). Thus, most
purchases of insurance with HSA funds are included in income and subject to the 10 percent tax
on non-medical withdrawals to the extent applicable. There is no limit on the time for
reimbursing qualified medical expenses that are incurred after the HSA is established.
Nonmedical withdrawals are subject to an additional 10 percent tax if made before age 65 and
are includable in income regardless of age. Reimbursements of qualified medical expenses that
are excluded from income only include medical expenses incurred after the HSA is established.
Consequently, where HDHP coverage begins after the first day of the month, any expenses
incurred prior to the first day of the next month may not be reimbursed by the HSA on a taxfavored basis.
HDHPs: In order to be an HDHP, a plan in 2008 must have a deductible of at least $1,100 for
self-only coverage or $2,200 for family coverage. An HDHP in 2008 may not have a total outof-pocket exposure of more than $5,600 for self-only coverage or $11,200 for family coverage.
The deductible minimums and out-of-pocket maximums are indexed for inflation. The out-ofpocket amount includes the deductible as well as copays and other amounts a covered individual
must pay for covered benefits. For network plans, the out-of-pocket requirement only includes
the out-of-pocket amounts for benefits provided in network. Out-of-pocket expenses do not
include amounts paid by covered individuals for benefits excluded by reasonable benefit
restrictions or exclusions.
23
Contribution Limits: Annual contributions to HSAs are limited to $2,900 (for self-only coverage
in 2008) or $5,800 (for family coverage in 2008). Maximum contributions are based on the sum
of monthly limits, with contributions pro rated for individuals who are not eligible individuals
for the entire year. Under certain circumstances, such as the initial year of HDHP coverage, an
individual will be entitled to an entire year's contribution limit for less than a full year's HDHP
coverage, subject to a recapture of some of that contribution (plus an additional 10 percent tax on
the recaptured amount) if the individual does not remain in an HDHP for the 12-month period
following the end of that year.
A special rule applies for determining HSA contributions by married individuals with family
HDHP coverage. If one spouse has family coverage, both spouses are generally treated as
having family coverage. The maximum annual family HSA contribution is divided between the
spouses equally unless they agree on a different division, which can include allocating the entire
contribution to one spouse. For this purpose, family coverage is defined as anything that is not
self-only coverage; thus, family HDHP coverage (supporting a family-level contribution) is
health coverage that covers one eligible individual and at least one other individual, regardless of
the other individual's coverage. A married individual with individual HDHP coverage may not
make contributions to his or her spouse's HSA based on the married individual's self-only
HDHP coverage.
In addition to the annual contribution, individuals who attain age 55 during the year are allowed
to make an additional catch-up contribution. The catch up amount is $900 in year 2008 and
$1000 for years after 2008. Catch-up contributions are pro rated for the number of months that
the HSA owner is an eligible individual. Ifboth spouses qualify for the catch-up contribution,
both spouses are allowed the additional HSA contribution amount. However, one spouse is not
permitted to have his or her catch-up contribution made to the HSA owned by the other spouse.
Employer Contributions: Employer contributions to HSAs are subject to comparability rules that
generally require that if the employer contributes to one employee's HSA, the employer must
contribute the same amount or percentage of the HDHP deductible to all employees who are
eligible individuals with comparable (i.e., self-only or family) coverage. The comparability rules
do not apply to contributions made through a cafeteria plan.
HRAs and FSAs: Health reimbursement arrangements (HRAs) and flexible spending
arrangements (FSAs) are employer-sponsored plans which allow employers to reimburse
substantiated employee medical expenses up to a maximum amount. Unlike an FSA, unused
HRA amounts may be used in later years and HRAs may not be funded by salary reduction.
HRAs and FSAs are employer-provided health coverage that disqualify individuals from
contributing to HSAs unless the HRA or FSA is designed to be compatible with HSA, such as
being limited to reimbursing certain permitted or disregarded coverage and preventive care
(limited purpose HRAs or FSAs), reimbursing expenses after the deductible of the HDHP is
satisfied (post-deductible HRAs or FSAs), or combinations. The disqualification from HSA
contributions applies regardless of whether the HRA or FSA coverage is provided by the
employer of the individual or spouse of the individual.
24
Reasons for Change
Health care costs continue to rise rapidly in the United States. Empowering health care
consumers to playa more direct role in their health care decisions, rather than third party payers,
would help to stem this trend. A health care system that is more market-oriented and consumer
driven will help control costs and result in health care that is more affordable and accessible.
This goal can be facilitated by making HSAs more flexible and increasing the incentive for
individuals to change to HSA-eligible coverage.
Proposal
1. Plans with 50-percent coinsurance would qualify as HDHPs. Health plans would be
considered HSA-eligible if they meet all the existing requirements of an HDHP except
that, in lieu of satisfying the minimum deductible requirement, they have at least a 50
percent or higher coinsurance requirement and a minimum out-of-pocket exposure that,
under guidelines established by the Secretary, would result in the same (or lower)
premium as coverage under a high deductible health plan under the current requirements
for the same family or individual.
2. For HSA purposes, include as qualified medical expenses any medical expense incurred
on or after the first day of HSA eligibility in a year. The existing rule that denies tax-free
treatment for HSA funds used to pay medical expenses incurred prior to the
establishment of the HSA would be changed so that HSA funds could be used to pay
medical expenses incurred on or after the first day of eligibility in a particular year, as
long as the HSA is established no later than the date for filing the return for that taxable
year. This will provide more time for newly eligible taxpayers to set up their HSAs.
3. Allow larger contributions from employersfor the chronically ill. Contributions to HSAs
on behalf of employees who are chronically ill or employees who have spouses or
dependents who are chronically ill would be excluded from the comparability rules to the
extent the contributions exceed the comparable contributions for other employees.
4. Allow family coverage to include coverage where each individual in the family can
receive benefits once they have reached the minimum deductible for an individual
HDHP. Many types of family coverage provide for an overall deductible that meets the
requirements for family HDHP coverage, but include embedded deductibles for each
family member below the minimum family deductible. Under current law this does not
constitute an HDHP. Under the proposal, such coverage would constitute a family
HDHP if each individual embedded deductible is at least the minimum deductible for
individual HDHP coverage and the overall deductible is at least the minimum deductible
for family HDHP coverage.
5.
If both spouses are eligible individuals, allow both spouses to contribute the catch-up
contribution to a single HSA owned by one spouse.
25
6. Allow contributions to HSAs to be made by individuals covered by an FSA or HRA, but
offset the maximum allowable HSA contribution by the level of FSA or HRA coverage.
Currently, FSA or HRA participation generally disqualifies individuals from contribution
to HSAs because of the first dollar nature of FSAs and HRAs. This proposal would make
it much easier for individuals who change from a non-HDHP to an HDHP when they
have HRA or FSA coverage.
All of the changes described above would apply for tax years beginning after December 31,
2008.
Revenue Estimate
2013
2009-2013
2009-2018
High coinsurance policies eligible for HSAs
-352
-663
-804
-895
0
-975
-3,689
-10,015
Other HSA enhancements
0
-68
-116
-127
-136
-148
-595
-1,496
Total
0
-931
-1,031
-1,123
-4,284
-11,511
2008
2009
-420
2010
Fiscal Years
2011
2012
($ in millions)
-779
26
ALLOW THE ORPHAN DRUG TAX CREDIT FOR CERTAIN PRE-DESIGNATION
EXPENSES
Current Law
Taxpayers may claim a 50-percent credit for expenses related to human clinical testing of drugs
for the treatment of certain rare diseases and conditions, generally those that afflict less than
200,000 persons in the United States (orphan drug credit). Qualifying expenses are those paid or
incurred by the taxpayer after the date on which the drug is designated as a potential treatment
for a rare disease or disorder by the Food and Drug Administration (FDA) in accordance with
section 526 of the Federal Food, Drug, and Cosmetic Act. Research expenses claimed for the
orphan drug credit are not eligible for the credit for increasing research under section 41 of the
Code.
Reasons for Change
Currently, expenditures for human clinical trials are eligible for the credit only after the FDA
designates the drug as a potential treatment for a rare disease or condition. Expenses for clinical
trials that the taxpayer undertakes while the FDA reviews the taxpayer's application for
designation are ineligible. This creates an incentive to defer clinical testing for orphan drugs
until the taxpayer receives the FDA's approval and creates complexity for taxpayers by treating
pre-designation and post-designation clinical expenses differently. The proposal would reduce
the incentive to defer clinical testing while the FDA reviews the taxpayer's application for
designation of a drug as an orphan drug and simplify the credit by treating pre-designation
expenses and post-designation expenses equally.
Proposal
Taxpayers that incur expenses prior to FDA designation would be permitted to claim the orphan
drug credit for these expenses if the drug receives FDA designation as a potential treatment for a
rare disease or condition before the due date (including extensions) for filing the tax return for
the year in which the FDA application was filed.
The proposal would be effective for qualified expenses incurred after December 31,2007.
Revenue Estimate
[No revenue effect]
27
Provide Incentives for Charitable Giving
PERMANENTLY EXTEND TAX-FREE WITHDRAWALS FROM IRAS FOR
CHARITABLE CONTRIBUTIONS
Current Law
Eligible individuals may make deductible contributions to a traditional individual retirement
arrangement (traditional IRA). Other individuals with taxable income may make nondeductible
contributions to a traditional IRA. Earnings and pre-tax contributions in a traditional IRA are
includible in income when withdrawn. Withdrawals made before age 59Y2 are subject to an
additional 10-percent excise tax, unless an exception applies.
Individuals with adjusted gross incomes (AGI) below certain levels may make nondeductible
contributions to a Roth IRA. Amounts withdrawn from a Roth IRA as a qualified distribution
are not includible in income. A qualified distribution is a distribution made (1) after 5 years and
(2) after the holder has attained age 59Yz, died, or become disabled, or for first-time homebuyer
expenses of up to $10,000. Distributions from a Roth IRA that are not qualified distributions are
includible in income to the extent the distributions are attributable to earnings, and are also
subject to an additional 10-percent excise tax, unless an exception applies.
Individual taxpayers who itemize their deductions may claim a deduction for contributions made
to qualified charitable organizations. Total deductible contributions may not exceed 50 percent
of the taxpayer's AGI, and lower deductibility limits apply in the case of contributions of
appreciated property and contributions to certain private foundations. Excess amounts may be
carried forward and deducted in future years. In addition, the total of most categories of itemized
deductions, including charitable contributions, is reduced by 1 percent of AGI in excess of a
certain threshold ($159,950 for joint filers in 2008 up to a maximum reduction of 26 and 2/3
percent of total deductions). Taxpayers who elect the standard deduction ("non-itemizers") may
not claim a deduction for charitable contributions.
Individuals may exclude from gross income (and thus from AGI for all purposes under the Code)
distributions made after age 7012 from a traditional or Roth IRA (but not a SIMPLE IRA or SEP
IRA) directly to a qualified charitable organization. The exclusion may not exceed $100,000 per
taxpayer per taxable year and is available without regard to the percentage-of-AGI limits that
apply to deductible contributions.
The exclusion does not apply to distributions to certain private foundations, supporting
organizations, or donor advised funds. The exclusion applies only if a charitable contribution
deduction for the entire distribution would otherwise be allowed under current law, determined
without regard to the percentage-of-AGI limitation. No charitable deduction is allowed with
respect to any amount that is excludable from income under this provision. If an amount
transferred from the IRA would otherwise be nontaxable, such as a qualified distribution from a
Roth IRA or the return of nondeductible contributions from a traditional IRA, the normal
charitable contribution deduction rules apply. This exclusion is scheduled to expire on
December 31, 2007.
28
Reasons for Change
Allowing taxpayers who are at the stage in their life when they are already required to take
distributions from their IRAs to exclude from income direct transfers to qualified charities will
stimulate additional charitable giving by simplifying the required tax calculations and
eliminating the current-law tax disincentives. Permanency will maintain this incentive.
Proposal
The exclusion from income of qualified distributions made after age 70Yz from a traditional or
Roth IRA directly to a qualified charitable organization would be made permanent.
Revenue Estimate
2008
2009
2010
Fiscal Years
2011
2012
($ in millions)
2013
2009-2013
2009-2018
o
-300
-551
-434
-211
-1,780
-3,321
-284
29
PERMANENTLY EXTEND THE ENHANCED CHARITABLE DEDUCTION FOR
CONTRIBUTIONS OF FOOD INVENTORY
Current Law
A taxpayer's deduction for charitable contributions of inventory property generally is limited to
the taxpayer's basis (typically, cost) in the inventory. However, for certain contributions of
inventory, C corporations may claim an enhanced deduction equal to the lesser of (I) the
taxpayer's basis in the contributed property, plus one-half of the gain that would have been
realized had the property been sold or (2) two times basis. To be eligible for the enhanced
deduction, the inventory must be contributed to a charitable organization (other than a private
nonoperating foundation), and the donee must (I) use the property consistent with the donee's
exempt purpose solely for the care of the ill, the needy, or infants, (2) not transfer the property in
exchange for money, other property, or services, and (3) provide the taxpayer a written statement
that the donee's use of the property will be consistent with these requirements. To claim the
enhanced deduction, the taxpayer must establish that the fair market value of the donated item
exceeds basis.
Through December 31, 2007, all businesses, and not just C corporations, are eligible for the
enhanced deduction for donations of food inventory. For all businesses, the enhanced deduction
is available only for donations of "apparently wholesome food" (food intended for human
consumption that meets all quality and labeling standards imposed by Federal, State, and local
laws and regulations, even though the food may not be readily marketable due to appearance,
age, freshness, grade, size, surplus, or other conditions). In the case of a taxpayer other than a C
corporation, the total deduction for donated food inventory for any taxable year may not exceed
10 percent of the taxpayer's net income from the related trade or business. Eligibility for the
enhanced deduction by businesses other than C corporations is scheduled to expire on December
31,2007.
Reasons for Change
The enhanced deduction for contributions of food inventory increases donations of food by all
types of businesses. Permanent extension of this provision supports charities working to combat
hunger.
Proposal
The proposal would make permanent the expansion of the enhanced deduction for donations of
food inventory to all types of businesses and the clarification of the definition of eligible food.
30
Revenue Estimate
Fiscal Years
2008
2009
2010
2011
2012
2013
2009-2013
2009-2018
-140
-585
-1,524
($ in millions)
-44
-96
-106
-116
-127
31
PERMANENTL Y EXTEND THE ENHANCED DEDUCTION FOR CORPORATE
CONTRIBUTIONS OF COMPUTER EQUIPMENT FOR EDUCATIONAL PURPOSES
Current Law
A taxpayer's deduction for charitable contributions of inventory property generally is limited to
the taxpayer's basis (typically, cost) in the inventory property. The Taxpayer Relief Act of 1997
provided an enhanced deduction for a three-year period for charitable contributions by C
corporations of computer technology or equipment to elementary and secondary schools and
charities formed for the purpose of supporting elementary and secondary education. In 2000,
this provision was extended for an additional three-year period and expanded to apply to
charitable contributions of computer technology or equipment to post-secondary educational
institutions and public libraries. It was extended again in 2004. In 2006, this provision was
extended for an additional two-year period. In addition, the definition of property eligible for the
enhanced deduction was expanded to include property assembled by the taxpayer.
For contributions made in taxable years beginning before January 1, 2008, the amount of the
deduction is equal to the lesser of (1) the taxpayer's basis in the contributed property, plus onehalf of the gain that would have been realized had the property been sold, or (2) two times basis.
To qualify for the enhanced deduction, the contribution must satisfy various requirements. This
provision does not apply to contributions made in taxable years beginning after December 31,
2007.
Reasons for Change
This provision provides an incentive for C corporations to contribute computer equipment and
software for the benefit oflocal communities and students at the elementary, secondary, and
post-secondary school levels, by providing public libraries and educational institutions with
needed technology resources. Because the need for technology resources is ongoing, this
provision should be made permanent.
Proposal
The enhanced deduction for C corporation donations of computer equipment would be made
permanent.
Revenue Estimate
2008
2009
2010
Fiscal Years
2011
2012
($ in millions)
-50
-118
-147
-154
-162
32
2013
2009-2013
2009-2018
-170
-751
-1,838
PERMANENTLY EXTEND INCREASED LIMITS ON CONTRIBUTIONS OF
PARTIAL INTERESTS IN REAL PROPERTY FOR CONSERVATION PURPOSES
Current Law
In general, a deduction is pennitted for charitable contributions, subject to certain limitations that
depend on the type of taxpayer, the property contributed, and the donee organization. The
amount of the deduction generally equals the fair market value of the contributed property on the
date of the contribution.
Corporations generally are allowed to deduct charitable contributions up to a limit of 10 percent
of taxable income (computed without regard to net operating or capital loss carrybacks).
Individual taxpayers who itemize their deductions may claim a deduction for charitable
contributions up to a percentage of the taxpayer's adjusted gross income (AGI) (computed
without regard to any net operating loss carryback). The percentage limit for individuals varies
depending on the type of donee organization and the type of property contributed. In general, the
deduction for charitable contributions may not exceed 50 percent of AGI. However, lower
percentage limits apply to contributions of capital gain property and contributions to certain
private foundations. For example, the deduction for contributions of capital gain property to
public charities, private operating foundations, and certain non-operating foundations generally
may not exceed 30 percent of AGI. In general, in the case of both individuals and corporations,
charitable contributions in excess of the percentage limits may be carried forward for up to five
years.
Gifts of partial interests in property generally are not deductible as charitable contributions.
However, to encourage donations for conservation purposes, the tax law provides an exception to
the "partial interest" rule for qualified conservation contributions. A qualified conservation
contribution is a contribution of a qualified real property interest (such as a remainder interest or
a restriction (granted in perpetuity) on the use that may be made of the real property) to a
qualified organization exclusively for conservation purposes. Qualified conservation
contributions generally are subject to the same limitations and carryover rules as apply to other
charitable contributions of capital gain property.
Through December 31, 2007, special percentage limits and carryover rules apply to contributions
of partial interests in real property for conservation purposes. For contributions made prior to
January 1, 2008, an individual taxpayer may deduct the fair market value of any qualified
conservation contributions up to a limit equal to the excess of (i) 50 percent of AGI over (ii) the
amount of all other allowable charitable contributions (determined under the general rules
described above, but not taking into account the qualified conservation contributions). In the
case of a qualified fanner or rancher, the limit is 100 percent of the excess of the individual
taxpayer's AGI (or 100 percent of the corporation's taxable income) over the amount of all other
allowable charitable contributions. In addition, for both individuals and corporations, the
number of years that qualified conservation contributions in excess of these limits may be carried
forward is increased to 15 years from 5 years.
33
Reasons for Change
Increasing the limits on the allowable deduction for qualified conservation contributions will
stimulate charitable giving for conservation purposes by increasing the incentives to donors.
Permanency will maintain the incentives.
Proposal
The increased limits on the deduction for qualified conservation contributions would be made
permanent.
Revenue Estimate
2008
2009
2010
-48
-35
-22
Fiscal Years
2011
2012
($ in millions)
-18
-21
34
2013
2009-2013
2009-2018
-22
-118
-245
PERMANENTLY EXTEND THE BASIS ADJUSTMENT TO STOCK OF S
CORPORATIONS CONTRIBUTING APPRECIATED PROPERTY
Current Law
If an S corporation contributes money or other property to a charity, each shareholder takes into
account the shareholder's pro rata share of the contribution in determining the shareholder's
income tax liability. Prior to the enactment of the Pension Protection Act of2006 (PPA), a
shareholder of an S corporation reduced the basis in the stock or indebtedness of the S
corporation by the amount of the charitable contribution that flowed through to the shareholder.
In many cases, a shareholder's basis in S corporation stock reflects the basis of the contributed
property, whereas the charitable contribution deduction reflects the fair market value of the
contributed property. As a result, pre-PPA law deprived some S corporation shareholders of the
full benefit of the charitable contribution deduction.
Reasons for Change
PPA modified the rules for adjusting the basis of S corporation stock to preserve the benefit of
providing a charitable contribution deduction for contributions of appreciated property by an S
corporation. S corporation shareholders are allowed to adjust their basis in the stock by their pro
rata share of the adjusted basis (not fair market value) of the contributed property. The provision
applies only to charitable contributions made by an S corporation in taxable years beginning
before January 1, 2008.
Proposal
The proposal would permanently extend the rule allowing S corporation shareholders to adjust
their stock basis for a charitable contribution deduction by their pro rata share of the adjusted
basis of contributed property.
Revenue Estimate
2008
2009
2010
-3
-15
-21
Fiscal Years
2012
2011
($ in millions)
-28
-25
35
2013
2009-2013
2009-2018
-32
-121
-354
REFORM EXCISE TAX BASED ON INVESTMENT INCOME OF PRIVATE
FOUNDA TIONS
Current Law
Private foundations that are exempt from Federal income tax generally are subject to a twopercent excise tax on their net investment income. The excise tax rate is reduced to one percent
in any year in which the foundation's distributions for charitable purposes exceed the average
level of the foundation's charitable distributions over the five preceding taxable years (with
certain adjustments). Private foundations that are not exempt from Federal income tax, including
certain charitable trusts, must pay an excise tax equal to the excess (if any) of the sum of the
excise tax on net investment income and the amount of the unrelated business income tax that
would have been imposed if the foundation were tax exempt, over the income tax imposed on the
foundation. Under current law, private nonoperating foundations generally are required to make
annual distributions for charitable purposes equal to at least five percent of the fair market value
of the foundation's noncharitable use assets (with certain adjustments). The amount that a
foundation is required to distribute annually for charitable purposes is reduced by the amount of
the excise tax paid by the foundation.
Reasons for Change
The current "two-tier" structure of the excise tax on private foundation net investment income
may discourage foundations from significantly increasing their distributions for charitable
purposes in any particular year. Under the current formula, any increase in the foundation's
percentage payout in a given year (by increasing the average percentage payout) makes it more
difficult for the foundation to qualify for the reduced one percent excise tax rate in subsequent
years. Eliminating the "two-tier" structure of this excise tax would ensure that private
foundations do not suffer adverse excise tax consequences if they increase their grant-making in
a particular year to respond to charitable needs. Such a change would also simplify tax planning
and the calculation of the excise tax for private foundations. In addition, lowering the excise tax
rate for all foundations would make additional funds available for charitable purposes.
Proposal
This proposal would replace the two rates of tax on private foundations that are exempt from
Federal income tax with a single tax rate of one percent. The tax on private foundations not
exempt from Federal income tax would be equal to the excess (if any) of the sum of the onepercent excise tax on net investment income and the amount of the unrelated business income tax
that would have been imposed if the foundation were tax exempt, over the income tax imposed
on the foundation. The special reduced excise tax rate available to tax-exempt private
foundations that maintain their historic level of charitable distributions would be repealed.
The proposal would be effective for taxable years beginning after December 31, 2008.
36
Revenue Estimate
2008
2009
2010
Fiscal Years
2011
2012
($ in millions)
-105
-152
-152
-153
-154
37
2013
2009-2013
2009-2018
-155
-766
-1,578
Strengthen Education
PERMANENTLY EXTEND THE ABOVE-THE-LINE DEDUCTION FOR QUALIFIED
OUT-OF-POCKET CLASSROOM EXPENSES
Current Law
Individual taxpayers who itemize their deductions may claim a deduction for unreimbursed, jobrelated expenses to the extent those expenses and other miscellaneous deductions exceed 2
percent of adjusted gross income. Such deductions may not be allowed for purposes of the
alternative minimum tax.
Taxpayers who are K-12 teachers and certain other school personnel in a school for at least 900
hours during a school year may deduct, whether or not they itemize, up to $250 paid or incurred
in connection with books, supplies, computer equipment and other equipment and supplemental
materials used in the classroom. This provision expired on December 31, 2007.
Reasons for Change
Teachers and other school personnel often incur expenses related to classroom activities that are
not reimbursed. These expenditures enhance the quality of education received by students but
diminish a teacher's properly measured ability to pay taxes. Allowing school personnel to
deduct such expenditures on their Federal income tax return encourages dedicated personnel who
supplement available school resources at their own expense.
Proposal
The above-the-line deduction for qualified out of pocket classroom expenses for teachers and
certain other school personnel would be made permanent.
Revenue Estimate
2008
2009
2010
Fiscal Years
2012
2011
($ in millions)
-18
-180
-183
-185
-188
38
2013
2009-2013
2009-2018
-191
-927
-1,927
ALLOW THE SAVER'S CREDIT FOR CONTRIBUTIONS TO QUALIFIED TUITION
PROGRAMS
Current Law
Under current law, taxpayers may receive a nonrefundable credit - the Saver's Credit - on up to
$2,000 contributed to elective deferral plans or individual retirement accounts (lRAs). An
eligible taxpayer must be at least 18 years old, must not be eligible to be claimed as a dependent
by another taxpayer, and must not be a full-time student. Taxpayers must have compensation to
be eligible to contribute to an elective deferral plan or IRA.
The credit is nonrefundable and is equal to a percentage of the amount contributed to elective
deferral plans or IRAs. The applicable percentage is based on AGI (adjusted for inflation) and
filing status and is determined according to the following table for 2008:
Joint Return
Not Over
Over
$32,000
$34,500
$53,000
$32,000
$34,500
$53,000
Adjusted Gross Income
Head of a Household
All other cases
Over
Not Over
Over
Not
Over
$24,000
$16,000
$24,000 $25,875
$16,000 $17,250
$25,875 $39,750
$17,250 $26,500
$26,500
$39,750
Applicable
percentage
50
20
10
0
Qualified contributions in determining the credit are reduced by any distributions from an
elective deferral plan or IRA during the current tax year, the two preceding tax years, and the
following year up to the due date of the return including extensions.
Taxpayers may contribute to a Section 529 Qualified Tuition Program (QTP) to save for higher
education expenses of a designated beneficiary. Contributions to a QTP are not deductible from
income for Federal tax purposes, but earnings on contributions accumulate tax-free. Taxpayers
may exclude from gross income amounts distributed from a QTP and used for qualified higher
education expenses, so long as the distribution is not used for the same educational expenses for
which another tax benefit (such as an education tax credit or a tax-free distribution from a
Coverdell Education Savings Account) is claimed. Nonqualified distributions are subject to an
additional tax. Some States allow contributions to be excluded from income for State income tax
purposes.
There is no specific dollar cap on annual contributions to a QTP and no limit on contributions to
a QTP account based on the contributor's income. However, a QTP must provide adequate
safeguards to prevent contributions on behalf of a designated beneficiary in excess of amounts
necessary to provide for the qualified higher education expenses of the beneficiary.
39
Reasons for Change
Almost one-third of American households have no financial assets and another fifth have only
negligible assets available for investment. Many Americans are kept from entering the economic
mainstream because they lack the financial resources to invest for long-term goals. Recent
evidence suggests that low-income households respond to financial incentives in making savings
decisions. Allowing the Saver's Credit for contributions to a QTP provides an incentive for lowincome taxpayers to save for higher education.
Proposal
The proposal would allow the Saver's Credit for contributions to QTPs. As under current law, a
taxpayer must be at least 18 years old, must not be eligible to be claimed as a dependent by
another taxpayer, and must not be a full-time student in order to be eligible to receive the
matching credit.
Adjusted gross income in determining the applicable rate for the Saver's Credit for QTP
contribution would be modified to include the excludable portion of the taxpayer's Social
Security benefits. The credit would apply to an annual aggregate contribution of up to $2,000
($4,000 for a married couple filing a joint return), or earnings includible in gross income, if less,
to the taxpayer's elective deferral plans, lRAs, and QTPs. For purposes of the credit, qualified
contributions to a QTP must be made to an account over which the taxpayer is the person with
the power to authorize distributions and to otherwise administer the account. Qualified
contributions would be reduced by any distributions from an elective deferral plan, IRA, or QTP
during the current tax year, the two preceding tax years, and the following tax year up to the due
date of the return including extensions.
The credit would be available for contributions to QTPs beginning on January 1, 2009.
Revenue Estimate
2008
2009
2010
Fiscal Years
2012
2011
($ in millions)
o
-88
-183
-198
-213
40
2013
2009-2013
2009-2018
-227
-909
-2,259
Strengthen Housing
ALLOW TAX-EXEMPT QUALIFIED MORTGAGE BONDS TO REFINANCE HOME
MORTGAGES TO PROVIDE RELIEF FOR SUBPRIME BORROWERS
Current Law
In general, the interest on bonds issued by State or local governments is excluded from gross
income if the bonds meet certain eligibility requirements. There are two basic types of taxexempt bonds: governmental bonds and private activity bonds. Bonds generally are treated as
governmental bonds if the proceeds are used to carry out governmental purposes or the bonds are
repaid with governmental funds. Tax-exempt governmental bonds are subject to various general
restrictions, including arbitrage investment restrictions, registration and reporting requirements,
Federal guarantee restrictions, advance refunding limitations, spending period limitations, and
pooled bond limitations. Governmental bonds are not subject to specific volume limitations.
Bonds that have private business involvement or private loans exceeding certain levels are
classified as "private activity bonds." In particular, bonds are classified as private activity bonds
if more than 10 percent (reduced to 5 percent in the case of certain unrelated or disproportionate
private business use) of the bond proceeds are both: (1) used for private business use; and (2)
payable or secured from private business sources. Bonds also are treated as private activity
bonds ifmore than the lesser of $5 million or 5 percent of the bond proceeds are used to finance
private loans, including business and consumer loans.
Private activity bonds may be issued on a tax-exempt basis only for certain prescribed projects
and program purposes and only if they meet both certain general requirements for governmental
bonds and additional requirements for qualified private activity bonds, including, among others,
an annual unified State bond volume cap on most private activity bonds, an advance refunding
prohibition, a public approval requirement, and an issuance cost limitation.
Current law allows State and local governments to issue one type of tax-exempt private activity
bond, calIed "qualified mortgage bonds," to finance new mortgage loans to first-time
homebuyers for owner-occupied single-family housing upon satisfaction ofa number of program
eligibility requirements and subject to an annual private activity bond volume cap. Current
program eligibility requirements for qualified mortgage bonds include the following. Eligible
loans generalIy must be new loans (as contrasted with refinancing loans), with certain limited
exceptions. Eligible homebuyers generalIy cannot have owned homes within the previous three
years (the "first-time homebuyer" requirement). Purchase prices of eligible homes cannot
exceed 90% of average area purchase prices (increased to 110% of such prices in certain targeted
areas). Incomes of eligible borrowers generally cannot exceed 115% of applicable median
family income (increased to 140% of such income for certain targeted area residences). In
addition, the borrower income limits also are increased by formula for certain high-cost areas.
Special arbitrage restrictions limit the effective interest rates on financed loans to not more than
1.125% above the bond yield. The income on these tax-exempt bonds is a preference item for
pUrposes of alternative minimum tax.
41
Reasons for Change
State and local governments, particularly State housing finance agencies, have significant
ongoing tax-exempt bond programs to finance lower cost mortgage loans to enable eligible firsttime homebuyers to purchase homes. These State and local governments have loan program
systems in place that would allow them to serve an expanded role in providing lower cost
financing relief to subprime borrowers as one avenue to ameliorate the impact of the current
subprime lending difficulties. In addition, certain States have initiated limited programs,
sometimes with taxable loan funds, to help subprime borrowers refinance escalating variable rate
loans with lower cost fixed rate loans. State and local governments potentially could provide
greater amounts and more significant levels of lower cost financing relief to subprime borrowers
if tax-exempt qualified mortgage bond financing were available for refinancing mortgages.
Proposal
The proposal would amend the program requirements for tax-exempt qualified mortgage bonds
to allow State and local governments to use these tax-exempt bonds to refinance existing loans to
assist eligible subprime borrowers. The proposal would provide temporary authority to use taxexempt qualified mortgage bonds for subprime refinancings during the three years from 2008
through 2010.
The proposal also would increase the annual private activity bond volume cap by a total amount
of $15 billion (equivalent to $5 billion per year for three years) for use in the three years 2008
through 2010 exclusively to refinance eligible subprime loans. The increased volume cap would
be allocated among the States in proportion to population in the same manner that private
activity bond volume cap regularly is allocated, except that this volume cap would be dedicated
specially to eligible subprime loan refinancings.
The proposal would target the program to a defined class of eligible subprime borrowers with
loans with a reasonably foreseeable risk of default and a reasonable potential to avoid default
with a lower cost refinancing. The proposal would provide discretion and flexibility to State and
local governmental issuers to tailor their programs to local needs.
The proposal would make certain technical changes to the current program requirements for
qualified mortgage bonds to accommodate refinancing loans to subprime borrowers, such as
exceptions to the new loan requirement and first-time homebuyer requirement and tailored
application of purchase price and income limits at the time of refinancing.
Revenue Estimate
2008
2009
2010
Fiscal Years
2012
2011
($ in millions)
-27
-116
-230
-305
-329
42
2013
2009-2013
2009-2018
-331
-1,311
-2,687
Protect the Environment
PERMANENTLY EXTEND EXPENSING OF BROWNFIELDS REMEDIATION COSTS
Current Law
Taxpayers can elect to treat certain environmental remediation expenditures that would
otherwise be chargeable to a capital account as deductible in the year paid or incurred. The
deduction applies for both regular and alternative minimum tax purposes. The expenditure must
be incurred in connection with the abatement of hazardous substances at a qualified
contaminated site (so-called "brownfields"). This provision applies only to expenditures paid or
incurred before January 1, 2008.
Hazardous substances are defined generally for purposes of the brownfields provision by
reference to sections 10 I (14) and 102 of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA). A qualified contaminated site generally is
any property that (1) is held for use in a trade or business, for the production of income, or as
inventory; (2) contains (or potentially contains) a hazardous substance; and (3) is certified by the
appropriate State environmental agency as to the presence (or potential presence) of a hazardous
substance. However, sites that are identified on the national priorities list under CERCLA do not
qualify as qualified contaminated sites.
The Tax Relief and Health Care Act of 2006 expanded the definition of hazardous substance to
include petroleum products (including crude oil) for remediation expenditures paid or incurred
after December 31,2005, and before January 1,2008.
Reasons for Change
Encouraging environmental remediation is an important national goa\. The brownfields
provision encourages the cleanup of contaminated brownfields, thereby enabling them to be
brought back into productive use in the economy and mitigating potential harms to public health.
Extending the special treatment accorded to brown fields on a permanent basis would remove
doubt among taxpayers as to the deductibility of future remediation expenditures and would
promote the goal of encouraging environmental remediation.
Proposal
The expensing of brownfield remediation expenditures would be made permanent.
43
Revenue Estimate
2008
2009
2010
Fiscal Years
2011
2012
($ in millions)
-180
-501
-356
-343
-327
44
2013
2009-2013
2009-2018
-284
-1,811
-2,870
ELIMINATE THE VOLUME CAP FOR PRIVATE ACTIVITY BONDS FOR WATER
INFRASTRUCTURE
Current Law
In general, the interest on bonds issued by State or local governments is excludable from gross
income if the bonds meet certain eligibility requirements. State or local governments issue taxexempt bonds to finance a wide range of public infrastructure projects. There are two basic
kinds of tax-exempt bonds: governmental bonds and qualified private activity bonds. Bonds
generally are treated as governmental bonds if the proceeds are used to carry out governmental
purposes or the bonds are repaid with governmental funds. Bonds are classified as governmental
bonds under a definition that limits private business use and private business sources of payment
and also limits private loans. Governmental bonds are subject to various general restrictions,
including arbitrage investment restrictions, registration and reporting requirements, Federal
guarantee restrictions, advance refunding limitations, spending period limitations, and pooled
bond limitations. Governmental bonds, however, are not subject to specific volume limitations.
Bonds that have excessive private business involvement or private loans are classified as "private
activity bonds." In particular, bonds are classified as "private activity bonds" if more than 10
percent (reduced to 5 percent in the case of certain unrelated or disproportionate private business
use) of the bond proceeds are both: (1) used for private business use; and (2) payable or secured
from private sources. Bonds also are treated as private activity bonds ifmore than the lesser of
$5 million or 5 percent of the bond proceeds are used to finance private loans, including business
and consumer loans.
Private activity bonds may be issued on a tax-exempt basis only if they meet the general
requirements for governmental bonds and the additional requirements necessary for "qualified
private activity bonds." Qualified private activity bonds include exempt facility bonds, qualified
mortgage bonds for single-family housing, qualified veterans' mortgage bonds, qualified small
issue bonds, qualified student loan bonds, qualified redevelopment bonds, and qualified
50 I (c )(3) bonds. Eligible facilities for which exempt facility bonds may be issued include
facilities for the furnishing of water and sewage facilities. Most qualified private activity bonds
are subject to an annual unified State volume cap.
Reasons for Change
The nation's water and wastewater infrastructure facilities serve important national public policy
interests in ensuring clean and safe drinking water and sanitation. There is a significant need for
capital funding to upgrade the nation's water and wastewater infrastructure facilities. Removing
the volume cap on tax-exempt qualified private activity bonds for water and wastewater
infrastructure facilities would encourage additional needed private investment and public-private
partnerships in these needed water infrastructure facilities.
45
Proposal
The proposal would provide an exception to the unified annual State volume cap on tax-exempt
qualified private activity bonds for exempt facilities for the "furnishing of water" or "sewage
facilities." The proposal would be effective for bonds issued after December 31,2008, to
finance water or sewer facilities. These bonds are intended to complement local efforts to move
towards full cost pricing for wastewater and drinking water services, helping municipalities
become self-financing and minimizing the need for future Federal expenditures.
Revenue Estimate
2008
2009
2010
o
o
-3
Fiscal Years
2011
2012
($ in millions)
-6
-10
46
2013
2009-2013
2009-2018
-15
-34
-214
Restructure Assistance to New York City
PROVIDE TAX INCENTIVES FOR TRANSPORTATION INFRASTRUCTURE
Current Law
The Job Creation and Worker Assistance Act of2002 (the Act) provided tax incentives for the
area of New York City damaged or affected by the terrorist attacks on September 11,200 l. The
Act created the "New York Liberty Zone," defined as the area located on or south of Canal
Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its
intersection with East Broadway) in the Borough of Manhattan in the City of New York, New
York. New York Liberty Zone tax incentives included: (1) an expansion of the work
opportunity tax credit (WOTC) for New York Liberty Zone business employees; (2) a special
depreciation allowance for qualified New York Liberty Zone property; (3) a five-year recovery
period for depreciation of qualified New York Liberty Zone leasehold improvement property; (4)
$8 bi11ion of tax-exempt private activity bond financing for certain nonresidential real property,
residential rental property and public utility property; (5) $9 bi1\ion of additional tax-exempt,
advance refunding bonds; (6) increased section 179 expensing; and (7) an extension of the
replacement period for nonrecognition of gain for certain involuntary conversions. 5
The expanded WOTC credit provided a 40 percent subsidy on the first $6,000 of annual wages
paid to New York Liberty Zone business employees for work performed during 2002 or 2003.
The special depreciation allowance for qualified New York Liberty Zone property equals 30
percent of the adjusted basis of the property for the taxable year in which the property is placed
in service. Qualified nonresidential real property and residential rental property must be
purchased by the taxpayer after September 10, 2001, and placed in service before January 1,
2010. Such property is qualified property only to the extent it rehabilitates real property
damaged, or replaces real property destroyed or condemned, as a result of the September 11,
2001, terrorist attacks. The provision is no longer applicable for other property.
The five-year recovery period for qualified leasehold improvement property applied, in general,
to buildings located in the New York Liberty Zone if the improvement was placed in service
after September 10,2001, and before January 1,2007, and no written binding contract for the
improvement was in effect before September 11, 2001.
The $8 billion of tax-exempt private activity bond financing is authorized to be issued by the
State of New York or any political subdivision thereof after March 9, 2002, and before January
1,2010.
The $9 billion of additional tax-exempt, advance refunding bonds was available after March 9,
2002, and before January 1,2006, with respect to certain State or local bonds outstanding on
September 11, 2001.
5 The Working Families Tax Relief Act of 2004 amended certain of the New York Liberty Zone provisions relating
to tax-exempt bonds.
47
roposed Treasury Intematiooa1 Programs Budget for FY 2009
Page 1 of 1
February 4, 2008
hp-804
Proposed Treasury International Programs Budget for FY 2009
The fiscal year 2009 President's budget request for the Treasury Department's
International Programs supports key objectives of the President's international
assistance agenda, including helping Africa's poorest people, debt relief, results
measurement, greater transparency, fighting corruption, and helping countnes
reduce dependency on foreign aid. The mission of the Treasury Internalional
Programs is to promote economic growth and poverty reduction in developing
countries through U.S. participation in the Multilateral Development Banks (MOBs),
efforts to prevent the buildup of unsustainable debt burdens in poor countries, and
technical advice to developing countries on building sound financial sectors and
market-based economies.
The Treasury appropriations request for the International Programs for FY 2009 is
$2.2 billion, an increase of $913.7 million over the FY 2008 enacted budget and
includes $1.7 billion for the MOBs, $141 million for debt restructuring programs and
$29 million for technical assistance. Of this, $1.2 billion is the first payment for the
new replenishment of International Development Association, the World Bank's
fund for the world's poorest countries, and $156 million IS to begin replenishing the
African Development Fund.
The budget request also includes $400 million as the first Installment of a $2 billion
International clean technology fund to address the growing problem of accelerating
greenhouse gas emiSSions in developing countries. The fund Will help ensure that
the developing country demand for energy will be met with clean technologies by
supporting the additional cost of clean investments over their dirtier alternalives.
http://www.treas.gov/offices/management/budget/budgetinbrief/fy2009/index.shtml
http://www.treas.goy/press/releases/hp804.htn1
3/3/2008
Page 1 of 1
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OFFICE OF MAl'iAGEMENT
Office of Performance Budgeting and Strategic Planning
BUDGET DOCUMENTS: FY 2009
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FY 2009 Budget-in-Brief
FY 2009 Budget-in-Brlef
IE (1.94
MB)
Last Updated: January 31.2008
Table of Contents IE
Executive Summary IE
Departmental Offices IE
Department-wide Systems and Capital Investment Program IE
Financial Crimes Enforcement Network IE
Alcohol and Tobacco Tax and Trade Bureau IE
Office of Inspector General IE
Treasury Inspector General for Tax Administration IE
Community Development Financial Institutions Fund IE
FinanCial Management Service IE
Bureau of the Public Debt IE
Internal Revenue Service IE
Treasury Franchise Fund IE
Bureau of Engraving and Printing [B
United States Mint IE
Office of the Comptroller of the Currency IE
Office of Thrift Supervision IE
Treasury International Programs IE
Summary of FY 2009 Appropriations Language IE
Total Funding Levels for the FY 2009 President's Budget - Treasury Chapter
Detail of Other Treasury Accounts IE
IE
Last Updated: February 4, 2008
http://www.trea;..gov/offices/managemencibudgetlbudgetinbrieflfy2009lindex.shtml
3/4/2008
Page 1 of 5
February 4, 2008
2008-2-4-15-2-13-26383
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $72,220 million as of the end of that week, compared to $71,603 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
II
I
I
IA. Official reserve assets (in US millions unless otherwise specified)
I/FebrUary 1, 2008
II Eu ro
I/Ven
IITotal
II
11 14 ,775
1/
11 12 ,055
1/72,220
lof which: issuer headquartered in reporting country but located abroad
1/
1/
I/o
I(b) total currency and depOSits with:
II
11 14 ,632
II
1/
11 5 ,911
11 20 ,543
II
11
II
11
1(1) Foreign currency reserves (in convertible foreign currencies)
I(a) Securities
I(i) other national central banks, 81S and IMF
Iii) banks headquartered in the reporting country
/I
lof which: located abroad
II
II
l(iii) banks headquartered outside the reporting country
lof which: located in the reporting country
II
1(2) IMF reserve position
11 4 ,237
II
II
11 26 ,830
11
0
I
0
0
I/O
1(3) SDRs
11 9 ,568
1
1(4) gold (including gold deposits and, if appropriate, gold swapped)
11 11 ,041
I
I"volume in millions of fine troy ounces
11 261 .499
1
1(5) other reserve assets (specify)
I/o
[financial derivatives
II
I
I
t·loans to nonbank nonreSidents
[other
I
@. Other foreign currency assets (specify)
"securities not included in official reserve assets
JI
..deposits not included in official reserve assets
II
.. loans not included in official reserve assets
I:
..financial derivatives not included in official reserve assets
J:
·-gold not included in official reserve assets
JI
[.other
II
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
www.treas.go~/press/releases/2008241521326383.htm
3/4/2008
Page 2 of 5
II
[
C
II
II
[
II
Total
t:9utflows (-)
[
IIlnterest
~flows (+)
IIPrincipal
[
IIlnterest
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward I~ of currency swaps)
II
I
II
I
I
II
II
[ --outflows related to repos (-)
I
I
I
I
II
II
I
II
[(b) Long positions (+)
I --inflows related to reverse repos (+)
I --trade credit (-)
I --trade credit (+)
I --other accounts payable (-)
I --other accounts receivable (+)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to t month
II
[ (a) Short positions ( - )
I 3. Other (specify)
I
II
1. Foreign currency loans, securities, and deposits
IIPrincipal
I
I
II
II
IIMaturity breakdown (residual maturity)
"IIII
II
II
II
II
I
II
II
I
I
II
II
II
II
I
II
I
\I
II
II
II
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
,
II
1/
I
IITota,
11. Contingent liabilities in foreign currency
II
(a) Collateral guarantees on debt falling due within 1
year
I
~b) Other contingent liabilities
2. Foreign currency securities issued with embedded
options (puttable bonds)
II
Up to 1 month
"
More than 3
months and up to
1 year
More than 1 and
up to 3 months
"I
II
1/
II
"
I
3. Undrawn, unconditional credit lines provided by:
I
(a) other national monetary authorities, SIS, IMF, and
other international organizations
I
I
"IIII
II
II
tother national monetary authorities (+)
EBIS(+)
tIMF(+)
(b) with banks and other financial institutions
headquartered in the reporting country (+)
r
I
II
., Maturity breakdown (residual maturity, where
applicable)
I
1
/I
http://www.treas.gov/press/releases/2Q08241;i21326383.htm
3/4/2008
Page 3 of 5
(c) with banks and other financial institutions
headquartered outside the reporting country (+)
II
II
II
Undrawn, unconditional credit lines provided to:
II
II
(a) other national monetary authorities, 81S, IMF, and
other international organizations
"/I
[--BIS (-)
t- IMF (-)
(b) banks and other financial institutions headquartered
in reporting country (- )
II
I
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
1/
I
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
1/
I(i) Bought puts
l(i) Bought calls
II
"
II
I
l(ii) Written calls
II
/I
II
I(a) Short positions
I(b) Long positions
II
II
I
II
II
II
[--other national monetary authorities (-)
II
I
I
"
"
II
I
II
I
II
I
II
I(ii) Written puts
iPRO MEMORIA: In-the-money options J 1
I
1(1) At current exchange rate
I
I(a) Short position
I(b) Long position
II
1(2) + 5 % (depreciation of 5%)
I
II
I(a) Short position
II
II
I(b) Long position
II
II
1(3) - 5 % (appreciation of 5%)
II
II
I(a) Short position
II
II
I(b) Long position
II
II
1(4) +10 % (depreciation of 10%)
II
I(a) Short position
II
lib) Long position
II
li5) - 10 % (appreciation of 10%)
II
lia) Short position
[b) Long position
(6) Other (specify)
~) Short position
@) Long position
I
I
II
II
II
1/
II
II
II
II
I
II
II
II
II
II
II
II
IV. Memo items
[
(1) To be reported with standard periodicity and timeliness:
(a) short-term domestic currency debt indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic
http://www.treas.gov/press/releases/200824J521326383.htm
I
I
I
I
3/4/2008
Page 4 of 5
~urrency)
/I
I
E-nondeliverable forwards
II
II
I
[ --long positions
/I
I
i--other instruments
II
I
I(c) pledged assets
II
II
II
II
i
--short positions
t-included in reserve assets
I--included in other foreign currency assets
I(d) securities lent and on repo
I--Ient or rep oed and included in Section I
I
I
I
II
I--Ient or rep oed but not included in Section I
II
I--borrowed or acquired and included in Section I
1/
I--borrowed or acquired but not included in Section I
II
II
II
II
I(e) financial derivative assets (net, marked to market)
I--forwards
I--futures
I--swaps
II
I--options
II
II
I--other
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one
year, which are subject to margin calls.
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
II
I
I
I
I
I
I
I
I
I
II
I(a) short positions ( - )
I[
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
1/
I
I(a) short positions
I
I(i) bought puts
l(ii) written calls
I(b) long pOSitions
[(i) bought calls
~ii) written puts
[(2) To be disclosed less frequently:
[a) currency composition of reserves (by groups of currencies)
11 72 ,220
[--currencies in SDR basket
1/72,220
[currencies not in SDR basket
1/
[by individual currencies (optional)
1/
[
1/
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
httD://www.treas.go y /press/releases/200824!521326383.htm
3/4/2008
Page 5 of 5
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.gov/press/releases72008241521326383.htill
3/412008
fJP-80S: Opening Statement by Secretary Henry M. Paulson, Jr.<br>on the President's Fiscal Year 2009 ... Page 1 of 2
February 5, 2008
HP-805
Opening Statement by Secretary Henry M. Paulson, Jr.
on the President's Fiscal Year 2009 Budget
before the United States Senate Committee on Finance
Washington, DC--Chairman Baucus, Senator Grassley, Members of the
Committee: I am pleased to be here to discuss the President's budget for fiscal year
2009. As Treasury Secretary, my highest priority is a strong U.S. economy that will
benefit our workers, our families and our businesses. Through a measured
approach that balances our nation's needs with our nation's resources, the
President's budget supports that priority.
This is especially important now as, after years of unsustainable home price
appreciation, the U.S. economy undergoes a significant and necessary housing
correction. This correction, combined with high energy prices and capital market
turmoil, caused economic growth to slow rather markedly at the end of 2007.
The U.S. economy is diverse and resilient, and our long-term fundamentals are
healthy. I believe our economy will continue to grow, although at a slower pace than
we have seen in recent years.
Yet, the risks are clearly to the downside and President Bush knows that economic
security is of the utmost importance to the American people. In recent weeks, the
potential benefits of quick action to support our economy became clear, and the
potential costs of doing nothing too great.
So, we are gratified that Congress is advancing a growth package to support our
economy as we weather the housing correction. We believe that a growth package
must be enacted quickly; it must be robust, temporary, and broad-based, and it
must get money into our economy quickly.
The Senate has begun to consider its version of this bill, and I am hopeful that it will
complete consideration soon.
If we keep moving along a fast track, and Congress sends the President a bill that
meets our shared principles, rebate payments can start in May and be completed
this summer. Together, the payments to individuals and the investment incentives
for business will help create more than half a million jobs by the end of this year.
In addition to an economic growth plan to help us weather this housing correction,
the Administration will continue to focus on aggressive action to try to provide
alternative options to foreclosures. That includes encouraging the HOPE NOW
alliance's outreach to struggling homeowners. Congress can do its part by finalizing
the FHA modernization and GSE regulatory reform bills and by passing legislation
that will allow states to issue tax-exempt bonds for innovative refinancing programs.
We continue to monitor capital markets closely and to advocate strong market
discipline and robust risk management. Working through the current stress is our
first concern. Through the President's Working Group on Financial Markets, we are
also reviewing underlying policy issues because it is just as important to get the
long-term policy right.
While we are in a difficult transition period as markets reassess and re-price risk, I
have great confidence in our markets. They have recovered from similar stressful
http://www. treas.gov Ipress/releases/hpS05 htm
3/412008
1P-805: Opening Statement by Secretary Henry M. Paulson, Jr.<br>on the President's Fiscal Year 2009 ... Page 2 of 2
periods in the past, and they will again.
The Administration will also continue to press for long-term economic policies that
are in our country's best interest - a pro-growth tax system, entitlement reform and
a balanced budget. To that end, the President's budget makes the 2001 and 2003
tax relief permanent, and keeps the federal budget on track for a surplus in 2012.
In the future, as in the past, our long-term economic growth will also be enhanced
by supporting international trade, by opening world markets to U.S. goods and
services and by keeping our markets open. Congress can help create jobs and
economic opportunity by passing the pending Free Trade Agreements with
Colombia, Panama and South Korea.
I appreciate the cooperative and bipartisan spirit that has brought the Congress and
the Administration together to support our economy, and look forward to that spirit
continuing as we work through this period. Thank you.
-30-
http://www.treas.gov/press/releases/hp805.htm
3/412008
p.806: Preparea Statement by l'f'eftSt'I1y <br>Under Secretary David H. McCormick in <br>in Advance... Page 1 of 2
February 5, 2008
HP-806
Prepared Statement by Treasury
Under Secretary David H. McCormick in
in Advance of Meeting of the G-7
Finance Ministers and Central Bank Governors
Washington, DC - Good morning. As you know, the G7 Finance Ministers and
Central Bank Governors will meet in Tokyo on February 9th. Their discussions will
include current conditions and financial market developments, the international
financial institutions, development issues, and climate change. A good part of the
G-7 meeting will be devoted to the policy response to recent financial market
turmoil.
Secretary Paulson will tell his counterparts that the U.S. economy is undergoing a
housing correction, together with high energy prices and capital market turmoil, that
is slowing our economic growth, but the U.S. economy is resilient. Our long-term
economic fundamentals are sound, but we need to act because the short-term risks
are clearly to the downside, and the potential benefits of quick action to support our
economy have become clear. The Federal Reserve has already taken action and
the President has called for a growth package that is large enough to have a real
impact on our economy and that will bolster consumer spending and business
investment this year. Secretary Paulson has commended the House for quick
bipartisan action on the economic growth package. He is confident Senate leaders
understand speed and simplicity are key to enacting this bipartisan agreement, and
he is hopeful the Senate will act quickly.
In 2007, global economic growth was quite strong despite market turbulence. The
outlook for 2008 still remains solid. Emerging markets, in particular, are expected
to post robust economic gains. There are risks, however, and 2008 will pose a
more challenging economic environment for policymakers. G-7 Ministers and
Central Bank Governors will discuss how best to ensure strong and sustained
global economic growth. Given current softness in demand growth in the United
States, it especially important that other economies - large and small, advanced
and emerging market - take prudent steps to strengthen their economies' demand
components. Stronger demand growth abroad would help ensure a global
economy that is both robust and better balanced.
Serious turmoil in our financial markets is persisting. Institutions have taken
encouraging steps to address the challenge. Since August, financial institutions
have disclosed and written off more than $150 billion of assets, and U.S. financial
institutions have raised more than $95 billion in new capital. Past episodes of
financial turmoil have demonstrated that recognizing losses and restoring capital to
the extent necessary are one of the most important steps toward restoring financial
normalcy.
Secretary Paulson has great confidence in our markets. They have recovered from
similar stressful periods in the past, and they will again. But make no mistake, the
current turmoil will continue to challenge policy-makers and we can expect to see
more financial market volatility as further disclosures and re-pricing of risk take
place.
Looking forward, we face the challenge of addressing regulatory and policy issues
raised by this turmoil. We need to be pro-active, but the issues are complex and
require careful analysis so that we can effectively target the real problems and not
rush to judgment. At this week's meeting, Mario Draghi, head of the Financial
http://www.treas.gov/press/releases/hpS06.htm
3/4/2008
P-806: Prepared Statement by Treasury <br>Under Secretary David H. McCormick in <br>in Advance... Page 2 of 2
Stability Forum, will brief the ministers and governors on the FSF's interim findings
regarding the causes of the turbulence and areas for policy consideration. In
October 2007, we asked the FSF to focus its efforts on risk management, the
accounting and valuation of structured products, the role and use of credit ratings in
structured finance, and basic supervisory principles of prudential oversight of
regulated financial entities. We look forward to discussing the FSF findings with our
colleagues and to providing gUidance to the FSF as it continues its work. In April,
the FSF will provide the G-7 with another update on its progress in formulating
policy recommendations.
We will also discuss open investment. Cross-border investment and the
globalization of capital markets have brought enormous benefits to the world -broader choices in financial products, greater prosperity, and expanded
opportunity. The President's Executive Order in January strengthens the process
of the Committee on Foreign Investment in the United States (CFIUS) and will
ensure that all appropriate federal agencies continue to be able to rigorously review
foreign investments with potential national security implications. America clearly
remains open to investment.
Sovereign wealth funds (SWFs) have recently received considerable attention. It is
important that we remain vigilant about their implications for protectionist sentiment
and the international financial system. It is imperative that we maintain open
markets. We are pursuing a reasoned, multilateral approach, including through the
IMF's collaboration with SWFs to identify best practices. We are also encouraging
the OECD to identify investment policy best practices for countries that receive
government-controlled investment, including from SWFs.
Concerning the IMF, the U.S. will emphasize the need for firm implementation of
the IMF's new framework for exchange rate surveillance and that fundamental
reform of the IMF's governance structure is needed to reflect the rising importance
of dynamic emerging markets. Regarding the Fund's medium-term financing
picture, we will emphasize that serious consolidation of expenditures, along the
lines put forward by MD Strauss-Kahn, must be pursued in tandem with
consideration of new sources of income.
The Secretary and his UK and Japanese colleagues will highlight their commitment
to the creation of an international clean technology fund. The fund would help
finance clean energy projects in the developing world by focusing on financing the
gap between traditional and more expensive clean technology. We envision that
the fund will leverage bilateral donor resources, multilateral development institution
resources, and private resources. In the State of the Union address, President
Bush announced he is committing $2 billion over the next three years to the fund.
We look forward to working with other countries to help ensure the fund's success.
Thank you for coming this morning, and I look forward to answering your questions.
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HP-807: Treasury Action
Target~
Finun"':lal Network of Burmese Tycoon and Regime Henchman Tay Za
Page 1 of 2
PRESSROOM
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February 5, 2008
HP-807
Treasury Action Targets Financial Network of Burmese Tycoon and Regime
Henchman Tay Za
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC)
today announced financial sanctions against family members of regime leaders and
key additional individuals and businesses that are part of the financial network of
Tay la, a Burmese business tycoon and arms dealer with close ties to Burma's
military junta.
"We are tightening financial sanctions against Tay la, an arms dealer and financial
henchman of Burma's repressive junta," said OFAC Director Adam J. Szubin. "The
President has made clear that we will continue to take action against the military
junta and those who prop it up so long as human rights violations continue and
democracy is suppressed."
Today's action targets the Htoo Group of Companies, which carries out key projects
on behalf of the Burmese junta, including the purchase of military equipment and
aircraft for the Burmese military.
Among the individuals named today is Aung Thet Mann, a director of Tay la's Htoo
Group of Companies. Aung Thet Mann is the son of General Thura Shwe Mann, a
senior official in the Burmese government and a member of the State Peace and
Development Council. Tay la has used his business relationship with Aung Thet
Mann to win favorable business contracts from the Burmese junta. OFAC also
deSignated Thiha, Tay la's brother and business partner, and U Kyaw Thein, a
director of Tay la's business ventures in Singapore.
The companies designated include Myanmar Avia Export Company Ltd., a
company Tay la has used to purchase helicopters and aircraft on behalf of the
Burmese regime; Ayer Shwe Wah Company Limited, an enterprise for which Aung
Thet Mann serves as a director; and Pavo Aircraft Leasing Pte. Ltd. in Singapore.
Four spouses of senior Burmese government officials have also been named - Khin
Lay Thet, the wife of General Thura Shwe Mann; Myint Myint Ko, the wife of
Construction Minister Saw Tun; Tin Lin Myint, the wife of Lieutenant-General Ve
Myint; and Myint Myint Soe, the wife of Foreign Affairs Minister Nyan Win.
These actions were taken pursuant to Executive Order 13448, which authorizes the
Secretary of the Treasury to designate senior regime officials, human rights
violators in Burma, persons engaged in public corruption in Burma, financial and
material supporters of the Government of Burma, and spouses and dependent
children of previously designated individuals. Tay Za was named along with five of
his companies by President George W. Bush in the Annex to E.O. 13448 of
October 18, 2007.
Today's designation freezes any assets the designees may have subject to U.S.
jurisdiction, and prohibits all financial and commercial transactions by any U.S.
person with the designated companies and !ndividuals .. It also puts ~he world ~n
notice about the financial operations of key Junta associates and their companies.
-30-
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HP-S07: Treast..ry Action Targets Finar.-.:ial I\'ctwork of Burmese Tycoon and Regime Henchman Tay Za
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REPORTS
http://www.trea~gov/press/reJeases/hp~lr7.htm
3/412008
Department of the Treasury
Office of Foreign Assets Control
Tay Za Financial Network
February 2008
Specially Designated Nationals
Pursuant to Executive Order 13448
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General Thura Shwe Mann
State Peace and Development Council
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MYANMAR AVIA EXPORT CO. LTD.
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Previously designated individuals appear in Red Italics
New SONs appear in BOLD CAPS
Military Aircraft
Singapore
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Singapore
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P-SOS: Under Secretary Robctt K. Steel <hr>Remarks on Housing before the AmeIican Securitization ...
Page 1 of 6
February 5, 2008
HP-808
Under Secretary Robert K. Steel
Remarks on Housing before the American Securitization Forum
Las Vegas - Thank you for that kind introduction. And to all of you gathered here
this morning, thank you for welcoming me. It is my pleasure to represent the
Treasury Department today at this prestigious conference.
This year's fourth annual American Securitization Forum (ASF) conference has
brought together some of the nation's best minds from our housing, finance, legal
and accounting communities. Your program is excellent and this is an especially
important time for experts like yourselves to come together and discuss these
issues.
Since its creation in 2001, ASF has served an important role by building consensus
and coordinating advocacy efforts among key participants in the securitization
market, including issuers, investors, financial intermediaries, rating agencies, legal
and accounting firms, trustees, servicers, and guarantors.
The efforts of this organization and each of the member firms you represent are
more important now than ever. We commend ASF for the strong leadership you
have recently shown in working to address current challenges in the housing and
mortgage markets. The Treasury Department has the benefit of a close working
relationship with ASF. Much progress has been made by our collaboration and we
look forward to seeing the measurements of your success.
You are fortunate to have the strong leadership of George Miller and Tom Deutsch.
Both George and Tom have impressive credentials and spent distinguished careers
in the securitization market - George served at the Bond Market Association for 11
years prior to joining ASF and Tom worked for respected firms as a specialist in
residential mortgage-backed securitization and credit card securitization. Their
leadership was demonstrated in December when the ASF announced very
important new industry guidelines creating an efficient process for identifying
borrowers who qualify for refinancing or loan modifications. But there is much more
work to do. I am pleased to be here today with all of you to discuss what more must
be done to build off that progress to help homeowners in distress and allow your
industry to thrive.
Let me begin my remarks today by providing a bit of perspective about your
industry - the securitization market. Then, I will share my thoughts on current
conditions in the housing market and the broader economy, and finally will describe
our approach to these challenges, the progress we are making and the necessary
next steps. After my remarks, if you have the time, it would be my pleasure to take
a few questions.
Innovation and Securitization
As you all know firsthand, our capital markets have changed dramatically in recent
years. The pace of financial innovation has gathered momentum, and technology
and globalization have rapidly changed the nature of financial markets. It is my view
that the rate of change in your industry will continue to accelerate.
Globalization and technological developments have led to innovations in financial
products and forever changed our economy and the capital markets. As a result,
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some have suggested the world has flattened. At the very least, today's world has
unquestionably become more compressed. And I believe this compression will
increase with the passage of time.
Having spent 30 years in the financial services industry prior to joining Treasury, I
witnessed considerable innovation in capital markets. When I began my career in
the securities industry, technology was an infrequently-discussed skill or asset,
thought of only as a processing tool. The capital markets were characterized by a
nationalistic perspective and innovative vehicles, such as derivatives, were just
beginning to appear. Compare that with today when the skilled technologist is a key
actor in the industry, markets are global--operating 24/7 without boundaries, and
innovation is a skill required for success.
But it was not until the late 1990s that this change in the industry accelerated to a
mesmerizing pace. In my final five years in the financial services industry I saw as
much innovation as I saw in my first 25 years.
The securitization market is an example of how this incredible pace of innovation
has changed financial markets. Secretary Paulson and I have been very clear - we
believe that the benefits of securitization are significant. It enables investors to
improve their risk management, achieve better risk adjusted returns and access
more liquidity.
While being an advocate for the benefits of your industry, it is also important for me
to be straight forward. We must be honest and admit some degree of malfeasance.
It is clear that in some instances market participants acted inappropriately.
Secretary Paulson has indicated that certain adjustments to the mortgage process,
such as licensing standards for mortgage originators, would help in weeding out the
bad actors. Common sense licensing standards would take into account prior
fraudulent or criminal activity, and should require initial and ongoing education.
Recent market fluctuation has also caused some to question more broadly the
effectiveness of certain characteristics of the mortgage market process. This
questioning, which is fair and appropriate, has specifically targeted rating agencies,
securitization and mortgage origination.
Policymakers and market participants both must commit to a continual assessment
of financial innovation and its implications. Secretary Paulson has taken
responsibility, by way of the President's Working Group, to evaluate these issues.
The President's Working Group on Financial Markets was formed by President
Reagan to study and issue recommendations regarding the market events of
October 19, 1987. Since then, the non-partisan Working Group - chaired by the
Secretary of the Treasury and composed of the chairmen of three independent
financial regulators (the Federal Reserve Board, the Securities and Exchange
Commission and the Commodity Futures Trading Commission) - has continued to
convene under an overarching mission of maintaining investor confidence and
enhancing the integrity, efficiency, orderliness and competitiveness of U.S. financial
markets.
Secretary Paulson is leading the President's Working Group to evaluate broad,
long-term lessons-learned from current challenges, and where appropriate make
recommendations. Securitization can remain a strong market in the future, but
market participants must accept some degree of responsibility and commit to
lessons-learned.
Housing Market Challenges
As I have just described, challenges in the markets are having significant
consequences. What began as a credit issue last summer, raised questions about
market liquidity in the autumn, and today is causing uncertainty about the economy.
The flow of liquidity that fueled a boom in borrowing and leverage across asset
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classes - from mortgages to leveraged buyouts - has now been reduced. Shortterm funding markets were stressed and inter-bank funding spreads rose to
unprecedented levels. Mortgage origination and other asset securitization dropped
markedly, adding to the challenges in the housing sector. Given the
interconnectedness of our capital markets, other stresses emerged as financial
institutions grappled with valuing assets and balance sheets came under pressure.
Of course, housing has been at the center of all these challenges. Housing
corrections take time and we are currently experiencing a period of adjustment in
the housing sector of our economy. After years of unsustainable home price
appreciation and relaxed lending practices, a housing correction was inevitable and
necessary.
Our economy is resilient and fundamentally strong, but the housing correction,
credit market turmoil, and high oil prices are weighing on growth this year and
short-term risks are to the downside. We at Treasury expect that our economy will
continue to grow over the coming year, but at a slower rate than we have enjoyed
for the past few years.
However, there is the risk of a downturn. And to address this short-term challenge,
President Bush announced a bipartisan agreement with House of Representatives
on a growth package to bolster the economy this year. The proposal will provide
about $150 billion of tax relief for the economy, leading to the creation of over half a
million additional jobs by the end of this year. The Administration and the American
people await action in the Senate to produce a targeted package to send to the
President. By passing this economic growth agreement quickly, we can protect the
strength of our economy as we weather the housing downturn and other
challenges.
The housing downturn, of course, is about more than just economic statistics - it is
also about the firsthand strain that families and homeowners will experience. Too
many American homeowners face the frightening prospect of losing their home in
foreclosure - and a significant number of other families already have. Foreclosures
also impose negative externalities on neighboring homes and communities. Many
homeowners who are paying their mortgages on time face lower property values
due to foreclosures in their neighborhood. This places hardships on neighboring
homes and undermines the financial stability of broader communities and the
families who live there.
The latest available data (from the third quarter of last year) indicate that 2007 was
on track for a foreclosure starts rate of 2.7 percent. To give that number a bit of
perspective we should recognize that many homes end up in foreclosure every
year, even when housing markets are strong. Between 2001 and 2005, for
example, the U.S. annual rate of foreclosure starts averaged approximately 1.7
percent, meaning more than 650,000 homeowners began the foreclosure process
each year. This baseline rate of foreclosure can result from events such as job loss,
credit problems, changes in family circumstances, or other sources of economic
instability.
Recently, some have made comparisons between the rate of foreclosure starts and
the rate of modifications. There is no question we want and expect the rate of
modifications to increase. However, we must not ignore refinancings. Every time a
homeowner refinances into a long-term sustainable mortgage that is a win for both
the homeowner and the original investor.
We expect the foreclosure rate to remain elevated this year and next. A rising
foreclosure rate during a period of housing price depreCiation is not surprising. Yet,
largely because of relaxed underwriting standards in recent years - particularly in
the subprime market - and because of resetting mortgages, the number of
homeowners facing hardship wi" be higher than during other recent housing
downturns.
In total, approximately 1.8 million subprime mortgages are expected to reset over
the next two years, but not all will end in foreclosure. Many homeowners will be
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able to afford their new payments without trouble or will be able to qualify for
refinanced, fixed-rate mortgages on their own, In fact, of the 2/28 subprime ARMs
originated in 2005, 88 percent had not defaulted as of late last year. Others,
however, have stretched far beyond their means, and unfortunately, foreclosure
may be unavoidable. In fact, many loans enter into foreclosure before ever reaching
the reset date. A third group of homeowners facing resets fall somewhere in the
middle. The challenge is to identify the homeowners in this middle group, who with
a focused and timely response can stay in their homes.
The Policy Response
After working closely with ASF and other members of the industry, Secretary
Paulson has determined that the best response is based upon a three point plan:
(1) to better identify, reach and connect with servicers and counselors at-risk
homeowners who can be helped, (2) to assist in developing additional products for
homeowners, and (3) to increase the speed and efficiency of moving these at-risk
borrowers into affordable solutions.
Whenever facing a challenging public policy issue, such as this one, the first step is
full understanding. While we are continuing to learn, our response to date
represents months of listening to leading academics, servicers, mortgage
counselors, lenders, homeowners, consumer advocates and investors to
understand the causes of foreclosure and the best ways to help people keep their
homes.
On August 31, President Bush announced an aggressive, comprehensive plan to
help at-risk homeowners remain in their primary residences. The President charged
Secretaries Jackson and Paulson to lead this effort.
As the Treasury Department and the Department of Housing and Urban
Development (HUD) met with a variety of mortgage market participants and nonprofit credit counselors in the late summer and early fall of 2007, it became clear
that while many market participants were working diligently on their own trying to
reach and help homeowners, it was inadequate given the scale and pace of
pending resets.
On October 10, HOPE NOW was formed as an alliance among counselors,
servicers, investors, and other mortgage market participants to maximize outreach
efforts to at-risk homeowners and help them remain in their homes. The Alliance
grew and today servicers participating in HOPE NOW comprise over 94 percent of
the subprime mortgage loan market. Since its formation, ASF has been a true
leader in HOPE NOW, ensuring that securitization market participants - especially
investors - were helping craft solutions that would help homeowners without
undermining the flow of capital.
On December 6, President Bush announced a new private-sector framework to
streamline the process for modifying and refinancing subprime mortgages for
eligible homeowners. These new industry guidelines, issued by your organization,
created an efficient process for identifying borrowers who qualify for refinancing or
for loan modifications. This, in turn, would free up resources and allow mortgage
servicers to focus on those borrowers who require more in-depth analysis. It is now
up to the industry, including the people in this room today, to help put this plan into
action.
Early Progress: August 30th vs. Today
Early results of these efforts are coming in and we are encouraged by the progress
being made.
On August 30, before the President's plan was in place,' there was no widelypromoted national contact point for foreclosure prevention counseling. Today,
HOPE NOW has adopted the Hope hotline (888-995-HOPE) as a centralized
source of foreclosure counseling. HOPE NOW has expanded the capacity of the
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HOPE hotline so that it can sustain the increased call volume from nationwide
outreach efforts. Since August, they have added hundreds of trained counselors
who are ready and able to help borrowers who reach out through the hotline.
In August, the hotline was receiving an average of 625 phone calls a day. Today,
the HOPE hotline is receiving 4,000 new phone calls a day, a five fold increase.
In August, funding for hotline counselors came from government and foundation
sources only - the traditional sources of counselor support. Today, servicers and
investors now reimburse HOPE holline counselors $100 for every counseling
session completed. This is an important step toward maintaining a sustainable
funding model.
In August, there was no coordinated outreach effort to contact at-risk borrowers.
Today, HOPE NOW members are reaching out to all at-risk borrowers and offering
help through both mortgage servicers and non-profit credit counselors. A direct mail
campaign began in November to contact all borrowers who are 60 days or more
delinquent on their loans with no prior servicer contact. This letter informs them that
help is available.
In the first two months, HOPE NOW and its members have mailed 483,000 letters
to delinquent homeowners. After receiving these letters an estimated 77,000
borrowers called for help - again none of these borrowers had previously spoken to
their servicer or responded to attempts to contact them.
In August, before the President's plan was in place, only some servicers were
contacting borrowers early to alert them of a reset in their interest rates. Today, all
HOPE NOW servicers are contacting all subprime mortgage borrowers at least 120
days prior to their mortgage reset. This will allow for early identification of borrowers
who will have challenges - greatly increasing their options for help.
In August, before the President's plan was in place, the Federal Housing
Administration (FHA) had limited flexibility to help families who had already run into
trouble stay in their homes. Today, a new program - FHASecure - is in place
offering refinancing options to homeowners who were making payments on time
prior to an interest rate reset but have missed payments because of the reset.
Since August, the FHA has helped over 75,000 families and it is estimated that
about 100,000 more applications are in the pipeline.
In August, state housing agencies were authorized to issue tax-exempt bonds to
fund housing purchases for only first-time homeowners. Today, the Administration
has proposed not only to expand significantly the cap on bond issuance by $15
billion over three years, but also to allow these tax-exempt bonds to fund
refinancings of existing homeowners.
In August, before the President's plan was in place, when servicers helped
borrowers by writing down loan principal, homeowners owed taxes on that writedown. Today, after the Congress passed the Administration's mortgage forgiveness
proposal, homeowners will avoid roughly $200 million a year in taxes that would
have otherwise been due from principal forgiveness for the next three years.
In August, servicers seeking to address the upcoming wave of hybrid adjustablerate mortgage resets and considering possible loan modifications were forced to
deal with borrowers in a time-consuming, costly, case-by-case process. Today, as
HOPE NOW servicers have begun to adopt the ASF's fast-track modification
framework, the industry is able to act quickly in modifying the loans of those
borrowers who faithfully have paid their mortgage but will not be able to afford the
rate reset or qualify for refinancing. In doing so, not only are servicers now able to
help many more borrowers much more quickly, but also are able to maximize cash
flows for investors. This also frees up valuable time and resources for servicers to
help other borrowers on a case-by-case basis.
As we have already noted, President Bush and Secretary Paulson are anxiously
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awaiting results of the ASF fast-track framework for subprime loan modifications.
Even before the framework was announced, the rate of modifications began to
climb. In the fourth quarter, after the launch of HOPE NOW, the rate of subprime
loan modifications tripled from the rate in the third quarter. We expect your industry
to hold to its commitment to help more homeowners, faster, by using the ASF
framework, and we look forward to seeing the measurements of your success.
Conclusion
Despite many signs of economic strength, high energy prices, contracting credit
conditions and the housing downturn pose headwinds to the economy. We accept
the reality that a housing correction was in order; however our public policy goal is
to limit the negative impact of that correction.
Meeting this goal will require continued help from your industry. By working to keep
at-risk borrowers in their homes, we can help minimize the negative externalities
caused by foreclosures. When a person is delinquent on his or her credit card
payment that only affects the borrower and the lender, but when one loses a home
to foreclosure, it impacts neighborhoods, communities and eventually the broader
economy.
Our policy response is focused on aVOiding preventable foreclosures. Among the
tools we have enlisted are some preexisting programs, such as the Federal
Housing Administration. But we are also looking to new, innovative tools, such as
the ASF framework.
Early data indicate that progress is being made, but your industry must move even
faster. Each additional day it takes to fully implement these tools, including the ASF
framework, we are missing homeowners who could have been helped. We are
monitoring servicers closely and expect all to report results of their efforts into
HOPE NOW on a monthly basis.
Let me again express my appreciation for the strong leadership ASF has taken in
working with their members and with the public sector to develop tools to help
mitigate current challenges. These issues are complex and we will continue to learn
as we move forward. We will look for additional tools to help prevent avoidable
foreclosures.
Thank you. I will now take a few questions.
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p-809: Opening Statemont hy Seudary Henry M. Paulson, Jr.<br>On the President's Fiscal Year 2009 .. , Page I of 2
February 6, 2008
hp-809
Opening Statement by Secretary Henry M. Paulson, Jr.
On the President's Fiscal Year 2009 Budget
Before United States Senate Budget Committee
Washington, DC-- Chairman Conrad, Senator Gregg, Members of the Committee:
I am pleased to be here to discuss the President's budget for fiscal year 2009. As
Treasury Secretary, my highest priority is a strong U.S. economy that will benefit
our workers, our families and our businesses. Through a measured approach that
balances our nation's needs with our nation's resources, the President's budget
supports that priority.
This is especially important now as, after years of unsustainable home price
appreCiation, the U.S. economy undergoes a significant and necessary housing
correction. This correction, combined with high energy prices and capital market
turmoil, caused economic growth to slow rather markedly at the end of 2007.
The U.S. economy is diverse and resilient, and our long-term fundamentals are
healthy. I believe our economy will continue to grow, although at a slower pace than
we have seen in recent years.
Yet, the risks are clearly to the downside and President Bush knows that economic
security is of the utmost importance to the American people. In recent weeks, the
potential benefits of quick action to support our economy became clear, and the
potential costs of doing nothing too great.
So, we are gratified that Congress is advancing a growth package to support our
economy as we weather the housing correction. We believe that a growth package
must be enacted quickly; it must be robust, temporary, and broad-based, and it
must get money into our economy quickly.
The Senate has begun to consider its version of this bill, and I am hopeful that it will
complete consideration soon.
If we keep moving along a fast track, and Congress sends the President a bill that
meets our shared principles, rebate payments can start in May and be completed
this summer. Together, the payments to individuals and the investment incentives
for business will help create more than half a million jobs by the end of this year.
In addition to an economic growth plan to help us weather this housing correction,
the Administration will continue to focus on aggressive action to try to provide
alternative options to foreclosures. That includes encouraging the HOPE NOW
alliance's outreach to struggling homeowners. Congress can do its part by finalizing
the FHA modernization and GSE regulatory reform bills and by passing legislation
that will allow states to issue tax-exempt bonds for innovative refinancing programs.
We continue to monitor capital markets closely and to advocate strong market
discipline and robust risk management. Working through the current stress is our
first concern. Through the President's Working Group on Financial Markets, we are
also reviewing underlying policy issues because it is just as important to get the
long-term policy right.
While we are in a difficult transition period as markets reassess and re-price risk, I
have great confidence in our markets. They have recovered from similar stressful
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periods in the past, and they will again.
The Administration will also continue to press for long-term economic policies that
are in our country's best interest - a pro-growth tax system, entitlement reform and
a balanced budget. To that end, the President's budget makes the 2001 and 2003
tax relief permanent, and keeps the federal budget on track for a surplus in 2012.
In the future, as in the past, our long-term economic growth will also be enhanced
by supporting international trade, by opening world markets to U.S. goods and
services and by keeping our markets open. Congress can help create jobs and
economic opportunity by passing the pending Free Trade Agreements with
Colombia, Panama and South Korea.
I appreciate the cooperative and bipartisan spirit that has brought the Congress and
the Administration together to support our economy, and look forward to that spirit
continuing as we work through this period. Thank you.
-30-
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P-8l0: Under Secret:!ry Steel Remarks on U.S. Financial Regulation
Page 1 of 6
February 7, 2008
HP-810
Under Secretary Steel Remarks on U.S. Financial Regulation
New York City - Thank you for your kind introduction. It is a privilege to be here
among so many distinguished speakers and guests.
I have a great deal of respect for the New York Society of Securities Analysts. For
over 70 years your organization has been a key player in financial markets,
affecting trends and helping shape the investment industry. There is no doubt that
securities analysts playa vital role in our capital markets, and the innovative and
experienced leadership of NYSSA members is an important reason why.
The NYSSA has also served an important role in educating and informing
investment professionals through countless seminars and forums such as this.
Given current market conditions, this educational role is more important now than
ever. Your organization can play crucial role in key areas like investor awareness of
risk.
Let me congratulate you on organizing an especially timely conference. Your
program today is excellent and you are focused on the right set of issues. Topics
like hedge funds, GSEs and rating agencies are topics we think about every day at
the Treasury Department. You have an exciting day in front of you.
My remarks this morning will focus on Treasury's work on a new regulatory
blueprint for U.S. financial services regulation. I will begin by giving a bit of
perspective about financial regulation and U.S. competitiveness in the global capital
markets. I will then discuss challenges with our current regulatory system, and what
principles we at the Treasury believe are essential to include in a modernized
regulatory framework. I will conclude with some brief comments on current
conditions in the markets and the broader economy.
Capital Markets Competitiveness
Maintaining and enhancing the competitiveness of U.S. capital markets has been
one of Secretary Paulson's primary goals since arriving at the Treasury.
Our markets are the strongest in the world, but maintaining this leadership requires
having the confidence to continually self-assess our position and when appropriate,
make changes or adjustments. Secretary Paulson's capital markets
competitiveness initiative is about using recent trends like globalization as an
opportunity to leverage our competitiveness and bring even greater benefits to our
economy and citizens.
Secretary Paulson kicked off these efforts in the fall of 2006 in here New York with
a speech which served to frame the issues. After that address, an enriching period
of public discourse followed, highlighted by the release of four separate and
independent reports: one from Mayor Bloomberg and Senator Schumer, one from
the U.S. Chamber of Commerce, one from the Financial Services Roundtable and
one from a highly-regarded study group called the Committee on Capital Markets
Competitiveness.
Last spring, Secretary Paulson hosted a conference on capital markets
competitiveness at Georgetown University. We heard from key policymakers,
consumer advocates, business representatives and academics, each with different
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1P-81O: Under Sf'.cretary Steel Remurks on L' .S. Financial Regulation
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perspectives on ways to keep U.S. capital markets the strongest and most
innovative in the world.
Following that conference, Secretary Paulson announced a series of initiatives
aimed at maintaining the competitiveness of U.S. markets. In June, Secretary
Paulson announced that Treasury would publish a "regulatory blueprint study," that
will consider ways to rationalize the current regulatory structure in an effort to
maintain a dynamic U.S. market for financial services while improving oversight.
Limitations of our Current Structure
If we were starting from scratch, no one would choose to design today's system.
Nor is it a system we would design in order to ensure that the United States
remains the global leader in financial services.
Our current regulatory framework has been largely knit together over the last 75
years - with act on top of act, initiative on top of initiative - each a reaction to
various crises or innovations in the financial services industry. Today we have a
series of individual regulations, each designed in response to specific
circumstances and lacking an overarching set of guiding principles. Our system has
multiple federal and state regulators with unclear and sometimes overlapping
boundaries.
Let me provide some more specific examples of the limitations of our current
regulatory system, and how these affect depository institutions, securities and
futures markets and the insurance industry.
Within our existing regulatory structure, the regulation of depository institutions may
choose from one of three federal charters or a state charter. For institutions that are
subject to federal oversight, there are five distinct regulators, which have primary
regulatory responsibility based on various characteristics of the institution and its
membership within the Federal Reserve System. Sound oversight and consumer
protections should not be a matter of choice.
Given multiple regulators with overlapping responsibility in many cases, il is difficult
to ensure that standards are consistently applied across all types of depository
institutions. This system also exposes us to the potential for "regulatory arbitrage."
If a company perceives a discrepancy between two jurisdictions, it might go
'regulator shopping' to find the friendliest regime in which to do business.
Furthermore, no single regulator is able to take an overarching perspective and
observe the broader market. This limits regulators' ability to detect trends or early
warning signs across financial markets. The flip side of this argument is that
multiple charters encourage regulatory competition, which can lead to more
effective regulation.
Securities and futures markets have a different structure, one where regulation is
determined on a product basis. Here jurisdiction between the Securities and
Exchange Commission and the Commodity Futures Trading Commission over
products is determined by whether a product falls within the definition of a "security"
under the federal securities laws or a "future" under futures law.
But markets do not respect the historic distinctions between securities and futures.
In recent years we have seen not only substantial product convergence within these
two markets, but also convergence among market participants - investors,
intermediaries and trading platforms.
Finally, within the insurance industry we encounter yet a third regulatory framework,
one that is managed almost exclusively by the states. Within this market, insurers
must be licensed with the states - there is no federal charter available. Although the
state commissioners created the National Association of Insurance Commissioners
more than 135 years ago to assist with the monitoring, administration and
coordination of insurance regulation, actual regulatory authority is still vested in the
individual states.
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P-810: Under Secret:.l.ry Steel
R~mill
ks on U.S. Financial Regulation
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As a result, both the compliance process and the approval of structures or pricing
within the insurance industry are inconsistent. Furthermore, with a network of over
fifty separate regulators there is no single regulator with a comprehensive view of
the insurance market. There is also no single national regulator to address
international insurance issues.
Recent challenges within the mortgage market highlight the risks of this regulatory
patchwork and the vital need for a modernized regulatory structure. Yet using the
mortgage market as an example, the overlapping layers of regulation for national
banks, savings association, thrift holding companies, bank holding companies,
state-chartered mortgage finance companies and other institutions highlight the
challenges that regulators face not only as they respond to a crisis, but also in their
everyday work. However, let me be clear: our regulatory framework did not cause
these market disruptions - they were created by other forces, as I will discuss in bit.
Goals of Regulation
When undertaking the task of writing a new regulatory blueprint, it is important to
first articulate what the philosophy and goals of financial regulation should be - who
should be protected, which participants should be regulated, and how should that
regulation be developed and applied.
As I have discussed before, markets serve as a bridge, connecting suppliers of
capital wilh users of capital. They connect those who have resources 10 invest with
those who could use this capital to turn ideas into new businesses or expand
existing businesses, thereby generating jobs and contributing to a growing
economy.
Considering the goals of regulation in this context, we are reminded that the most
effective bridges allow participants and their capital to cross from one side to the
other with as little friction as possible. Effective bridges facilitate a safe, open, and
transparent flow of information.
An effective bridge must also be built on a sound, predictable foundation, and it
must have strong pillars of investor and consumer protection, market integrity and
risk mitigation.
We must recognize that not all participants travel at the same speed on this bridge
and so a continuum of protection in this open-market environment is appropriate. At
one end, retail consumers might need government-sponsored insurance to protect
their savings or the confidence to know that they are not disadvantaged when
dealing with a more experienced market participant. At the other end of this
continuum we find large, sophisticated investors who understand market risks and
do not need the same regulatory protections as they interact with peer
organizations. Treasury is creating a blueprint with this understanding, to give the
consumers and institutions on differing sides of the continuum the appropriate
protections.
As we in the Treasury Department develop a blueprint for a more optimal regulatory
structure, we must balance policies that allow for efficient movement of capital while
also promoting a safe and stable environment. A regulatory structure that meets all
of these conditions will invite capital by inspiring confidence among market
participants.
Toward a Modernized Regulatory Approach
We need a new, modernized approach to regulation - one that is risk-based,
globally oriented and flexible in scope.
As we progress with our analysis, we are guided and comforted by the fact that
other countries have conducted similar exercises as how to best regulate financial
market activity in the modem era.
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For example, as you well know, the United Kingdom closely analyzed its regulatory
structure just over a decade ago and made fundamental changes such as
separating bank supervision and mO,netary policy and consolidating financial
services supervision from nine regulatory bodies to a single regulator. The tripartite,
comprised of the Financial Services Authority, the Bank of England and Her
Majesty's Treasury, operates under a memorandum of understanding which
delineates areas of responsibility, supports the exchange of information, and
identifies roles in a financial or operational crisis.
Issues related to the collapse of Northern Rock have raised some concerns about
how the revamped regulatory structure in United Kingdom performed in a crisis. In
particular, issues associated with information and coordination agreements
between government agencies, as well as the role of the Bank of England in bank
supervision will likely be re-evaluated. Also fundamental issues, such as the nature
of the deposit insurance regime in the United Kingdom have also been noted as
contributing to the recent problems with Northern Rock.
There are other macro-level regulatory structures from which we can learn, such as
the "Twin Peaks" model adopted in Australia and the Netherlands. In general the
"Twin Peaks" focuses on regulation by objective, which results in the establishment
of two distinct regulatory bodies - one responsible for prudential financial regulation
of entities where such regulation is necessary, and one responsible for conduct of
business regulation related to financial products being offered to consumers and
investors.
Many in the United States view these alternative approaches around the world as
opportunities to learn about how our regulatory system might be enhanced. Some
of the overarching reasons for looking at alternative structures is a better balance
between principles and rules, and a better analysis of benefits and burdens of
regulation. Of course, an optimal construct should balance both rules and
principles.
We believe that regulation should be guided by principles at an overarching level.
But in many cases some type of rules-based regulation is necessary. In particular,
regulation at the retail level will require some focus on rules, particularly to protect
less sophisticated market partiCipants. Too often, however, discussions about ideal
regulatory philosophy and structure have been reduced to a black and white debate
of rules versus principles. This oversimplification undermines the complexity of
these issues, and is not constructive.
Similarly, calls for a cost-benefit analysis are easy to articulate but difficult to
implement. Of course, we reject calling for regulation just for regulation's sake, but
costs are often easy to estimate, while benefits are less so. Many, I fear, use costbenefit analysis as a blunt proxy to mask a general reservation about new
regulations. While neither view is completely correct, a better, more disciplined view
of evaluating the costs and benefits of regulation is important.
The issues surrounding rules versus principles or cost-benefit analysis are not
unique to a particular regulatory structure. In addition to considering these types of
overarching regulatory issues, our focus in developing the regulatory blueprint is to
look broadly at long-term issues associated with the underlying structure of our
regulatory system.
Regulatory Blueprint
To begin mapping out a plan for modernizing our regulatory structure, the Treasury
Department has been working to examine the issues that I have discussed with you
today in order to propose a more efficient structure while improving regulatory
oversight.
This work has not proceeded in a vacuum; instead public input has been very
important to our work. Following an October request for public comment in the
Federal Register, the Treasury Department received hundreds of thoughtful and
enlightening comments covering a wide range of topics associated with the
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regulation of securities and futures firms, depository instiutions and insurance firms.
While our work is still ongoing and no final decisions have been made, we expect to
release our regulatory blueprint within the first quarter of this year. One aspect of
the blueprint is to propose some broad ideas for an optimal regulatory structure to
match the ever changing nature of the financial services industry. You should not
be surprised to hear that this optimal structure will be different from our current
structure. This will be a newly-designed model for the U.S financial services
industry that should meet the needs of today and be flexible enough to address
issues that might come tomorrow. In developing this model, we are focusing on the
key aspects of regulating financial institutions: prudential regulation for safety and
soundness; consumer and investor protection regulations; and overall market
stability regulation.
Of course, we recognize that there are many difficulties in obtaining wholesale
changes to the current regulatory structure. There are many political and parochial
concerns and some market participants are hesitant and generally opposed to
change. We recognize this fact. Therefore, our report will also recommend some
less conceptual ideas that we believe will serve as intermediate steps to put us on
the path towards the optimal structure of financial services regulation.
The success of this initiative will not and should not be tied to just short-term
accomplishments. Some of the recommendations will be immediately relevant to
legislative and regulatory policy issues. On these matters, our hope is that the
Treasury Department's report will spur near-term tangible results. Implementation
of other, longer-term recommendations will be subject to outside factors but will be
ready should support for these reforms develop. Finally, our hope is that some of
the recommendations will shape future debates regarding regulatory structure
issues.
Market Conditions
In conclusion, lei me comment briefly on current conditions in the markets since
that is something on all of our minds these days.
It is clear that challenges in the markets are having significant consequences. What
began as a credit issue last summer, raised questions about market liquidity in the
autumn, and today is causing uncertainty about the economy.
The flow of liquidity that fueled a boom in borrowing and leverage across asset
classes - from mortgages to leveraged buyouts - has now been reduced. Shorlterm funding markets were stressed and inter-bank funding spreads rose to
unprecedented levels. Mortgage origination and other asset securitization dropped
markedly, adding to the challenges in the housing sector. Given the
interconnectedness of our capital markets, other stresses emerged as financial
institutions grappled with valuing assets and balance sheets came under pressure.
Of course, housing has been at the center of all these challenges. Housing
corrections take time and we are currently experiencing a period of adjustment in
the housing sector of our economy. After years of unsustainable home price
appreciation and relaxed lending practices, a housing correction was inevitable and
necessary.
Our economy is resilient and fundamentally strong, but the housing correction,
credit market turmoil, and high oil prices are weighing on growth this year and
short-term risks are to the downside. We at Treasury expect that our economy will
continue to grow over the coming year, but at a slower rate than we have enjoyed
for the past few years.
However, there is the risk of a downturn. And to address this short-term challenge,
President Bush announced a bipartisan agreement with House of Representatives
on a growth package to bolster the economy this year. The proposal will provide
about $150 billion of tax relief for the economy, leading to the creation of over half a
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lP-810: Under Secret3ry Steel Remarks on U.S. Financial Regulation
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million additional jobs by the end of this year. The Administration and the American
people await action in the Senate to produce a targeted package to send to the
President. By passing this economic growth agreement quickly, we can protect the
strength of our economy as we weather the housing downturn and other
challenges.
Conclusion
Thank you for the opportunity to discuss our regulatory blueprint today.
Opportunities to share our perspective with important market participants like you
are always appreciated. We will look forward to keeping you informed as we near
final recommendations.
If you have the time, it would be my pleasure to take a few questions.
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p-811: Visit By
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Zelaya of Honduras
February 7, 2008
HP-811
Visit By President Zelaya of Honduras
Washington, DC--Secretary Paulson will welcome President Manuel Zelaya of
Honduras to the U.S. Treasury Department on Thursday, February 7, 2008. They
will discuss Honduras' progress in the implementation of the country's development
strategy and relationships with international financial institutions, as well as the
impact of CAFTA-OR.
-30-
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P-812: Statement by Secretat'Y Hemy M. Paulson, Jr.<br>on the President's Fiscal Year 2009 Budget<... Page 1 of 2
February 7, 2008
HP-812
Statement by Secretary Henry M. Paulson, Jr.
on the President's Fiscal Year 2009 Budget
before the House Committee on Ways and Means
Washington, DC-- Chairman Rangel, Congressman McCrery, Members of the
Committee: I am pleased to be here to discuss the President's budget for fiscal year
2009. As Treasury Secretary, my highest priority is a strong U.S. economy that will
benefit our workers, our families and our businesses. Through a measured
approach that balances our nation's needs with our nation's resources, the
President's budget supports that priority.
This is especially important now as, after years of unsustainable home price
appreciation, the U.S. economy undergoes a significant and necessary housing
correction. This correction, combined with high energy prices and capital market
turmoil, caused economic growth to slow rather markedly at the end of 2007.
The U.S. economy is diverse and resilient, and our long-term fundamentals are
healthy. I believe our economy will continue to grow, although at a slower pace than
we have seen in recent years.
Yet, the risks are clearly to the downside and President Bush knows that economic
security is of the utmost importance to the American people. In recent weeks, the
potential benefits of Quick action to support our economy became clear, and the
potential costs of doing nothing too great.
So, we are gratified that Congress is advancing a growth package to support our
economy as we weather the housing correction. We believe that a growth package
must be enacted quickly; it must be robust, temporary, and broad-based, and it
must get money into our economy quickly.
The House has passed legislation that meets these principles.
If we keep moving along a fast track, and Congress sends the President a bill that
meets our shared principles, rebate payments can start in May and be completed
this summer. Together, the payments to individuals and the investment incentives
for business will help create more than half a million jobs by the end of this year.
In addition to an economic growth plan to help us weather this housing correction,
the Administration will continue to focus on aggressive action to try to provide
alternative options to foreclosures. That includes encouraging the HOPE NOW
alliance's outreach to struggling homeowners. Congress can do its part by finalizing
the FHA modernization and GSE regulatory reform bills and by passing legislation
that will allow states to issue tax-exempt bonds for innovative refinancing programs.
We continue to monitor capital markets closely and to advocate strong market
discipline and robust risk management. Working through the current stress is our
first concern. Through the President's Working Group on Financial Markets, we are
also reviewing underlying policy issues because it is just as important to get the
long-term policy right.
While we are in a difficult transition period as markets reassess and re-price risk, I
have great confidence in our markets. They have recovered from similar stressful
periods in the past, and they will again.
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The Administration will also continue to press for long-term economic policies that
are in our country's best interest - a pro-growth tax system, entitlement reform and
a balanced budget. To that end, the President's budget makes the 2001 and 2003
tax relief permanent, and keeps the federal budget on track for a surplus in 2012.
In the future, as in the past, our long-term economic growth will also be enhanced
by supporting international trade, by opening world markets to U.S. goods and
services and by keeping our markets open. Congress can help create jobs and
economic opportunity by passing the pending Free Trade Agreements with
Colombia, Panama and South Korea.
I appreciate the cooperative and bipartisan spirit that has brought the Congress and
the Administration together to support our economy, and look forward to that spirit
continuing as we work through this period. Thank you.
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rP-813: Assistant Secrotory Daviu G. Nason<br>Testimony on Reforming GSE Regulation <br>Before ... Page 1 of 5
February 7, 2008
HP-813
Assistant Secretary David G. Nason
Testimony on Reforming GSE Regulation
Before the Senate Committee on Banking, Housing and Urban Affairs
Washington - Chairman Dodd, Ranking Member Shelby, and Members of the
Committee, thank you for inviting me to appear before you today. I very much
appreciate the opportunity to present the Treasury Department's perspective on
regulatory reform for our nation's housing government sponsored enterprises
(GSEs): Fannie Mae, Freddie Mac, and the Federal Home Loan Banks
(FHLBanks).
Overview of Housing and Mortgage Market Activity
The U.S. economy is diverse and resilient, and our long-term fundamentals are
healthy. Yet, economic growth has slowed and the risks are clearly to the downside
given current conditions in the housing, credit, and energy markets. Issues related
to housing and credit markets bring us directly to the topic of today's hearing.
This Committee is very well aware that the housing and mortgage markets are
going through a transition period that is exerting stress on homeowners. The
current housing downturn comes after eight years of exceptional housing price
appreciation and the housing market is likely to remain weak well into this year and
potentially beyond 2008.
A vitally important aspect of working through the current transition in the housing
market is ensuring that mortgage credit remains available for both home purchase
and refinance transactions. On August 31,2007, President Bush announced a
series of efforts to help mitigate challenges in the housing market. Last week,
Under Secretary Steel appeared before this Committee to outline our progress to
date and to describe our ongoing efforts to help reduce the number of preventable
foreclosures. We appreciate the work and cooperation of the Congress in this area
and ask that the Congress pass Federal Housing Administration (FHA)
modernization as soon as possible in order to increase opportunities for
homeowners to refinance into more sustainable mortgage products.
The Administration also recognizes that the GSEs have played an important role in
making credit available to current and prospective homeowners. Since year-end
2006, Fannie Mae and Freddie Mac have increased their outstanding mortgagebacked securities (MBS) by over $600 billion. In addition, outstanding advances of
the FHLBank System increased by $184 billion in the third quarter alone, providing
additional liquidity and a source of funding to support the lending activities of
insured depository institutions and other FHLBank members.
The Time for Regulatory Reform of the Housing GSEs is Now
A key element of the housing GSEs' public purpose is to enhance liquidity in the
mortgage market. If we expect the housing GSEs to perform that mission, we must
demand that they have a regulatory structure that is appropriate for the importance
of the mission and the risk that it entails. It is the Treasury Department's view, and it
appears to be generally recognized, that the housing GSEs' regulators have neither
the tools, nor the resources, to deal effectively with the current size, complexity, and
overall importance of these enterprises.
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We acknowledge and commend the housing GSEs for adding some degree of
stability to the current mortgage market. Of course, they have had their own
problems in recent years and are not immune to problems that are currently
plaguing the mortgage market.
The well documented accounting and corporate governance problems that
emerged first at Freddie Mac in 2003 then later at Fannie Mae in 2004 raised
fundamental questions about the risk management practices at both companies. In
response to these issues, the Office of Federal Housing Enterprise Oversight
(OFHEO) has entered into supervisory consent agreements with the boards of
directors at Fannie Mae and Freddie Mac. These supervisory agreements, which
were consummated in December 2003 for Freddie Mac and in September 2004 for
Fannie Mae, require the enterprises among other things to improve their internal
controls and risk-management operations. While Fannie Mae and Freddie Mac
have made substantial progress in addressing these issues, as of December 27,
2007, OFHEO still had supervisory concerns about the internal control and
operational weaknesses at both enterprises.
In addition, the FHLBanks were not immune to similar risk management issues, as
the regulatory actions associated with problems at the FHLBank of Chicago and the
FHLBank of Seattle illustrated. The severity of the problems in the case of the
FHLBank of Chicago is evident as diSCUSSions are underway regarding a potential
merger with the FHLBank of Dallas. This would be the first merger within the
FHLBank System since 1946, when the FHLBanks of Los Angeles and Portland
were merged to create the FHLBank of San Francisco.
More recently, much like other financial institutions involved in mortgage finance,
Fannie Mae and Freddie Mac have experiencod various levels of stress in the
current mortgage environment. For example, in the third quarter of 2007, Fannie
Mae and Freddie Mac reported losses of $1.5 billion and $2.1 billion, respectively.
Furthermore, in the fourth quarter of 2007, Fannie Mae and Freddie Mac raised
preferred equity capital in the amount of $7.9 and $6.5 billion, respectively. These
recent increases in equity capital help to keep the enterprises above their regulatory
capital minimums in what has been, and what many expect will continue to be, a
difficult operating environment in the near-term for entities in the mortgage market.
All of these factors point to a clear and urgent need for completing housing GSE
regulatory reform, and we thank this Committee for taking this important step
toward this goal. The Treasury Department's core objectives for housing GSE
regulatory reform are: (1) the need for a sound and resilient financial system, and
(2) increased homeownership opportunities for less-advantaged Americans. It is
paramount that the housing GSEs properly manage and supervise the risks they
undertake and that a strong regulator oversee their operations. Otherwise their
solvency could be threatened and this could have a negative impact on the stability
of other financial institutions and the overall strength of our economy.
Necessary Powers for Financial Regulation
Throughout the debate on housing GSE regulatory reform, the Treasury
Department's focus has been on ensuring that the new regulator has all of the
powers, authority, and stature required to perform its mandated function. In this
regard, the new regulator's powers should be comparable in scope and force to
those of our nation's other financial institution regulators.
In terms of comparable powers, we must ensure that the new housing GSE
regulatory agency is not encumbered by the current restrictions that are placed on
OFHEO. Many of the following key elements of housing GSE regulatory reform
have been debated in recent years:
.C.f)p.itf3lB(Jqt!irf1.m~nt$
- Under current law, the minimum capital
requirements for the housing GSEs are fixed in statute, and the risk-based
capital requirement for Fannie Mae and Freddie Mac is based on a highlyprescribed stress test that is set forth in statute. These limitations are
inconsistent with the ability of other financial regulators to set both minimum
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and risk-based capital requirements. The new housing GSE regulatory
agency must have the authority to set both minimum and risk-based capital
requirements.
• B~Qf:liJtJJ.[~l]ip{~9.n$t:l.r.vc.H9.[~tJip. - Under current law, OFHEO has the
authority to place Fannie Mae or Freddie Mac into conservatorship but not
into receivership. Should such circumstances arise, the new housing GSE
regulatory agency must have more than the powers associated with
conservatorship. In particular, the new regulatory agency must have all the
receivership authority that is necessary to direct the liquidation of assets
and otherwise direct an orderly wind down of an enterprise. The new
regulatory agency must also be required to take mandatory receivership
actions under certain circumstances. Such receivership authority can be
established in full recognition that the Congress has retained to itself, in the
case of Fannie Mae and Freddie Mac, the power to revoke a charter.
Providing the new regulatory agency the ability to complete an orderly wind
down of a troubled regulated entity also encourages greater market
discipline by clarifying that investors may suffer losses. Enhanced market
discipline is essential to promoting safe and sound operations, which is
consistent with maintaining the GSEs' role in our housing finance system
and protecting our broader financial system from problems at a GSE.
• fY.~Wj~p1LvltyApp[Qv?L?f)q.Mi$§JQf]Q\!Jlf§igf]t - Under current law, the
Department of Housing and Urban Development (HUD) is responsible for
approving new programs, setting housing goals, and overall mission
oversight of Fannie Mae and Freddie Mac. The authority for approving new
activities of Fannie Mae and Freddie Mac and ensuring compliance with
their mission must be transferred from HUD and combined with the other
supervisory/enforcement powers of the new housing GSE regUlatory
agency. This authority is consistent with availability of one of the central
tools that every effective financial regulator has - the ability to say "no" to
new activities that are inconsistent with the charter of the regulated
institutions, with their prudential operation, or with the public interest.
• ~Qlbt:Jr AWJ.fJ.t;I§QLEof]~f]9.t:Jg~;1LLthQfity - Housing GSE reform legislation also
should include additional measures in order to provide the new regulator
with authorities comparable to other U.S. financial institution regulators.
Such enhancements should ensure that the GSE regulatory agency has: (1)
independent funding outside of the appropriations process; (2) independent
litigating authority and other related powers; and (3) the full set of regulatory
and enforcement tools.
• Government-ApPointed Directors - The Federal government should not be
involved in the appointment of directors to the boards of Fannie Mae,
Freddie Mac, and the FHLBanks. Consistent with long-standing prinCiples of
corporate governance, directors of the housing GSEs have a fiduciary
responsibility to shareholders. The government appointment of directors
does not change this fiduciary responsibility, but does give the impression
that the government may have a say or influence in the operation of the
housing GSEs. That is not the case, and this should be corrected to improve
corporate governance and to clarify further that the housing GSEs are not
backed by the Federal government.
.~QmQjaLf)g1/J.£tBfJgld.lgtQ[yjJ.LlthQritY9.L.tf]Jl.H.QI!~!ngG$E$ - The FHLBanks
are regulated by the Federal Housing Finance Board. The FHLBanks should
be placed under the same regulator with Fannie Mae and Freddie Mac, and
this new regulatory regime should be structured to take into account certain
special differences between the FHLBanks and the other GSEs. This would
enhance the critical mass of financial expertise needed to oversee the
GSEs. At the same time there are many common synergies, such as the
FHLBanks' investments in mortgages and MBS, and the mortgage
investments of the other housing GSEs. In addition, combining regulatory
authority over all of the housing GSEs under one regulator has the potential
to increase the stature of the new agency and better enable it to deal with
these large and influential companies.
The housing GSE regulatory reform bill passed by the House of Representatives
(H.R. 1427) addresses many of these aforementioned core reform issues in an
adequate manner. However, additional elements of reform are necessary to
address the GSEs' particular characteristics.
Additional Key Elements of Housing GSE Regulatory Reform
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In addition to addressing the fundamental shortcomings in the current GSE
regulatory structure, it is just as important that the new regulator have the
appropriate authority to consider the unique characteristics of the GSEs and their
housing missions. The housing GSEs were created to accomplish a mission, and
they were provided a certain set of statutory benefits to help in carrying out that
mission.
For example, in terms of specific benefits, the housing GSEs are not subject to
state or local taxation and they have access to a line of credit with the Treasury
Department. Fannie Mae and Freddie Mac each have a $2.25 billion line and the
FHLBank System has $4 billion line, which pales in comparison to the size of their
debt obligations -$770 billion each for Fannie Mae and Freddie Mac and $1.1
trillion for the FHLBank System as of September 30, 2007.
The GSEs also benefit from the market's misperception that the U.S. Government
guarantees or stands behind GSE obligations. This misperception, unfortunately,
results in preferential funding rates being provided to the GSEs. There are differing
views on the precise amount of this benefit, but there is general agreement that the
benefit exists. It is this benefit and a lack of effective market discipline that largely
drove the rapid expansion of the retained mortgage portfolios of Fannie Mae and
Freddie Mac throughout the 1990s.
Fannie Mae and Freddie Mac operate in the secondary mortgage market by
providing credit guarantees on mortgage-backed securities (MBS) or by directly
investing in mortgages and mortgage-related securities through their retained
mortgage portfolios.
In the credit guarantee business, Fannie Mae and Freddie Mac generally enter into
swap agreements with mortgage lenders under which individual mortgages are
transformed into MBS guaranteed by the GSEs. Fannie Mae and Freddie Mac also
have the ability to purchase mortgages and package them into MBS.
In the mortgage investment business, Fannie Mae and Freddie Mac issue debt
securities to fund an investment portfolio of mortgage-related securities. In
comparison to the credit guarantee business where credit risk is the main exposure,
the mortgage investment business involves both credit and interest rate risk. As has
been evident during the recent problems in the mortgage market, liquidity in the
conforming mortgage market has remained relatively stable. This has occurred
primarily through the GSEs' credit guarantee function and increased levels of
mortgage securitization as the size of their retained mortgage portfolios essentially
has remained unchanged since 2005. While credit risk has been increasing and
should not be taken lightly, especially in the current mortgage market environment,
the Treasury Department continues to believe that the mortgage investment
businesses of Fannie Mae and Freddie Mac present the greatest potential risks
over the long-run. At the same time, the mortgage investment business has a much
more tenuous connection to the GSEs' housing mission.
As the Treasury Department has noted previously, the combination of three key
features of Fannie Mae's and Freddie Mac's retained mortgage portfolios warrant
the attention of policymakers: (1) the size of the retained mortgage portfoliOS of
Fannie Mae and Freddie Mac - $1.4 trillion as of year-end 2007; (2) the lack of
effective market discipline; and (3) the interconnectivity between the GSEs'
mortgage investment activities and the other key players in our nation's financial
system, both insured depository institutions and derivative counterparties. The
combination of these three factors causes the GSEs to present the potential for
systemic risk to our financial system and the global economy.
The idea that the GSEs have unique characteristics that could create tensions or
potential problems is not an ideological or partisan view. Policymakers have been
struggling with the inherent tension and the potential problems posed by the GSEs
for decades. In fact, a Treasury Department official stated in testimony a few years
ago, "[a]s the GSEs continue to grow and to play an increasingly central role in the
capital markets, issues of potential systemic risk and market competition become
more relevan!." That statement was not from a member of the Bush Administration
Treasury Department, but rather from testimony delivered in March of 2000 by the
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then Under Secretary Gensler of the Clinton Administration Treasury Department.
As we further consider authorities of the new GSE regulator, to address the longrun issues posed by their retained mortgage portfolios, the new housing GSE
regulatory agency must be provided specific review authority over the retained
mortgage portfolios of Fannie Mae and Freddie Mac. Such authority must establish
a clear and transparent process based on guidance from the Congress on how the
new regulatory agency will evaluate the retained mortgage portfolios in terms of risk
and consistency with mission. While the broader risk issues related to the
FHLBanks are less than those that are present with Fannie Mae and Freddie Mac,
a review of the investment portfolioS of the FHLBanks for mission consistency also
would be appropriate.
Conclusion
In conclusion, we at the Treasury Department remain convinced that a new
regulatory structure for the housing GSEs is essential if these entities are to
continue to perform their public mission successfully. We look forward to continuing
to work with you on this important issue. Thank you.
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lP-814: PrepalJd Statement by
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M. Guevara, <br>Nominee for United States Alternate <br>Executi... Page 1 of 2
February 7, 2008
HP-814
Prepared Statement by Ana M. Guevara,
Nominee for United States Alternate
Executive Director of the International Bank
for Reconstruction and Development, Before
the Senate Committee on Foreign Relations
Mr. Chairman and Members of the committee, I am grateful for the opportunity to
appear before you today. I am honored to have been nominated to serve as U.S.
Alternate Executive Director at the International Bank for Reconstruction and
Development. President Bush said in his State of the Union Address that America is
leading the fight against global poverty, hunger and disease; and that "America is a
force for hope in the world because we are a compassionate people". I share this
belief. And as compassionate people with a unique leadership role in the World
Bank, the United States must engender strong partnerships to ensure programs
meant to eradicate poverty and create inclusive economic growth are not
squandered by corruption and mismanagement.
If confirmed, I will have the great privilege and responsibility to represent the United
States at the World Bank. I look forward to the opportunity to work with Treasury
Secretary Paulson and others in our government - as well as with our partners at
the World Bank - to improve its effectiveness and impact. Catalyzing prosperity in
the developing world and post-conflict countries is not just a moral imperative. It
helps create local stability and peace. And it creates new markets for American
entrepreneurs. Our prosperity and security is tied to those whom we endeavor to
help.
For the past two decades, whether as a businesswoman or government official, I
have gained extensive experience forging strong partnerships and formal
agreements with governments and international institutions in Asia and Latin
America. If confirmed, I will apply these skills to build coalitions that will foster broad
support for U.S. priorities with member countries of the World Bank. My
professional life has focused on increasing trade and developing economic
competitiveness, whether by opening new markets or providing capacity building for
modern supply chains, customs procedures and cultural and heritage tourism or by
protecting U.S. companies from unfair and corrupt practices oversees, or even by
promoting venture capital and entrepreneurism. I have also served as ex-officio
board member of the Export Import Bank, worked with the board of the Oversees
Private Investment Corporation and overseen the Department of Commerce's
participation in the Interagency Working Group on Multilateral Aid.
The most gratifying experience of my professional life, however, has been the
community education projects in Mexico, China, Poland, Ukraine, and rural America
that I was fortunate to be involved with while in the private sector. In Mexico I
developed a 1D-year educational development program where I learned first hand
about the many challenges in implementing a results oriented project. It allowed me
to see how given the right tools, proper food and nutrition, warm clothes - and a
little hope and encouragement - that even the poorest child facing the greatest
odds can flourish, exceeding his or her own expectations and transforming a
community's quality of life and more importantly, quality of spirit. In working with the
community projects, I also learned how corruption can hurt these programs and the
people they are meant to help when I was forced to turn away one of the
communities under consideration because I was not convinced local officials would
enforce proper fiduciary controls for project funds.
Mr. Chairman, if confirmed I will use the combination of my experience with the
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private sector, public sector and community service to build support for U.S.
priorities such as anti-corruption, governance and accountability, transparency, debt
sustain ability, environmental safeguards, and to improve results. J will seek to help
developing countries capitalize on the benefits of globalization and trade, and to
promote inclusive and sustainable prosperity through private sector development in
these countries.
Thank you, Mr. Chairman. I would be pleased to answer the committee's questions.
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[1)-815: Statem.:mt by Secretary Paulson on Senate Passage of the Economic Grmvth Package
Page 1 of 1
February 7,2008
HP-815
Statement by Secretary Paulson on Senate Passage of the Economic Growth
Package
"I congratulate the Senate leaders for their quick action to pass a bipartisan
economic growth package that is temporary, broad-based, and will get money into
our economy quickly. This package of payments to individuals and incentives for
businesses to invest will support our economy as we weather the housing
downturn.
"It was a pleasure to work in a bipartisan spirit with House and Senate leaders to
act quickly to support our economy and create jobs this year. Our cooperative
effort demonstrates to the nation and the world that we can come together to
address the needs of the American people.
"As soon as this legislation is passed by both houses, the IRS will begin its work to
get payments out to more than 130 million Americans. The IRS will manage the
current tax filing season and simultaneously prepare to issue these additional
payments starting in early May. Payments will be largely completed this summer,
putting cash in the hands of millions of Americans at a time when our economy is
experiencing slower growth."
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p-816: Deputy Secretary Kimlliitl Remarks As Prepared For Delivery<br>On The Challenge From Iran... Page 1 of 6
February 8, 2008
hp-816
Deputy Secretary Kimmitt Remarks As Prepared For Delivery
On The Challenge From Iran And The American Response
Before The Anti-Defamation League National Executive Committee Meeting
Palm Beach, Fla. - Thank you, Tony Schneider, for that kind introduction. Hearing
my work history always makes me wonder if the audience wishes the organizers
had found a speaker who did not have so much trouble holding a job!
For over 30 years, it has been my honor and pleasure to work with the AntiDefamation League. The pursuit of your vital mission with diligence and vigilance
was important when we met; it is important today; and it will remain important for
generations to come.
It has been my particular pleasure to work with individuals the quality of Abe
Foxman, Jess Hordes, and Ken Bialkin. Jess, like Ken Bialkin, is a consummate
professional, very buttoned down, with a great smile and firm handshake. Abe is
equally professional, also has a great smile, but, as this group well knows,
whenever Abe sees you, you better be ready not for a firm handshake but rather a
bear hug!
My relationship with the Anti-Defamation League continued during my tour as
American Ambassador to Germany. I am reminded of the counsell received from
my predecessor, Ambassador Vernon Walters, who told me: "Don't ever forget how
important speeches are to the Germans. They like to give speeches, listen to
speeches, and analyze speeches far more than is the case in the United States."
He recounted a story of speaking once to a distinguished group like the one
assembled here today. He spoke in his excellent German for 40 minutes and sat
down, rather pleased with himself, only to have the host of the event stand and say,
"Mr. Ambassador, thank you so much for your remarks. If you ever have time for a
real speech, please come back to see us again." Well, if 40 minutes is when a "real
speech" starts, my allotted 20 minutes only leaves me time today for "remarks." But
I hope these remarks and the question period to follow will give you new insights
into the work your Treasury Department is doing to stop the flow of illicit finance to
Iran and other state sponsors of terror and proliferation.
The U.S. Economy, Credit Markets, and Housing Markets
Before turning to Treasury's growing role in protecting our Nation's security,
including countering the challenge from Iran, let me say a few words about the state
of the U.S. economy - an issue always at the forefront of Treasury's agenda, and
one that was a key topic of interest at the World Economic Forum in Davos, which I
attended last month.
As the President said last week in his State of the Union address, U.S. economic
fundamentals are sound, and the economy is expected to continue to grow. At the
same time, growth has clearly slowed; real GOP growth slipped to 0.6 percent at an
annual rate in the fourth quarter last year. The U.S. economy is facing significant
headwinds from housing, credit markets, and energy prices.
The correction we are experiencing in the housing market remains formidable,
coming as it does after years of rapid, unsustainable home price appreciation.
Housing starts have fallen over 50 percent from their peak, and, nationwide, home
prices are roughly flat over the past year.
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Some of the incoming economic data are raising concerns about the health of our
expansion, including reports that consumer spending is slowing. Also, while over 8
million jobs have been created since August 2003, including over 1 million just in
the past year, January saw the first decline in payrolls in over 4 years, with payroll
employment dropping by 17,000.
Therefore, while we are confjdent about our long-term economic strength, there are
downside risks to near-term growth. For this reason, the Administration has worked
closely with Congress to reach a bipartisan agreement on a short-term economic
growth package that can be put in place as soon as possible to keep our economy
growing and creating jobs this year.
After much hard work with the House and Senate, the Administration has reached
final agreement on a package that is temporary, broad-based, and will have an
impact immediately. The House led this important bipartisan effort by passing its bill
on January 29th, and it included measures to bolster business investment and
consumer spending - both of which are critical to economic growth. Last night, the
Senate passed an amended version of the bill, and the House quickly approved,
clearing the measure for the President's Signature in the coming days.
The experience of the 2001 and 2003 tax cuts showed that providing tax relief to
families stimulated the broader economy by boosting household spending.
Furthermore, offering incentives to spur business investment will encourage
businesses to expand and create new jobs. By quickly putting in place this shortterm package, we can protect the strength of our economy as we weather the
housing correction.
The Administration is also continuing to promote initiatives to minimize the impact of
the housing market downturn. In the short term, we are focusing on the number of
preventable foreclosures we can avoid. And we have made progress. The HOPE
NOW alliance, a private-sector coalition of mortgage servicers, mortgage
counselors, investors, and trade associations, has announced promising
developments by stepping up the rate at which they are modifying subprime
mortgages to stave off foreclosures. In fact, mortgage servicers modified subprime
loans in the fourth quarter at a rate three times faster than in the preceding quarter.
But much more needs to be done, on a bipartisan basis, to ensure that we avoid a
recurrence of excesses and abuses by addressing the underlying causes of today's
turbulence.
In short, to be effective managers of the U.S. economy, we need to be forthright
about the challenges we face, find bipartisan solutions where government action is
warranted, and look to market partiCipants also to play their very important role.
Iranian Threat and Deception
I am reminded of the importance of good economic management when I look half
way around the world at Iran, where the regime's economic mismanagement has
led to deteriorating living standards for the Iranian people:
Both unemployment and inflation rates in Iran are on the rise, with independent
experts estimating the unemployment rate to be roughly twice the 11 percent
claimed by the regime.
In the face of staggering inflation, Iran's President ordered the Central Bank to cut
interest rates far below the inflation rate and then fired his central bank governor for
questioning this irresponsible decision.
Iran is rife with corruption, as the Iranian regime grants profitable "no-bid" contracts
to the Islamic Revolutionary Guard Corps, whose leadership has been sanctioned
by the UN Security Council.
Finally, the regime is spending the profits of the country's ?iI re~e~ue rese:ve fund
in an attempt to hide the effects of these reckless economic poliCies, at a time when
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the fund should be growing to benefit the future of the Iranian people.
These conditions have led to growing dissatisfaction among the Iranian people.
Rather than working to correct the worsening economic situation, however, the
Iranian regime has instead focused its efforts on silencing critics and using its
resources to pursue dangerous and destabilizing activities.
Over the past 30 years, my work has focused largely on national security issues,
and one of the most challenging concerns I have encountered is the threat we face
from Iran. From the Iranian regime's facilitation of millions of dollars to deadly
terrorist organizations to its pursuit of a nuclear capability and ballistic missiles, Iran
poses a threat to the security of the United States, Europe, and the Middle East.
But perhaps the greatest threat is to our strongest ally in the region: the State of
Israel.
Iran has ignored repeated calls from the International Atomic Energy Agency (IAEA)
and the UN Security Council to suspend its nuclear enrichment and reprocessing
activities and to comply with its obligations under the Nuclear Non-Proliferation
Treaty. Just this past Monday, Iran launched a research rocket and unveiled its first
major space center. This rocket technology could have a dual-use purpose serving
as a possible cover for further development of ballistic missiles of increasing range
and sophistication in violation of UN Security Council Resolutions. Given Iran's
record of deceptive behavior in pursuing proliferation activities, this launch serves
as a reminder of the need for continued action as well as vigilance in dealing with
Iran.
Iran's role in supporting international terrorism is also of serious concern. The
regime spends hundreds of millions of dollars each year to fund terrorist groups.
Iran uses its Oods Force, a branch of the Islamic Revolutionary Guard Corps, to
provide material support for terrorist organizations. Those groups include the
Taliban, the Palestinian Islamic Jihad, Hamas, the Popular Front for the Liberation
of Palestine-General Command, and Hizballah - an organization that has killed
more Americans than any terrorist network except for al Qaida. In the case of the
Palestinian Islamic Jihad, Iran's financial support has been made expressly
contingent upon the group carrying out attacks against Israel. And we are all
familiar with Iran's funding and equipping of elements of the insurgency in Iraq,
further destabilizing that country and resulting in the deaths of American and Iraqi
forces and innocent civilians.
Iran's long-time integration into the international financial and commercial systems
has aided the regime in supporting and carrying out its dangerous activities. The
Iranian regime disguises its involvement in proliferation and terrorism activities
through an array of deceptive practices specifically designed to evade detection
from the international community. We have seen entities associated with Iran's
nuclear and missile programs utilize an extensive network of front companies to
conceal the true ownership of funds and end-use of commercial goods. Teheran
also uses financial intermediaries to engage in ostensibly innocent commercial
transactions that are actually related to its WMD programs. These front companies
and intermediaries enable the regime to obtain dual-use technology and materials
from countries that would typically prohibit such exports to Iran.
These deceptive practices are specifically designed to evade the risk-management
controls put in place by responsible financial institutions and have allowed actions
by Iranian banks to remain undetected as they move funds through the international
financial system to pay for the Iranian regime'S illicit activities.
Iran uses its state-owned banks to facilitate this conduct, and those banks engage
in a range of deceptive practices. For example, some have requested that other
financial institutions take their names off transaction documents when processing
them globally. This practice, which makes it difficult, if not impossible, to determine
the true parties in the transaction, is even used by Bank Markazi, Iran's Central
Bank.
Iranian state-owned banks provide financial services to Iranian entities that have
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)-816: Deputy Secretary
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been sanctioned by the UN Security Council. Bank Melli, Iran's largest bank, has
provided a range of financial services on behalf of Iran's nuclear and missile
industries, including opening letters of credit and maintaining accounts. In addition,
Bank Melli facilitated transactions for Bank Sepah and the Iranian Defense
Industries Organization after they were both sanctioned by the United Nations.
Another Iranian state-owned bank, Bank Saderat, has channeled funds to terrorist
groups. Between 2001 and 2006, Bank Saderat moved $50 million from the Central
Bank of Iran through its subsidiary in London to its branch in Beirut to the benefit of
Hizballah front organizations in Lebanon that support acts of violence.
The Financial Strategy on Iran and our Multilateral Efforts
The Treasury Department is playing an integral role in the Administration's Iran
strategy. The financial component of the Iran strategy is aimed at highlighting the
reckless and threatening conduct of the Iranian regime, deterring Teheran's
dangerous activities through the use of targeted financial measures, and preventing
the regime's abuse and manipulation of the international financial system.
Over the past two years, senior Treasury Department officials, including Secretary
Henry Paulson, Under Secretary Stuart Levey, and I have met with our finance
ministry and central bank counterparts from around the world to discuss the
importance of ensuring that the international financial system is not tainted or
harmed by Iran's abuse. In December, I traveled again to the Middle East, including
Israel, to advance our efforts. We have also engaged in unprecedented outreach to
the international private sector, meeting with over 40 banks around the world to
share information and discuss the inherent risks of doing business with Iran. Our
message is clear: when dealing with Iran, it is impossible to "know your customer,"
which any reputable bank knows is a fundamental responsibility for protecting its
business and reputation.
Most importantly, we have backed up our words of caution with concrete action.
Since 2006, the U.S. government has targeted key Iranian entities of proliferation
concern, including the Islamic Revolutionary Guard Corps, the Ministry of Defense,
and Armed Forces Logistics, as well as three Iranian state-owned banks - Banks
Sepah, Melli, and Mellat. The United States has also designated the IRGC Oods
Force and Bank Saderat for their role in facilitating Iran's support to terrorist groups.
These measures not only prevent U.S. persons from doing business with these
targeted persons and require any of their assets subject to U.S. jurisdiction to be
frozen, but also highlight to the global financial community these actors' dangerous
conduct.
Of all these measures, the U.S. designation of Iranian banks has proven particularly
Significant, as they signal to the private sector that Iran is using its state-owned
banking network to facilitate proliferation-related activities and to finance terrorism.
Bank Sepah, in particular, has not only been deSignated by the United States, but
also by the UN - a historic move - thereby obligating the international community to
freeze the assets of this institution along with all other listed entities and individuals.
We urge countries to implement fully their UN obligations against Bank Sepah, and
we are working to ensure that the international community will continue to act
against other Iranian financial institutions facilitating illicit proliferation activity.
Our financial enforcement efforts have come a long way from the sanctions
measures we have applied to threats in the past. The U.S. Government has been
implementing sanctions with respect to Iran for some time, and we have come to
learn that the most effective measures meet the following criteria:
They are carefully targeted at illicit conduct;
They are multilateral in scope; and
They are combined with private sector and foreign government outreach
While in the past our broad-based country sanctions have been criticized by some
as an inappropriate extension of U.S. law, these new targeted efforts serve to
engage our allies, rather than confront them. As a result, a greater number of
international partners who share our objective of stopping Iran from acquiring a
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I
nuclear capability have joined our efforts. Sanctions have the most comprehensive
impact when applied cooperatively and collectively.
The combination of Treasury's financial sanctions authorities and the State
Department's intensive diplomatic efforts have served to catalyze international
action, resulting in two unanimous United Nations Security Council Resolutions
targeting Iran's pursuit of nuclear capabilities and ballistic missiles. Negotiations on
a third resolution are currently underway. Member states are required to freeze the
assets of, and prohibit persons from doing business with, a number of entities and
individuals supporting these activities.
Additionally, last October, the world's premier standard-setting body on countering
money laundering and terrorist financing - the Financial Action Task Force, or
FATF - issued a public statement confirming the extraordinary systemic risks that
Iran poses to the global financial system. Further, the FATF issued guidance to
assist countries in implementing the financial provisions of the UN resolutions on
Iran. That guidance identified customers and transactions associated with Iran as
representing a significant risk of involvement in proliferation finance.
Challenges Facing the Administration
U.S. and international measures are having an impact, but it is clear that much
more work remains to be done if we are to compel the Iranian regime to change its
behavior. With years of experience under its belt, Iran has become very savvy at
using deceptive practices to trick its partners into thinking transactions are for
commercial uses, when in reality they are intended to support their proliferation
activities.
Over many years, the United States has developed a robust and flexible set of tools
that can be adapted easily to combat new and emerging challenges. While we have
the power to impose targeted economic sanctions against threats to our national
security through strong domestic authorities - namely the International Emergency
Economic Powers Act - many of our allies and partners lack the necessary
flexibility to take the types of action that we have taken. The development of similar
tools by our international partners is necessary if we are to maintain a
comprehensive and multilateral coalition against the threats of terrorism and
proliferation.
An additional challenge lies in foreign government-sponsored trade finance
programs, which effectively subsidize companies willing to take on the risk of
dealing with Iran. While there will always be a company or bank willing to take on a
risky business venture at some price, we have asked our foreign partners to
consider whether governments should be subsidizing this risk in the form of export
credit programs that only serve to reinforce the very activity we are trying to stop.
The good news is that we have seen a decrease in export credits from countries
such as Germany, France, and Japan, and as more countries realize the inherent
risk associated with doing business in Iran, we expect to see a continued downward
trend.
National Intelligence Estimate
In recent months, some have questioned the immediacy of the threat posed by Iran
in light of the release of the National Inte"igence Estimate, which concluded that
Iran halted its nuclear weapon design and weaponization work in 2003. Let me
make clear: Iran remains a serious threat, a threat that needs to be countered.
Indeed, rather than dismiss Iran's illicit conduct, the NIE affirms Iran's continued
enrichment of uranium and its simultaneous pursuit of ballistic missile delivery
capabilities. This dangerous combination remains a cause for real concern and
warrants continued action by the United States and the world community.
The NIE also verifies the effectiveness of diplomacy, and we have found financial
pressure to be the central factor in the overall diplomatic effort. The United States
and our allies have worked to build an international alliance, effectuated through UN
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and other actions, condemning Iran's continued defiance of the international
community. We know from the NIE that Iran watches carefully and responds to this
international pressure.
We have also seen the isolating effect that financial pressure has had on the
Iranian regime, with more and more members of the global community working
together to counter the threats posed by Iran. Iranian state-owned banks, in
particular, are finding themselves increasingly isolated, threatening the viability of
their foreign-based branches and subsidiaries. We will continue to work with our
international partners in both the public and private sectors to implement the United
Nations Security Council resolutions, pursue additional multilateral steps, share
information, and protect the international financial system from deceptive conduct
and abuse. The National Intelligence Estimate should spur, not deter, additional
international action.
Conclusion
Treasury has an important role to play in protecting our national security by
ensuring that our financial system is not only safe and sound, but also secure from
exploitation by illicit actors. The use of targeted financial measures against Iran is
just one way we have used these tools. In recent months, the United States
Government has also demonstrated the agility and adaptability of targeted financial
measures to address other threats to international peace and security, including the
flow of foreign fighters and weapons into Iraq, continued attempts by Syria to
reassert control over the Lebanese political system, and the atrocities committed in
Darfur.
Treasury's engagement in these issues also helps ensure that we take a
comprehensive view of the security challenges we face - that we examine them not
only from military and political perspectives, but from an economic perspective as
well.
Looking forward, I see a world in which economiC issues will play an even more
prominent role in our nation's security, and Treasury will continue to integrate its
activities even closer with other national security departments. We will also continue
to engage our international partners on issues of mutual concern, since it is clear
that sanctions, and especially targeted financial measures, will always be more
effective when done on a multilateral basis. Nowhere is this multilateral action more
important today, and in the future, than in our common effort and responsibility to
deter Iran's threat to the security of Israel, the Middle East, and the world.
Thank you again for your kind invitation and may God bless you all and your
families. At this time, I would like to open the floor to questions.
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February 9, 2008
HP-817
Statement by Treasury Secretary Henry M. Paulson, Jr.
Following Meeting of G-7 Finance Ministers and Central Bank Governors
Tokyo Japan - I was very pleased to travel to Tokyo for today's meeting of G-?
Finance Ministers and Central Bank Governors. This meeting took place amid
slowing global growth and downside risks facing the G-7 economies in large part
stemming from recent financial market turbulence. Today's meeting gave us the
opportunity to discuss policy responses to these downside risks as well as the
need to craft effective policy and regulatory responses that institute sounder
frameworks beUer able to withstand risks and stresses.
I am confident in the long-term health of the United States economy and I expect
that it will continue to grow in 2008. The housing correction, high energy prices,
and capital market turmoil have combined to weigh on near-term growth. Indeed,
growth slowed markedly at the end of 2007. Given the short-term downside risks,
we clearly needed to act. The President called for a growth package that would
have a real impact on our economy and just before I left Washington, Congress
passed legislation that meets the President's principles for an effective growth
package. We believe the package will provide a much-needed boost this year. It
was a sincere pleasure to work in a bipartisan spirit on this package and
demonstrate that the government is capable of coming together to work in the best
interests of the American people.
We are also working directly on the housing market, pursuing efforts through a
private sector alliance and with Congress to avoid preventable foreclosures.
The longer-term global economic outlook would also be significantly enhanced if the
recent progress in the Doha round could be translated rapidly into the substantial
lowering of tariffs and other barriers to trade. We encourage all parties to seize this
opportunity, especially in the area of financial services, and other services sectors,
and make additional efforts now to secure economic gains and combat protectionist
pressures.
We discussed the impact of elevated oil prices on our economies. We encouraged
increased oil production from OPEC and others and underscored the need to
increase refinery capacity and improve energy efficiency.
The current financial turmoil is serious and persisting. While financial markets are
improving, it will take time to work through the current financial turmoil. As the
financial markets recover from this period of stress, as of course they will, we
should expect continued volatility as risk is repriced.
Market participants have taken encouraging steps to address the financial turmoil.
Since August, financial institutions have disclosed and written off more than $150
billion of assets, and U.S. financial institutions have raised more than $95 billion in
new capital. Past episodes of financial turmoil have demonstrated that recognizing
losses and restoring capital are two of the very most important steps toward
restoring financial normalcy.
At our last meeting in October, G-7 Finance Ministers and Centr~1 Bank Governors
asked the Financial Stability Forum (FSF) to analyze the underlYing causes of the
turbulence and offer proposals in such areas as risk management, the accounting
and valuation of structured products, the role and use of credit ratings in structured
http://wwwtreas.gov/presslreleases/hp817.lttm
3/412008
rp.817: Staterrlent by TreuGury Secretary Henry M. Paulson, Jr.<br>Following Meeting of G-7 Finance... Page 2 of 3
finance, and prudential oversight of regulated financial entities. Today, FSF Chair
Mario Draghi briefed us on the FSF's interim findings on the supervisory framework
and oversight; the underpinnings of the originate-to-distribute model; the uses and
role of credit rating agencies; market transparency; supervisory and regulatory
responsiveness to risks; and the authorities' ability to respond to crises. I want to
personally thank Mario Draghi for his excellent report and commend him for his
leadership.
The FSF Report focuses on the causes of the turmoil and some of the systemic
weaknesses that allowed the turbulence to spread throughout the global financial
system. It identifies many financial market practices and supervisory and regulatory
policies that merit our attention. The areas cited in the interim report closely track
those also being discussed by the President's Working Group on Financial Markets,
and I was able to brief my colleagues on that work.
One of the lessons of this current market turmoil is the increasing need for frequent
communication and close coordination during times of stress and in formulating the
appropriate policy responses to manage the likelihood of recurrence of the same
problems.
As financial officials, we need to respond resolutely and proactively to the turmoil.
Indeed, the work in the FSF and PWG is emblematic of that, as are the steps the
U.S. is taking to support our economy, prevent foreclosures, and strengthen
consumer protection. But the questions raised are complex and require real
answers that stand the test of time. I look forward to the FSF's report in April and I
underscored the important role that global standard setting bodies will play in
expeditiously tackling many of the issues that have been identified.
We also discussed the need for our countries to remain open to foreign investment.
I reiterated the open investment policy of the United States and explained that this
commitment to open investment also frames our approach to protecting national
security through the Committee on Foreign Investment in the United States. I
emphasized that all countries undergoing investment review processes, including
those in the G-7, should focus on genuine national security concerns and not
broader economic and national interests.
Sovereign Wealth Funds (SWFs) have recently received considerable attention. It
is important that we approach these policy issues surrounding SWFs in a
measured, reasoned, and multilateral manner while remaining vigilant against
protectionist sentiment raised in the international financial system. We strongly
supported IMF Managing Director Strauss-Kahn's efforts to identify best practices
for SWFs.
We are resolved to continue our work in the OECD to identify best practices for the
inward investment regimes of countries that receive government-controlled
investment, including from SWFs.
We had a useful discussion on IMF reform. I stressed the need for firm
implementation of the IMF's new framework for exchange rate surveillance and
underscored that fundamental reform of the IMF's governance structure is needed
to reflect the rising importance of dynamic emerging markets. Regarding the Fund's
medium-term financing picture, I emphasized that serious consolidation of
expenditures, along the lines put forward by Managing Director Strauss-Kahn, must
be pursued in tandem with consideration of new income sources.
I was pleased to join my colleagues from the UK and Japan in underscoring our
commitment to the creation of an international clean technology fund. In the State
of the Union address, President Bush announced he is committing $2 billion over
the next three years to the fund. The fund would help finance clean energy projects
in the developing world by financing the gap between traditional and more
expensive clean technology. We envision that the fund will leverage the resources
of bilateral donors, multilateral development institutions, and the private sector.
We look forward to working with other countries to help ensure the fund's success.
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rP-817: Statement by Treasury SCCletary Henry M. Paulson, lr.<br>Following Meeting of G-7 Finance... Page 3 of 3
We reaffirmed our commitment to vigorously counter money laundering. terrorist
and proliferation financing in order to promote economic development and
safeguard the integrity of the global financial system. We remain particularly
concerned about the risks of illicit finance emanating from Iran. We strongly
support the public actions of the Financial Action Task Force (FATF) to protect the
international financial system from these risks. and agreed that FATF should
continue to take such measures. We also agreed that FATF should continue to
apply its expertise in providing guidance to assist states in implementing their
financial obligations under U.N. Security Council resolutions to combat WMD
proliferation. We strongly support the continued cooperation of the IMF and World
Bank with the FATF to combat money laundering and terrorist financing worldwide.
-30-
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3/4/2008
r- 818 : Statement of G-7 PinulIL:e MinIsters and Central Bank Governors
Page 1 of 3
..••- PAES.S ROOM
"
"
February g, 2008
hp-818
Statement of G-7 Finance Ministers and Central Bank Governors
Tokyo, Japan - We, Finance Ministers and Central Bank Governors of the G-7
countries, met today to discuss issues facing the world economy. The world
confronts a more challenging and uncertain environment than when we met in last
October, though its fundamentals as a whole remain solid. In the United States,
output and employment growth have slowed considerably and risks have become
more skewed to the downside, but long-term fundamentals remain sound and we
expect growth to continue in 2008. In all our economies, to varying degrees, growth
is expected to slow somewhat in the short-term, reflecting wider global economic
and financial developments. Emerging market economies (EMEs) are forecast to
continue robust, if slower, growth. We note that downside risks still persist, which
include further deterioration of the U.S. residential housing markets; tighter credit
conditions from prolonged difficulties in the financial markets; high oil and
commodity prices; and heightened inflation expectations in some countries. Each of
us has taken actions, appropriate to our domestic circumstances, in the areas of
liquidity provision, monetary policy, and fiscal policy. We also remain committed to
strengthening our efforts to enhance growth through necessary reforms. Going
forward, we will continue to watch developments closely and will continue to take
appropriate actions, individually and collectively, in order to secure stability and
growth in our economies,
We are deeply engaged in working together to strengthen financial stability, limit the
impact of the financial turmoil and address the factors that contributed to it. Coordinated liquidity provision by Central Banks has helped mitigate short-term
pressures in the money markets. Financial institutions' recognition and full and
prompt disclosure of their losses, based on appropriate valuation, accompanied,
where necessary, by measures to reinforce their capital base, play an important
role in reducing uncertainty, improving confidence, and restoring the normal
functioning of the markets. We urge this process to continue. Authorities should
encourage market-led improvements in transparency and disclosure practices in
this area, and, where needed, provide clear and consistent guidance.
In October, we asked the Financial Stability Forum (FSF) to analyse the underlying
causes of the recent turbulence and put forward relevant actions and initiatives in a
number of areas. We welcome its interim report and the good progress that has
been made, and look forward to its final report in April. We will act expeditiously on
its recommendations. Among the issues that have to be addressed, we emphasise,
in particular,
•
the importance of promoting prompt and full disclosure by financial
institutions of their losses and of valuation of structured products;
• strengthening management of liquidity risks at financial institutions by
accelerating the development of an internationally consistent approach by
the Basel Committee on Banking Supervision;
• improving the understanding and disclosure of banks' and other financial
institutions' exposure to off-balance sheet vehicles;
• enhancing underpinnings of the originate-to-distribute model by ensuring an
appropriate incentive structure comes into play;
• addressing potential conflicts of interest at credit rating agencies, and
improving the information content of ratings to increase investors'
awareness of the risks associated with structured products; and
• implementing the Basel II capital adequacy framework to enhance
transparency and risk management.
http://www.treas.g0v/presslreleaseslhp818.htm
3/4/2008
~-818:
Staterrlent of G 7 Finance Ministers and Central Bank Governors
Page 2 of 3
In addition, authorities should review, as necessary, their mandates, coordination
mechanisms, and instruments to ensure measured and flexible responses to
market stress, including arrangements for dealing with weak and failing financial
institutions, both domestically and cross-border. We ask the IMF and the FSF to
report at o~r next m~~~ing on identifying potential vulnerabilities and enhancing
early warnmg capabilities. We stand ready to take any further action necessary to
enhance stability in the financial market and to ensure that international integration
of financial markets and financial innovation continue to bring about benefits to the
world economy.
We reaffirm that exchange rates should reflect economic fundamentals. Excess
volatility and disorderly movements in exchange rates are undesirable for economic
growth. We continue to monitor exchange markets closely, and cooperate as
appropriate. We welcome China's decision to increase the flexibility of its currency,
but in view of its rising current account surplus and domestic inflation, we
encourage accelerated appreciation of its effective exchange rate.
Elevated oil prices largely reflect rising world demand, but other elements such as
geopolitical concerns also play the role. We encourage OPEC and other oilproducing countries to raise production, and reiterate the need to enhance refinery
capacity and improve energy efficiency. It should be avoided to artificially lower
domestic energy prices through fiscal measures, as it works against market-based
adjustment of energy demand, and raises gas emissions. We asked the IMF to
conduct further research on the real and financial factors behind the recent surge in
oil prices, and its effects on the global economy. Upholding open trade and
investment regimes is critical to realising global prosperity and fighting
protectionism. We highlight the urgent need for a successful conclusion of the Doha
Development Round that will substantially lower tariffs and other barriers to trade,
including in the financial and other services sectors. We look forward to the
outcome of the work under way at the IMF to identify best practices for sovereign
wealth funds (SWFs) in such areas as institutional structure, risk management,
transparency and accountability. We also encourage the OECD to build on its
important work by identifying investment policy best practices for countries that
receive cross-border investment from SWFs. We welcome the work by private
sector representatives to develop strengthened voluntary best practices for Highly
Leveraged Institutions in line with the FSF recommendations. We will continue to
explore the issue of mutual recognition of comparable securities regimes, and how
this can enhance international investment flows.
We discussed IMF reforms. We reaffirm our support for the recent IMF surveillance
decision on exchange rate, financial sector, fiscal and monetary policy, and urge its
rigorous and even-handed implementation. We support the recent proposal by the
Managing Director to re-focus the IMF's operations on core priorities and to cut
spending by $100 million over three years. To fill the remaining gap, we are
prepared to take measures to augment income, considering proposals in the
Crockett report. We emphasised the importance of better aligning quota share of
member countries with their relative position in the world economy based on a
simpler and more transparent formula. We reaffirmed our commitment to
concluding the quota and voice reform by the Spring IMFC meeting. A successful
conclusion is a critical step in enhancing legitimacy and effectiveness of the IMF.
We discussed the importance of the unified action to address global climate change
while supporting growth and economic development, based on the Bali Action Plan
of December 2007. We will seek to enhance the critical roles played by international
financial institutions and the private sector in reducing greenhouse gas emissions.
Market based policies, which could include taxes and emission trading, will become
increasingly important in combating climate change. They should be designed to
meet specific conditions in each country. We also acknowledged the need to scale
up investment in developing countries to support them in joining international efforts
to address climate change. The deployment of clean technologies would be further
enhanced through the reduction or elimination of trade barriers for key
environmental goods and services. We also discussed the initiative by Japan, the
United Kingdom and the United States to create, in collaboration with the World
Bank and others, a strategic multilateral investment framework to address climate
change. This would include, among other things, a fund that complements existing
bilateral and multilateral efforts in providing financial support for the deployment of
http://www.treas.gov/presslreleases/hp818.1.tm
3/412008
n-818: Statement of G 7 Finance Ministers and Central Bank Governors
Page 3 of 3
clean technologies in developing countries_
We welcome the recent robust growth experienced by many African economies and
are committed to working together with African countries to maintain and strengthen
this favorable momentum. We reiterated the need to foster private-sector led growth
in developing countries in order to achieve the MDGs. To that end, we agreed that it
is important to continue supporting African countries in improving investment
climate, fostering private enterprises, strengthening financial systems, and building
reliable infrastructure.
We reaffirmed that enhanced actions to ensure debt suslainability should be carried
forward. We reviewed actions to tackle aggressive litigation against Heavily
Indebted Poor Countries (HIPCs). We support improvements to the World Bank's
Debt Reduction Facility, including through the earlier provisions of technical
assistance. We took note of proposals for establishing a legal support facility for
HIPCs. We welcome the agreement reached by the OECD Export Credit Group on
the Principles and Guidelines on sustainable lending to low-income countries and
the interest shown by non-OECD members in this agreement. Building on our
existing commitment on development and debt relief, we welcome agreement on
the financing of debt relief for Liberia.
We encourage the IMF and World Bank to continue their important work in the fight
against money laundering and terrorist financing. We look forward to meeting with
other FATF Ministers in April to renew the mandate of the Financial Action Task
Force (FATF) to address threats posed by weapons of mass destruction
proliferation finance, enhance its surveillance of global threats, and deepen its
dialogue with the private sector. We call upon FATF to continue to take measures
to protect the international financial system from the risk of illicit finance including
ensuring enhanced scrutiny of transactions involving Iran.
-30-
http://www.treas~govJpresslreleases!hp818.htm
3/4/2008
Page 1 of 5
February 11 , 2008
2008-2-11-15-32-44-3810
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, u.s.
reserve assets totaled $71,234 million as of the end of that week, compared to $72,220 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
II
I
IIFebruary 8, 2008
I
IA. Official reserve assets (in US millions unless otherwise specified)
IIEuro
IIYen
IITotal
II
11 71 ,234
I(a) Securities
II
11 14 ,488
11 11 ,940
lot which: issuer headquartered in reporting country but located abroad
II
II
1126 ,428
11 0
I(b) total currency and deposits with:
II
1(1) Foreign currency reserves (in convertible foreign currencies)
II
II
11 5 ,854
11 20 ,156
Iii) banks headquartered in the reporting country
II
110
lof which: located abroad
II
I(iii) banks headquartered outside the reporting country
II
110
11 0
II
110
I(i) other national central banks, BIS and IMF
14,302
lof which: located in the reporting country
1(2) IMF reserve position
11 4,177
1(3) SDRs
11 9 ,432
[(4) gold (including gold deposits and, if appropriate, gold swapped)
11 11 ,041
[.-volume in millions of fine troy ounces
11 261.499
~5) other reserve assets (speCify)
I
I
I
I
I
0
I--financial derivatives
t-Ioans to nonbank nonresidents
[other
~, Other foreign currency assets (specify)
[securities not included in official reserve assets
[depOSits not included in official reserve assets
[loans not included in official reserve assets
Dnancial derivatives not included in official reserve assets
-·gold not included in official reserve assets
[other
JI
II
II
II
II. Predetermined short.term net drains on foreign currency assets (nominal value)
http://www.treas.gGvJpresslreleaseSI200g2]11532443810.htm
3/412008
Page 2 of 5
II
[
[
II
II
[
Total
I
More than 3
More than 1 and months and up to
up to 3 months
1 year
Up to 1 month
[ 1. Foreign currency loans, securities, and deposits
I-·outflows (-)
IIPrincipal
I
II Interest
I--inflows (+)
IIprincipal
I
II Interest
I
I
I
II
II
II
IIMaturity breakdown (residual maturity)
"
I
II
II
II
II
II
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
(a) Short positions ( - )
I
I
I
I (b) Long positions (+)
I 3. Other (specify)
I --outflows related to repos (-)
I
r ·-inflows related to reverse repos (+)
I
I
II
II
II
--trade credit (-)
··trade credit (+)
·-other accounts payable (-)
--other accounts receivable (+)
I
II
II
II
I
II
I
Ill. Contingent short-term net drains on foreign currency assets (nominal value)
I
I
II
II
IMaturity breakdown (residual maturity, where
II
applicable)
Total
I
I
Up to 1 month
II
[1. Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falling due within 1
year
II
II
More than 3
months and up to
1 year
More than 1 and
up to 3 months
II
I
[(b) Other contingent liabilities
2. Foreign currency securities issued with embedded
options (puttable bonds)
1\
[ Undrawn, unconditional credit lines provided by:
(a) other national monetary authorities, 81S, IMF, and
other international organizations
II
[other national monetary authorities (+)
[SIS (+)
I
EiMF(+)
(b) with banks and other financial institutions
headquartered in the reporting country (+)
r
II
http://www.treas.g0v/press!releasesI200~2111532443810.htm
II
II
II
I
I
I
3/4/2008
Page 3 of 5
(c) with banks and other financial institutions
headquartered outside the reporting country (+)
1/
I
II
II
II
I
II
I
II
I
"
(a) other national monetary authorities, 81S, IMF, and
other international organizations
[-other national monetary authorities (-)
II
I:
~ndrawn, unconditional credit lines provided to:
I
II
I
[BISH
I
[-IMF (-)
(e) banks and other financial institutions headquartered
outside the reporting country ( - )
II
I(i) Bought puts
II
I(ii) Written calls
I
I
I(a) Short positions
I
I
I
I
II
II
II
II
I
I
(b) banks and other financial institutions headquartered
in reporting country (- )
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
I
I
I
1(0) Long positions
I
I
I(i) Bought calls
I(ii) Written puts
1\
IpRO MEMORIA: In-the-money options 11
II
I
1(1) At current exchange rate
II
I(a) Short position
II
I
I(b) Long position
1(2) + 5 % (depreCiation of 5%)
I(a) Short position
I(b) Long position
I
1(3) - 5 % (appreciation of 5%)
II
II
I(a) Short position
I
II
II
I(b) Long position
II
II
1(4) +10 % (depreCiation of 10%)
II
II
I(a) Short position
II
I(b) Long position
1(5) - 10% (appreciation of 10%)
II
II
II
I
II
I(a) Short position
I
I
I(b) Long position
[(6) Other (specify)
II
[(a) Short position
lib) Long position
II
II
IV. Memo items
[
I
~) To be reported with standard periodicity and timeliness:
[a) short-term domestic currency debt indexed to the exchange rate
(b) finanCial instruments denominated in foreign currency and settled by other means (e.g., in domestic
http://www.treas.~Gv/presslreleasesI200821!153244381O.htm
I
1
I
I
3/4/2008
Page 4 of 5
~rrency)
I
II
II
[n0ndeliverable forwards
[ ··short positions
II
I
[ •• Iong positions
tother instruments
[(c) pledged assets
I
[-.included in reserve assets
I--included in other foreign currency assets
[(d) securities lent and on repo
I-·Ient or repoed and included in Section I
I-·Ient or repoed but not included in Section I
I-·borrowed or acquired and included in Section I
I--borrowed or acquired but not included in Section I
II
I(e) financial derivative assets (net, marked to market)
I-·forwards
II
I-·futures
1\
I--swaps
I--options
I
I--other
(I) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one
year, which are subject to margin calls.
II
--aggregate short and long positions in forwards and futures in foreign currencies vis-a.-vis the domestic11
currency (including the forward leg of currency swaps)
I
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a.-vis the domestic currency
I(a) short positions
1(0 bought puts
l(ii) written calls
1
I(b) long positions
I(i) bought calls
I
l(ii) written puts
1(2) To be disclosed less frequently:
I(a) currency composition of reserves (by groups of currencies)
11 71 ,234
[--currencies in SDR basket
11 71 ,234
[--currencies not in SDR basket
II
toby individual currencies (optional)
II
[
II
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market valuesr and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDRjdollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.s. Treasury to IMF data for the prior month
http://www.treas.g(tV/press/releases/2008~11153244381O.htm
3/4/2008
Page 5 of 5
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.gov/presslreleaseSI2008211153244381O.htm
3/412008
Page 1 of 5
February 11, 2008
2008-2-11-15-35-50-3840
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, u.s.
reserve assets totaled $71,234 million as of the end of that week, compared to $72,220 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
I
II
IIFebruary 8, 2008
I
IA. Official reserve assets (in US millions unless otherwise specified)
IIEuro
liVen
IITotal
II
11 14,488
II
11 11 ,940
1171,234
I(a) Securities
11 26 ,428
lof which: issuer headquartered in reporting country but located abroad
II
II
110
I(b) total currency and deposits with:
II
II
II
115,854
11 20 ,156
1(1) Foreign currency reserves (in convertible foreign currencies)
I(i) other national central banks, BIS and IMF
14,302
Iii) banks headquartered in the reporting country
11 0
lot which: located abroad
I(iii) banks headquartered outside the reporting country
110
11 0
lof which: located in the reporting country
110
1(2) IMF reserve position
11 4,177
1(3) SDRs
1(4) gold (including gold deposits and, if appropriate, gold swapped)
11 9,432
11 11 .041
t-volume in millions of fine troy ounces
11 261.499
[(5) other reserve assets (specify)
11 0
I
I
[--financial derivatives
[--loans to nonbank nonresidents
[other
[s. Other foreign currency assets (specify)
II
--securities not included in official reserve assets
[deposits not included in official reserve assets
[loans not included in official reserve assets
[financial derivatives not included in official reserve assets
--gold not included in official reserve assets
JI
Lother
II
II
Ii. Predetermined short-term net drains on foreign currency assets (nominal value)
http://www.treas.p.0v/presslreJeasesI200821115J550)840.htm
3/412008
Page 2 of 5
II
[
[
[
II
II
II
··outflows (.)
II Principal
[
IIlnterest
[..inflows (+)
IIprincipal
I
IIlnterest
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
(a) Short positions ( • )
I
I
I
II
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 month
IITotal
1. Foreign currency loans, securities, and deposits
I
I
II
II
IIMaturity breakdown (residual maturity)
I
I
I
I
I
II
II
II
I
I
I
I
(b) Long positions {+}
I
3. Other (specify)
.. outflows related to repas (.)
.. inflows related to reverse repos (+)
··trade credit (.)
..trade credit (+)
.. other accounts payable (.)
.. other accounts receivable (+)
I
I
II
II
II
I
I
I
I
"
III. Contingent short·term net drains on foreign currency assets (nominal value)
I
II
II
[
I6·
II
I
II
I
II
Maturity breakdown (residual maturity, where
applicable)
Total
Contingent liabilities in foreign currency
Up to
II
II
II
II
"I
2. Foreign currency securities issued with embedded
options (puttable bonds)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
II
(a) Collateral guarantees on debt falling due within 1
year
[b) Other contingent liabilities
t month
I
II
I
I
I
I
3. Undrawn, unconditional credit lines provided by:
(al other national monetary authorities, 81S, IMF, and
other international organizations
lother national monetary authorities (+)
[81S (+)
I
EMF (+)
II
(b) with banks and other financial institutions
headquartered in the reporting country (+)
r
I
I
II
http://www.treas.gGv!presslreleases/200821 J 1535503840.htm
3/4/2008
Page 3 of 5
(e) with banks and other financial institutions
headquartered outside the reporting country (+)
Ii
[Undrawn, unconditional credit lines provided to:
(a) other national monetary authorities, 81S, IMF, and
other international organizations
II
1/
1/
]1
II
II
II
II
II
I·-other national monetary authorities (-)
I[
I·-SIS (-)
II
I·-IMF (-)
I
(b) banks and other financial institutions headquartered
in reporting country (- )
I:
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
II
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
/I
II
II
I
I
I
I
I
I
I
II
II
I(a) Short positions
I
I(i) Bought puts
\I
II
I(d) Written calls
I
1(0) Long positions
I
I
I(i) Bought calls
I(ii) Written puts
II
II
IPRO MEMORIA: In-the-money options 11
1(1) At current eXChange rate
II
II
II
Il
I(a) Short position
I(b) Long pOSition
1(2) + 5 % (depreCiation of 5%)
I(a) Short position
I
I
I(b) Long position
1(3) - 5 % (appreciation of 5%)
I(a) Short position
I
I
I
I
I
I
I(b) Long pOSition
1(4) +10 % (depreciation of 10%)
I(a) Short position
I(b) Long position
1(5) -10 % (appreciation of 10%)
I(a) Short position
I
II
II
I
I(b) Long position
@) Other (specify)
[(a) Short position
~) Long position
I
II
IV. Memo items
[
[ill To be reported with standard periodicity and timeliness:
~ short-term domestic currency debt indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic
http://www.treas.g~y/press/releases/200gL111535503840.htm
II
II
II
II
I
I
I
I
3/4/2008
Page 4 of 5
II
lcurrency)
tnondeliverable forwards
II
[ --short positions
[ -·Iong positions
[-.other instruments
[(c) pledged assets
I·-included in reserve assets
1/
11
··included in other foreign currency assets
I(d) securities lent and on repo
II
I
1··lent or rep oed and included in Section I
I·-lent or repoed but not included in Section I
"
I
II
I··borrowed or acquired and included in Section I
I
I·-borrowed or acquired but not included in Section I
I
I(e) financial derivative assets (net, marked to market)
I
I··forwards
I·-futures
I··swaps
I·-options
'.. other
(ij derivatives (forward. futures. or options contracts) that have a residual maturity greater than one
year, which are subject to margin calls.
·-aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
1
II
II
I
I(a) short positions ( - )
I(b) long positions (+)
I·-aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I
I(a) short positions
I(i) bought puts
l(iil written calls
I(b) long positions
10) bought calls
I(ii) written puts
1(2) To be disclosed less frequently:
[(a) currency composition of reserves (by groups of currencies)
1171.234
I··currencies in SDR basket
11 71 ,234
J
I··currencies not in SDR basket
II
I
["by individual currencies (optional)
II
I
[
II
I
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDRjdoliar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
http://www.treas.gr-v/presslreleaseS/20082111535503840.htm
3/4/2008
Page 5 of 5
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.gGvJpresslreleaseS/200S21l1S3SS03840.htm
3/4/2008
Page 1 of I
p-819: Treasl!ry, HUD to Provide Housing Update
.- -
.
~.,,-
PRESS'ROOM
February 11, 2008
hp-819
Treasury. HUD to Provide Housing Update
Treasury Secretary Henry M. Paulson, Jr. and HUD Secretary Alphonso Jackson
will provide an update on efforts to help more capable homeowners avoid
foreclosure Tuesday at the Treasury Department. A live web cast of this
announcement will be available at I/v'\NW,trGCl~.99\1.
A technical briefing will follow the announcement. No cameras will be admitted to
the technical briefing.
The following events are open to the media:
Who
Treasury Secretary Henry M. Paulson, Jr.
HUD Secretary Alphonso Jackson
What
Housing Update
When
Tuesday, February 12,11:15 a.m. EST
Where
Treasury Department
Media Room (4121)
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960 or frances.anderson@do.treas.govwith the following information:
full name, Social Security number, and date of birth.
*****
What
Pen and Pad Technical Briefing
When
Tuesday, February 12, 11 :45 a.m. EST
Where
Treasury Department
West Gable Room (5432)
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960 or fraflces,anQ§LSon@QQJreas,gQY with the following information:
full name, Social Security number, and date of birth.
-30-
http://www.treas.gGV/presslreleasesltl1J819.htm
3/4/2008
il- 820 : Statel.1pnt
by Secretary Henry M. Paulson, Jr.<br>on New Private Sector Effort to Reach Home...
Page 1 of:2
February 12, 2008
hp-820
Statement by Secretary Henry M. Paulson, Jr.
on New Private Sector Effort to Reach Homeowners Facing Foreclosure
Washington, DC-- Good morning. Thank you, Secretary Jackson, for joining us.
We are going to provide an update on the HOPE NOW alliance's efforts to help
struggling homeowners and - as Floyd Robinson of Bank of America, speaking on
behalf of six leading mortgage servicers, will announce - an additional, important
effort targeting those facing the greatest, immediate risk of losing their home.
When the HOPE NOW alliance was announced in October, we made clear that this
would be an evolving private sector-led effort to help minimize the impact of the
housing downturn on homeowners, neighborhoods and the U.S. economy. It is just
one of many steps which the Bush Administration is encouraging as we work
through this difficult period. Tomorrow, President Bush will also sign into law an
economic growth package that will, through rebate payments to over 130 million
Americans and tax incentives to businesses, provide a temporary, meaningful boost
to our economy as we weather the housing correction.
Today, six of the largest servicers, who represent 50 percent of the mortgage
market, are announcing Projecl Ufeline, a targeted outreach to homeowners' 90days or more delinquent that may lead 10 a "pause" in the foreclosure process. This
is an important new initiative, targeted to reach not only subprime borrowers, bul all
90-day delinquent homeowners nationwide with a step-by-step approach to find
individual solutions to individual problems. We encourage all HOPE NOW servicers
to adopt this new program.
Project Lifeline is aimed at homeowners who face a real risk of losing their home,
but have not yet addressed the problem. Perhaps they are hoping 10 find a way to
get current on their mortgage payments, or perhaps they don't think any solution is
possible. For whatever reason they have not yet taken action; our hope is that
today's announcement will reach them, and they will reach out immediately for help
- especially now that the foreclosure process is upon them.
Of course, there will be homeowners who still take no action, and some will simply
walk away from their mortgage - particularly those borrowers who put little or no
money down and whose mortgage exceeds their home value. No program can
bring every struggling borrower into the counseling and evaluation process, and we
cannot help those who choose not to honor their obligations. But Project Lifeline
has the potential to offer new solutions to responsible, able homeowners who want
to keep their homes.
Overall, the HOPE NOW alliance is striving to help as many able but struggling
homeowners as possible - whether prime, alt-a or subprime borrowers. Clearly
there is much more work to do, but progress has been made since the formation of
HOPE NOW just over four months ago.
In those four months:
•
HOPE NOW membership has grown from 60 percent of the subprime
mortgage servicer market to 94 percent; today, 25 servicers are
represented.
• The nationwide hotline (888-995-HOPE) has been publicized and
http://www.treas.?o\;/press/releases/hp820.htm
3/4/2008
'1-820: Statell1P.nt by Secretary Henry M. Paulson, Jr.<br>on New Private Sector Effort to Reach Home...
Page 2 of 2
expanded; daily call volume has increased from 625 to 4,000.
•
Servicers and investors are now providing funds for counseling; previously,
only government and foundations provided funding.
•
In the first three months, HOPE NOW servicers sent 775,000 letters to atrisk homeowners; early results show a 16 percent response rate.
Homeowners who had previously avoided contact are now calling for help,
and over 200,000 additional letters are being sent every month.
•
Today, all HOPE NOW servicers are contacting subprime borrowers 120
days before their interest rate resets.
•
In the second half of 2007, the industry assisted an estimated 869,000
homeowners and, coincident with the formation of HOPE NOW, the loan
modification rate in the fourth quarter doubled over the rate in the third
quarter.
•
Secretary Jackson will also update us on FHA's progress in moving
borrowers into affordable, long-term mortgages.
These results are before implementation of the American Securitization Forum's
(ASF) fast-track re-financing and loan modification framework. Servicers began
implementing that plan in January after resolving a number of important issues,
including receiving accounting guidance from the SEC on FAS 140 on January 8.
We have a lot of work ahead of us; these efforts can succeed only if they are
pursued industry wide. I am particularly focused on two important steps.
First, I am eager to see the ASF framework and Project Lifeline adopted by all
servicers. If the ASF plan works the way it is intended to subprime borrowers who
have made payments on-time at the initial rate and who want to stay in their homes
but can't afford the higher rate should be fast-tracked into a modification - which in
many cases will be an interest rate freeze of at least five years - or be fast-tracked
into an affordable refinancing. Through Project Lifeline, those borrowers facing
immediate foreclosure may be able to find individual solutions.
Second, I will be working closely with the HOPE NOW alliance on their plans for
reporting progress. It is critical that they release monthly information, within 30 days
of the end of the month, so that we can monitor progress and adapt as needed.
Industry will be updating us throughout the month.
As I have said many times, the HOPE NOW alliance is an evolving effort. As our
economy works through this difficult period, we will look for additional opportunities
to try to avoid preventable foreclosures. However, none of these efforts are a silver
bullet that will undo the excesses of the past years, nor are they designed to bail
out real estate speculators or those who committed fraud during the mortgage
process. These efforts are to help American families who both want to and can,
through a loan modification or re-financing, stay in their homes.
I believe that our economy will continue to grow, although at a slower pace in the
coming quarters, and that it remains fundamentally diverse and resilient.
I congratulate the HOPE NOW alliance for your flexibility and your hard work. You
are helping our economy and our families, and you are also demonstrating the very
resiliency which I spoke of a moment ago. Thank you.
-30-
http://www.treas.gr.v/presslreleaseSll1p820.htm
3/412008
1P-821: Treasllry Targets Medellin Dtug Lord
Page 1 of 2
10 vIew or prmt tne PUI- content on tn;s page, download tne tree AdopeqpA9.roPE11qpHegqe~,
February 12, 2008
HP-821
Treasury Targets Medellin Drug Lord
The U,S, Department of the Treasury's Office of Foreign Assets Control (OFAC)
today designated Medellin-based narcotics trafficker Carlos Mario Jimenez Naranjo
(a.k.a. "Macaco") as a Specially Designated Narcotics Trafficker pursuant to
Executive Order 12978. OFAC also targeted seven companies and seven
individuals that comprise Jimenez Naranjo's financial network,
"Jimenez Naranjo is among the most dangerous Colombian narcotics traffickers
today," said OFAC Director Adam J. Szubin. "Today's designation serves notice to
Macaco and his associates that the United States is committed to disrupting their
network of illicitly-obtained assets in Medellin and elsewhere."
Carlos Mario Jimenez Naranjo has been indicted on federal drug trafficking charges
in the U.S. District Court for the District of Columbia in 2005 and in the Southern
District of Florida in 2007. He is in Colombian custody awaiting extradition to the
United States. OFAC sanctions investigators worked closely with the Drug
Enforcement Administration (DEA) on this investigation and also received key
support from the Federal Bureau of Investigation (FBI).
Among the individuals deSignated today were Rosa Edelmira Luna Cordoba, the
wife of Carlos Mario Jimenez Naranjo, and Marco julio Londono Vasquez. Luna
Cordoba and Londono Vasquez act as front persons through their roles as owners
and managers for companies thai are owned or controlled by Jimenez Naranjo.
Luna Cordoba and Londono Vasquez were also indicted on federal drug trafficking
charges in the Southern District of Florida in 2007 along with Jimenez Naranjo.
The seven companies deSignated today are located in or around Medellin,
Colombia. Among these companies are: Inversiones Licom Ltda., which does
business as Restaurante Angus Brangus in Medellin; Tejar la Mojosa S,A., a
ceramic products company that operates in the Colombian state of Antioquia; and
the cattle companies Administradora Ganadera el45 Uda. and Ganaderia Luna
Hermanos Ltda., both located in Medellin.
This designation is part of the ongOing interagency effort by the Departments of the
Treasury, Justice, State and Homeland Security to implement Executive Order
12978 of October 21, 1995, which applies financial sanctions against Colombia's
drug cartels. Today's designation action freezes any assets the designees may
have that are subject to U.S. jurisdiction and prohibits all financial and commercial
transactions by any U.S. person with the deSignated companies and individuals.
A detailed look at the program against Colombian drug organizations is provided in
OF AC's March 2007 impact Report on Economic Sanctions Against Colombian
Drug Cartels.
-30-
http://www.treas.g0v/presslreleaseS/hp821.htm
3/4/2008
[P-82l: Treas~ry Targets Medellin DfUg Lord
Page 2 of 2
REPORTS
http://www.treas.g0v/presslreJeaSes/tJV821.htm
3/4/2008
.JIMENEZ NARANJO
Financial Network
U.S. Department of the Treasury
Office of Foreign Assets Control
"Macaco"
Specially Designated
Narcotics Traffickers
February 2008
In the Custody of
Colombian Authorities
Indicted in the U.S. on Drug Trafficking
Charges in 2005 and 2007
Carlos Mario JIMENEZ NARANJO
CC 71671990 (Colombia); DOB 26 Feb 1966
Key Associates of "Macaco"
Andres Felipe
CARRILLO LUNA
CC 1037572288 (Colombia)
DOB 25 May 1986
Roberto
JIMENEZ NARANJO
CC 18502967 (Colombia)
DOB 18 Apr 1963
Paula Andrea
CARRILLO LUNA
CC 32244809 (Colombia)
DOB 25 Dec 1983
Marco Julio
LONDONO VASQUEZ
CC 15345634 (Colombia)
DOB 04 Dec 1955
,
11
Rosa Edelmira
LUNA CORDOBA
CC 41101742 (Colombia)
DOB 18 Sep 1960
Companies Associated with "Macaco"
~
I
ADMINISTRADORA
GANADERAEL45 LTDA.
Medellin, Colombia
NIT# 811038291-3
GANADERIA LUNA
HERMANOS LTDA.
Medellin, Colombia
NIT# 811045931-8
o
CASA DEL GANADERO S.A.
Medellin, Colombia
NIT# 811034345-4
.i7'-'"
.
F
o
",to,!,.
.
~:..~
..
J..fl ,JV[.cJf.: .II]
INVERSIONES LICOM LTDA.
(a.k.a. RESTAURANTE ANGUS BRANGUS)
Medellin, Colombia
NIT# 811038211-4
INVERSIONES EL MOMENTO $.A.
Medellin, Colombia
NIT# 811030776-7
"">~::~~)
-t' I~
TEJAR LA MOJOSA S.A.
Caceres, Antioquia, Colombia
Caucasia, Antioquia, Colombia
NIT# 900110438-9
o
SOCIEDAD MINERA GRIFOS S.A.
Medellin, Colombia
NIT# 811033869-7
IMPACT REPORT
MA :CH 2007
OFFICE OF FOREIGN ASSETS CONTROL
IMPACT REPORT
Economic Sanctions Against
COLOMBIAN DRUG CARTELS
Office of Foreign Assets Control
U.S. Department of the Treasury
March 2007
www.treas.gov/ofac
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
STATEMENT FROM THE DIRECTOR OF THE
OFFICE OF FOREIGN ASSETS CONTROL
Treasury's Office of Foreign Assets Control ("OFAC") integrates regulatory, national security,
investigative, enforcement, and intelligence elements towards a single goal: effective implementation of economic sanctions programs against foreign threats and adversaries. OFAC currently
administers and enforces more than 30 economic sanctions programs pursuant to Presidential
and Congressional mandates,! targeting select foreign countries and regimes, terrorist organizations, proliferators of weapons of mass destruction, and narcotics traffickers. OFAC acts under
general Presidential wartime and national emergency powers, as well as specific legislation, to
prohibit transactions and freeze (or "block") assets within the United States or in possession or
control of US. persons, including their foreign branches. These programs are administered in
conjunction with diplomatic, law enforcement and occasionally military action. Since 1995, the
Executive Branch has developed an array of "targeted" sanctions programs that focus on drug
cartels and traffickers, international terrorist groups, proliferators of weapons of mass destruction, members of hostile regimes, and other individuals and groups whose activities threaten
U.S. interests.
Narcotics traffickers operating on a global scale require an extensive support network, including procurement, logistics, transportation, communications, security, money laundering, and
other facilitation. Disguising the sometimes vast profits derived from major drug operations
requires the purchase of ostensibly legitimate enterprises capable of handling business on an
international scale. These illicitly funded "corporate empires" can be extensive, complex, and
undermine the integrity of financial systems. They are also one of the drug cartels' greatest
vulnerabilities.
To combat the threats of violence, corruption, and harm posed by narcotics traffickers and their
networks, President Clinton signed Executive Order 12978 in October 1995, declaring a national emergency with respect to significant foreign narcotics traffickers centered in Colombia.
The impact of these sanctions has been significant and, at times, dramatic. When OFAC designates an individual or entity, any assets within the United States or the possession or control of
a US. person anywhere in the world, must be frozen. Trade with or through the United States
is cut off. Moreover, many non-US. businesses and banks have voluntarily severed all ties with
individuals and entities that OFAC has listed. As a result, designated persons may lose access
to their bank accounts outside the United States, disrupting their operations and freedom of access. Finally, in many cases, Colombian authorities have taken law enforcement actions against
designated companies or properties after OFAC listed them. Collectively, these actions have
1.
Some of these programs are no longer in effect but still require some residual administrative ,md enforcement
activities.
III
disrupted more than $1 billion worth of assets-in blockings, seizures, forfeitures, and the failure of enterprises-and economically isolated the individuals who own and manage the enterprises. The Director of the Office of National Drug Control Policy ("ONDCP"), in fact, stated
that OFAC's efforts have resulted in "the forfeiture of billions of dollars worth of drug-related
assets."
This report reviews the SDNT program's achievements over the past 11 years, as it has targeted
the leaders of Colombia's Cali, North Valle, and North Coast drug cartels. It is our hope that
the report will provide a useful window into the history and achievements of this program, as
well as lessons for refining sanctions targeting and implementation in the future in this and
other programs.
Adam J. Szubin
Director
Office of Foreign Assets Control
IV
CONTENTS
STATEMENT FROM THE DIRECTOR OF THE OFFICE OF FOREIGN
ASSETS CONTROL ............................................................................................................................ 111
OVERVIEW OF SDNT COLOMBIA PROGRAM ............................................................................. 1
SECTION 1: IMPACT OF THE COLOMBIAN DRUG CARTELS ECONOMIC
SANCTIONS PROGRAM ................................................................................................................... 5
SECTION 2: CALI CARTEL ................................................................................................................ 15
RODRIGUEZ OREJUELA Organization ................................................................................................................ 17
SANTACRUZ LONDONO Organization .............................................................................................................. 27
HERRERA BUITRAGO Organization ...................................................................................................................... 31
VALENCIA TRUJILLO Organization ....................................................................................................................... 35
SECTION 3: NORTH VALLE CARTEL.. ............... " ........................................................................... 41
URDINOLA GRA]ALES Organization ..................................................................................................................... 43
HENAO MONTOYA Organization ........................................................................................................................... 47
RAMIREZ ABADIA Organization.............................................................................................................................. 51
PATINO FOMEQUE Organization ............................................................................................................................ 55
MONTOYA SANCHEZ Organization ..................................................................................................................... 59
GOMEZ BUSTAMANTE Organization .................................................................................................................. 63
PUERTA PARRA and HERNANDEZ ZEA Organization ............................................................................. 67
RENTERIA MANTILLA Organization ................................................................................................................... 71
GRA]ALES LEMOS Organization ............................................................................................................................... 77
VARELA Organization ....................................................................................................................................................... 83
CANO CORREA Organization ..................................................................................................................................... 87
SABOGAL ZULUAGA Organization ........................................................................................................................ 91
SECTION 4: NORTH COAST CARTEL ............... " ........................................................................... 95
NASSER DAVID Organization ...................................................................................................................................... 97
APPENDIX A: AUTHORITIES ............................................................................................................ 102
International Emergency Economic Powers Act ("lEEPN) ........................................................................... 102
Executive Order 12978 ........................................................................................................................................................ 107
Code of Federal Regulations- Title 31, Part 536 (31 CFR 536) ..................................................................... 110
18 U.S.C.§ 3571 ........................................................................................................................................................................ 123
APPENDIX B: DESIGNATION ANNOUNCEMENTS AND CHARTS ......................................... 124
v
ACRONYMS USED IN THIS IMPACT REPORT
a.k.a.
Also known as
AUC
United Self Defense Forces of Colombia (Autodefenses Unidas de
Colombia)
CFR
Code of Federal Regulations
DEA
Drug Enforcement Administration
E.O.
Executive Order
f.k.a.
Formerly known as
FBI
Federal Bureau of Investigation
FNK
Foreign Narcotics Kingpin
ICE
U.S. Immigration and Customs Enforcement
IEEPA
International Emergency Economic Powers Act
n.k.a.
Now known as
OFAC
Office of Foreign Assets Control
ONDCP
Office of National Drug Control Policy
RICO
Racketeer Influenced and Corrupt Organization Act
SDGT
Specially Designated Global Terrorist
SON
Specially Designated Nationals
SDNT
Specially Designated Narcotics Traffickers
SDNTK
Specially Designated Narcotics Traffickers Kingpins
USC
United States Code
ACRONYMS OF BUSINESS TYPES
AVV.
Aruba Vrijgestelde Vennootschap (Aruban Exempt Corporation)
Cia.
Campania (Company)
E.U.
Empresa Unipersonal (Sole Proprietorship)
Uda.
Limitada (Limited)
S. de H.
Sociedad de Hecho (De Facto Partnership)
S. enC.
Sociedad en Com and ita (Limited Partnership)
SA
SA de C.v.
S.CA
Sociedad An6nima de Capital Variable (Variable Capital Company)
S.C.S.
Sociedad en Comandita Simple (Limited Partnership)
VI
Sociedad An6nima (Corporation)
Sociedad en Comandita por Acciones (Limited Partnership by Shares)
OVERVIEW OF
SDNT COLOMBIA PROGRAM
President Clinton issued Executive Order 12978, "Blocking Assets and Prohibiting Transactions
with Significant Narcotics Traffickers," on October 21, 1995, under authority of the International Emergency Economic Powers Act ("IEEPX'). The Executive Order found that the activities
of significant foreign narcotics traffickers centered in Colombia and the unparalleled violence,
corruption, and harm that they caused, constituted an unusual and extraordinary threat to the
national security, foreign policy and economy of the United States. The Executive Order called
upon the Treasury to target Colombian drug cartels using financial sanctions. Under this
authority, OFAC launched the Specially Designated Narcotics Traffickers ("SDNT") program
on October 24, 1995. The objectives of the SDNT
program are to isolate and incapacitate the businesses and agents of the Colombian drug cartels by
EXAMPLE OF
publicly exposing them, freezing their assets, and
SDNT LISTING
denying them access to the financial system and to
the benefits of trade and transactions involving U.S.
lMl\Jl.&Slfl RIClI'ID(H a :MR :At.:IR
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businesses and individuals. 2
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BulT"d;oq.A4 AtaIJirn, Coi:riliil 00
SDNT LIST
OFAC's principal tool for implementing these
sanctions against narcotics traffickers is its list of
Specially Designated Narcotics Traffickers. 3 OFAC
works in close consultation with the U.S. Departments of Justice and State to develop this list. It
names not only the principal leadership of targeted
drug cartels, but also their businesses and associates. At the outset of the program, the list included
the four Cali drug cartel kingpins named in the
Annex to Executive Order 12978, Gilberto and
Miguel RODRIGUEZ OREJUELA, Jose SANTACRUZ LONDONO, and Helmer HERRERA
BUITRAGO. Beginning in 1998, OFAC expanded
the SDNT list beyond the Cali drug cartel and it
2.
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[seNl)
Please refer to OFAC's website for complete
listings (www.treas.gov/ofac).
The Order further prohibits any transaction or dealing by a U.S. person or within the United States in property or
interests in property of persons designated pursuant to the Order, and any transaction that evades or avoids, has
the purpose of (~vading Of avoiding, or attempts to violate, the prohibitions contained in the Order. This impacts
trade transactions (involving, for example, letters of credit) as well as ac(,ounts and other assets.
Another narcotics sanctions program was cre"ted on December 3,1999, when the Foreign Narcotics Kingpin
Designation Act ("Kingpin Act") was signed in to law. The Kingpin Act was modeled by Congress after the highly
effective Colombian SDNT program, targeting the activities of significant foreign narcotics traffickers and their
organizations on a worldwide basis. As with E.O. 12978, OFAC is the lead agency for implementation of the
Kingpin Act. Those deSignated under the Colombian SDN'!' program are listed as "[SDNT]" on OFAC's "Specially
Designated Nationals and Blocked Persons" list and those designated under the Kingpin Act are referred to as
Specially Designated Narcotics Traffickers Kingpins "[SDNTK]" to differentiate the two programs. 'Ihis report
addresses oillythe Colombian SDNT program.
1
now includes the leaders, associates, and businesses of other Colombian drug cartels, such as
the North Valle and North Coast drug cartels.
As of December 31, 2006. the SDNT list includes 527 companies and 815 individuals involved
in the ownership or management of the 21 Colombian drug cartel leaders' business empir.es.
The businesses named as SDNTs range across industries and include drugstore chains, a supermarket chain, pharmaceutical laboratories, airlines, a medical clinic, hotels, restaurant service
companies, radio stations, sports teams, communications companies, construction firms, real
estate firms, investment and financial companies, consulting companies, off-shore firms, horse
breeding farms and other agricultural buSinesses, mining operations. maritime agencies, and a
department store.
CRITERIA
Companies and individuals may be identified as SDNTs and placed on the SDNT list if they are
determined to:
•
playa significant role in international narcotics trafficking centered in Colombia;
•
materially assist in or provide financial or technological support for, or goods or services in
support of, the narcotics trafficking activities of persons designated in or pursuant to the
executive order; or
•
be owned or controlled by. or act for on or behalf of, persons designated in or pursuant to
Executive Order 12978.
BLOCKING
U.S. individuals and companies are prohibited from engaging in unlicensed transactions, including any commercial or financial dealings with any of the SDNTs. Upon designation as an
SDNT, all SDNT assets within the United States or in the possession or control of US. persons,
including their foreign branches, are blocked. This includes bank accounts and other property
and interests in property.
LICENSING AUTHORITY
When determined to be in the interest of US. foreign policy, OFAC may license activities to
mitigate the effect of sanctions. For example, after OFAC designated Drogas La Rebaja, Colombia's largest chain of drugstores, the Colombian Government seized the company and appointed
a receiver to manage its more than 449 stores across the country. OFAC then established a
licenSing policy to allow US. suppliers to engage in transactions with these companies, thus
preserving their commercial viability under Colombian Government control.
LEGAL CHALLENGES
OFAC sanctions in US. courts have been consistently upheld when challenged by SDNTs. The
SDNT company Copservir filed a lawsuit in the US. District Court for the District of Columbia
in April 1998 against the Secretary of the Treasury and the Director of OFAC. Copservir alleged violations of the Administrative Procedures Act, federal forfeiture laws and the US. Constitution. In March 1999, the court granted the defendants' motion and dismissed Copservir's
2
complaint. The court's decision was upheld in March 2000 in the U.S. Court of Appeals for the
D.C. Circuit. The U.S. Supreme Court subsequently denied Copservir's petition for certiorari.
Cooperativa Multiactiva v. Newcomb, No. 98-0949-LFO, 1999 U.S. Dist. Lexis 23168 (D.D.C.
1999); aird 221 F.3d 195 (D.C. Cir. 2000); cert. denied, 531 U.S. 817 (2000).
PENALTIES
Violations carry criminal penalties of up to $500,000 per violation for corporations and
$250,000 for individuals, as well as imprisonment of up to 20 years. Civil penalties of up to
$50,000 per violation may be imposed.
3
Buenav~ra
Cali
4 MAP OF COLOMBIA Cities identify locations of Colombian drug cartel businesses discussed in this report.
IMPACT OF THE COLOMBIAN DRUG CARTELS
ECONOMIC SANCTIONS PROGRAM
(({Tlhe u.s. pressure is reaching unexpected extremes. The largest international
suppliers refuse to deal with us. The banks have closed down our accounts. It is
impossible for us to pay our obligations.')
- As told to Colombian television in 1996 by Humberto RODRIGUEZ MONDRAGON-son of Cali
drug cartel leader Gilberto RODRIGUEZ OREJUELA-referring to their business enterprises in
Colombia.
Economic sanctions are employed to financially and commercially impair and impede, and to
ultimately isolate and incapacitate narcotics traffickers, their supporters, and business empires.
OFAC designations help publicly identify drug traffickers and their business empires and are
often accompanied or followed by U.S. law enforcement actions and Government of Colombia
asset seizures and forfeitures. Additionally, the threat of designation often deters top managerial talent-needed to operate and manage the often complex drug trafficking money laundering operations and business empires-from working for the drug traffickers and their business
empires. As of December 2006, OFAC has identified drug traffickers' assets under the Specially
DeSignated Narcotics Traffickers program valued at more than $1 billion.
Once deSignated, most narcotics traffickers try to evade and avoid the financial and commercial
restrictions placed upon them and their businesses, by working through others or creating shell
companies through which to control and conduct their business.4 Initially, sanctions impair
and impede their ability to function; however, as OFAC continues to identify and designate supporters, businesses, and front companies, the drug cartel organizations face increasing isolation
and incapacitation.
((We have been several years without sponsorships... we have more than one million dollars frozen that we won in international sports competitions.))
- Colombian news magazine quoting the president of the professional Colombian soccer team
America de Cali, in February 2006-the soccer team was designated in June 1999 as an SDNT of Cali
cartel leaders Miguel and Gilberto RODRIGUEZ OREJUELA.
At the outset of a designation, all assets within the United States of a deSignated party are
blocked.s Additionally, any transactions with a designated person that are caught in the United
States are blocked. OFAC actions in 2006 alone resulted in multi-million dollar blockings in accounts and real property in the United States, stemming from focused, in-depth OFAC investigations of Colombia's North Valle drug cartel's business and financial networks. SDNT companies and individuals face real costs as a result of being denied access to banking services in the
4.
5.
See text box at the end of this section that identifies the Colombian drug cartels and the organizations that comprise them.
Assets within the United States include those in the possession 01' control of U.S. persons, including foreign
branches.
5
SECTION 1
United States. An even more significant impact can come from the severing of trade with the
United States. Some companies named as SDNTs that were heavily dependent upon trade with
U.S. businesses have been forced out of business.
OFAC's designation of companies and individuals tied to Colombia's drug cartels often prompts
non-US. parties to take similar actions. Many non-U.S. banks have, as a routine practice,
closed the accounts of all persons (individuals and entities) on the OFAC SDNT list. For
example, many Latin American banks have
LEGAL CHALLENGES
advised OFAC that they rely on the SDNT list
IN COLOMBIA
as part of their due diligence in identifying
high-risk account holders. Non-U.S. companies
In Colombia, the courts have upheld a Colomthat have no obligation to comply with U.S.
bian bank's right to deny service to high-risk
sanctions often refuse to work for, supply or
account holders, such as SDNTs. In March
otherwise do business with SDNT commercial
2001, Copservir, a pharmacy chain owned by
the RODRIGUEZ OREJUELA drug traffickenterprises or employ persons on the SDNT list,
ing organization, filed a lawsuit in the circuit
thereby further isolating them commercially.
court in Cali, Colombia against six Colombian
As a result, designated persons are impeded
banks for refusing to provide banking services
from functioning effectively in the legitimate
to Copservir because of its status on OFAC's
economy or business world.
SDNT list. In May 2003, the Colombian ConAs of December 2006, public records in Colombia and other countries show that hundreds
of companies named as SDNTs have dissolved,
are in the process of dissolution, or are inactive.
As some SDNT companies attempt to continue their operations through changes to their
company names, corporate structure, or other
evasion schemes, OFAC has pursued them for
designation as well.
stitutional Court ruled in favor of the banks'
right to refuse such services Effectively. SDNT
businesses are forced out of the formal financial
sector-depriving them the use of bank services to pay for goods and payroH, receive payment
for goods, enjoy credit lines, and issue letters of
credit to foreign suppliers. These businesses are
often forced to work on a cash basis.
"[The OFAC list} is the most powerful tool the United States has against the traffickers."
- As one Colombian cartel source described OFAC designations.
Throughout the sanctions process, OFAC cooperates with law enforcement agencies. Its designations often provide a picture of the cartels' support networks, helping further inform U.S.
law enforcement actions and a variety of foreign government enforcement actions geared to
disrupting and dismantling the financial infrastructure of the Colombian drug cartels. Companies designated as SDNTs by OFAC have concurrently or subsequently been investigated by law
enforcement authorities in Colombia, Panama, Ecuador, Costa Rica, Peru, Spain, and Aruba.
In Colombia, the government has initiated numerous asset forfeiture cases against many of the
6
SDNT companies. 6
t'iThe OFAC] list is tough."
- A complaint made to U.S. authorities by an SDNT principal individual. Because of OFAC's list, his
companies were going out of business, his grown children could not get a job, and it became hard for
him to pay for their university studies.
The Department of State also uses the SDNT list. It has denied U.S. visas and revoked existing
U.S. visas to individuals named as SDNTs, which means that family members and other designated associates may be deprived of high-priced and highly-prized U.S. college educations as
well as the amenities and entertainments that their wealth might otherwise afford.
Individuals are deterred from associating with designated narcotics traffickers and their businesses, in part, because their reputations could be ruined, and in part because by doing so, they
also might be designated. An SDNT designation of an individual in Colombia and elsewhere
carries an overwhelming social stigma that tarnishes or ruins personal reputations and forecloses many financial and commercial opportunities. Designation of enterprises has the additional effect of impairing their ability to hire, train, and retain the top talent needed to operate
and manage their often complex narcotics trafficking operations and business empires, as many
talented managers and personnel refuse to work for them. For example, in November 2006,
within 72 hours of the deSignation of the soccer team Cortuiua, the team's president and three
of its five board members resigned, sponsors withdrew their support, and key business partners
publicly announced the severing of all commercial ties with the team.
As previously mentioned, sanctions initially impair and impede the ability of narcotics traffickers and their enterprises to function, but as OFAC continues to identify and designate supporters, businesses, and front companies, the drug cartel organizations face increasing isolation and
incapacitation. This is best illustrated by the actions OFAC has taken over eleven years against
the RODRIGUEZ OREJUELA narcotics trafficking organization-part of the Cali drug cartel in
Colombia-that helped dismantle this organization.
Cali Cartel - The RODRIGUEZ ORE/UELA Organization
"What was suffered was more than what was enjoyed. J'
- As quoted by one RODRIGUEZ OREJUELA family member, referring to the effect of being placed
on OFAC's SDNT list.
In October 1995, President Clinton named the two RODRIGUEZ OREJUELA brothers Miguel
and Gilberto, in the Annex to Executive Order 12978. During the next eleven years, OFAC
designated more than 200 front companies, including a prominent Colombian drugstore chain
Drogas La Rebaja-and its successor businesses, which had been created with the purpose of
6.
In December 2002, I"aw 793 replaced the existing 1996 legislation (Law 333) that governed asset forfeiture in
Colombia. Law 793 allows Colombian authorities to better enforce asset forfeiture actions in Colombia against
the i1Jicit assets of Colombian drug cartel leaders. TIle Colombian Government has moved swiftly to pursue more
complex asset forfeiture investigations against the Cali and North Valle drug cartels pursuimt to Law 793.
SECTION 1
evading the original designation-and key family members and business associates who managed the business enterprises owned by the RODRIGUEZ OREJUELA organization.
In September 2004, the Colombian authorities seized Drogas La Rebaja, which they estimated
to be worth over $200 million.
In a September 2006 agreement with the U.S. Government, Miguel and Gilberto RODRIGUEZ
OREJUELA and 28 SDNT individuals-all key family members associated with the RODRIGUEZ OREJUELA drug trafficking organization-agreed to forfeit their interests in all narcotics-related entities world-wide up to $2.1 billion? which mainly consisted of the hundreds of entities designated by OFAC since 1995. 8 The entities addressed by the agreement will be forfeited
in the jurisdiction in which they are located, primarily Colombia. The agreement also commits
the family members to assist the u.s. and Colombian Governments in any future forfeiture actions. In connection with this agreement, Miguel and Gilberto RODRIGUEZ OREJUELA also
pled guilty to all federal drug trafficking and money laundering charges in the Southern District
of Florida and the Southern District of New York.
Cali Cartel - the VALENCIA TRUJILLO Organization
((The list demonizes you in Colombia. The worst part is for the family. The
banks simply close their doors to you."
- A major Colombian narcotics trafficker
Designations of individuals and entities in the VALENCIA TRUJILLO organization provide additional examples of the impact of the sanctions program.
Joaquin Mario VALENCIA TRUJILLO, head of the VALENCIA TRUJILLO organization,
employed family members, including his brother, Guillermo, and several sisters-to run his
enterprises.9 He and his family were once considered to be reputable business persons both
in Colombia and internationally. Since designation, the VALENCIA TRUJILLO organization
has been unable to liquidate assets or sell enterprises to third parties. Many of the designated
businesses were either seized by Colombian authorities or forced to close because of the OFAC
designation. All family members involved in the enterprise have been designated and face the
same sanctions prohibitions.
One of the most illustrative examples of the crippling effect that an OFAC designation can
have on a business enterprise involves Criadero La Luisa, a horse breeding farm, which OFAC
designated in March 2003. The farm maintained about 300 paso fino horses-some of which
7.
8.
9.
8
The $2.1 billion figure i~ derived from the estimated worth of the 200,000 kilograms of cocaine that Gilberto and
Miguel RODR[GUEZ ORE}UEl.A admitted they imported into the United States and/or distributed in the United
States since 1990.
See text box, "Prepared Remarks on the Acceptance of Plea Agreements and 30-year Sentences by the RODRIGUEZ OREJUELA Brothers;' by Adam Szubin, Director Office of Foreign Assets Control.
TIlese companies include an industrial paper company, a real estate management company, a financial loan COIJIp<lny. and a maritime agency. See the section on the VALENCIA TRUJILtO organization for further details.
were estimated to be worth more than $1 million a piece. Prior to designation, U.S. customers accounted for the majority of the farm's horse sales and breeding services. Shortly after the
enterprise's designation, OFAC sent out alert letters to the U.S. horse breeding industry, which
effectively shut down all U.S. business relationships and hindered other lucrative non-U.S. sales.
North Valle Cartel - Examples of the RENTERIA MANTILLA, GRAJALES
LEMOS, PUERTA PARRA and HERJVANDEZ ZEA, and VARELA Organizations
Since 2000, OFAC also has focused its sanctions investigations on Colombia's North Valle drug
cartel. The impact of these designations is beginning to take hold. For example, in the past two
years more than $160 million in assets have been affected in a series of actions against four of
the more than 14 North Valle drug cartel leaders.
In March 2005, concurrently with the designation of Carlos Alberto RENTERIA MANTILLA
(a.k.a. "Beto" RENTERIA) , OFAC blocked approximately $1 million worth of assets belonging
to Beto RENTERIA and his family, including bank accounts, cars, and real estate in Boston,
Massachusetts and Miami, Florida. On May 11, 2005, OFAC designated Raul Alberto GRA]ALES LEMOS and in the following days, Colombian authorities arrested Raul GRAJALES
LEMOS and several of his SDNT associates on charges of money laundering.
In February 2005, five months after its designation by OFAC, the Colombian authorities seized
the airline, Intercontinental de Aviacion, controlled by the PUERTA PARRA and the HERNANDEZ ZEA organizations of the North Valle drug cartel. The seizure included the airline's fleet
of six airplanes worth approximately $21 million, according to a Colombian source familiar
with the airline.
In June 2005, shortly after having been designated by OFAC, Colombian authorities seized the
GRAJALES LEMOS organization-controlled Grupo Grajales-one of the largest agricultural
conglomerates in the country that includes a winery and fruit companies, as well as real estate
and other assets. The authorities estimated the worth of the conglomerate to be worth over
$100 million.
In March 2006, a Colombian newspaper announcement placed by the department store chain
Casa Estrella-controlled by the RENTERIA MANTILLA and GRAJALES LEMOS organizations and named as an SDNT in May 2005-stated that the chain would be closing its Barranquilla store. The department store chain's closing was due to the fact that it did not have financial services and checking accounts, could not accept credit or debit cards, and some national
suppliers refused to sell products to the chain. Subsequently, in August 2006, the Colombian
Government seized the Casa Estrella department store chain, along with other companies and
properties. The real property alone had an estimated worth of approximately $38.5 million
In June 2006, OFAC named five companies in Panama as SDNTs, including Ope Investments
Corporation, Elizabeth Overseas, Inc., Karen Overseas, Inc., Kattus 11 Corporation, and Rixford
9
SECTION 1
Investment Corporation. All of these companies had financial ties to the RENTERIA MANTILLA and GRAJALES LEMOS organizations in Colombia through associates in Casa Estrella.
SECTION 1
Shortly afterwards, the Panamanian press reported that judicial authorities initiated a money
laundering investigation against the fronts.
In September 2006, Colombian authorities seized properties and companies belonging to
SDNT individual Eduardo RESTREPO VICTORIA, a key associate of the VARELA organization. Colombian authorities valued the seized assets at more than $22 million.
In November 2006, within 72 hours of the designation of the soccer team Cortulua, the team's
president and three of its five board members resigned, sponsors withdrew their support, and
key business partners publicly announced the severing of all commercial ties with the team.
IMPACTS AND IMPLICATIONS OF THE SDNT
COLOMBIA ECONOMIC SANCTIONS PROGRAM
Economic sanctions are employed to expose, impair and impede, and to isolate and incapacitate
narcotics traffickers and their support structures. In the Specially Designated Narcotics Traffickers
program, there have been five major impacts on and implications for the drug trafficking groups and
their business empires. These are:
Asset Blocking in the United States. Any money, assets, or property of a designated person
within U.S. jurisdiction are blocked and any subsequent transactions which are caught are blocked,
depriving the designee use of these assets.
Isolation from U.S. Financial and Commercial Markets. Financial transactions and commercial
dealings by a U.S. person with designated persons are prohibited, barring the designee from the
benefits of the u.s. financial and commercial systems.
Isolation from Non-U.S Financial and Commercial Markets. Many banks outside U.S. jurisdiction refuse to hold funds, provide any type of financial services for the SDNT or the SDNT's
commercial enterprises, and have closed their bank accounts. Businesses outside of U.S. jurisdiction also may refuse to work with the SDNT or supply or do business with the SDNT's commercial
enterprises.
Law Enforcement. The SDNT list often provides a picture of the cartels' support networks, helping
inform U.S. law enforcement actions and foreign seizures and forfeitures geared to disrupting and
dismantling the financial and commercial infrastructure of the Colombian drug cartels.
Deterrence. Anyone-family members, friends, and associates-who is employed by the narcotics
traffickers or controls or manages their business empires is subject to designation under E.O. 12978.
The threat of designation and the reputational risk often deters top managerial talent-needed to
operate and manage the often complex drug trafficking money laundering operations and business
empires-from working for designated drug traffickers and their business empires.
10
SECTION 1
•
Prepared Remarks by Adam Szubin. Director Office of Foreign Assets Control.
September 26,2006
W,3sh'l'I\J!on DC
Today's agreements represenl Q1)vemme1l1 .1 il$ be~" By QlIoolnirtg lhe tinsndal sancUOIlS powers Qf
Ihe Tf08$Ul')' OeparllTlOOl with ,., law enfo1eemenl and etlmlnal authOiitles ". and wolklng eIosel~ wm.
OOt partners in COlOmI)ia, we haw CIlfJpled whae was one of tile mos1 notorious and danglllfOus drug
cartels in Ihe world,
Today's agreement ,.• brincQs into Sharp reUef Ibe power of financial sanc1ioos. Since 1995. Treasury's
Otfiai M Foreign As&eis ConliOl, 0( 'OFAC: Ms roll'lntJessl), pursuoo CoI(Kt'!bian drug cartels, USing
Edcullw Order 12918lcHiesignale and fR!flte Chi!! U.S.-controlled 8SS4its of Ovef l.2DO companieS aNi
fndM:Juais, We have foCIISed in particular all the notoritJus Cali ca.-eol, de$igfWlting: over 700 ellfilie5
aoct people Ihat were QC)etatinD liS frents for Gilbel10 and Mjguel Rod~\Je,z Orejuell), The heart 01 lhl:;
I1nanCiaI network was the COkImbJan dfugs.toro Chain Ofogas La Rebaja. as well ,as pharmaoeullcal
laboratorIeS lill.O Farmaooop', whid'l allOwed the RO(Irlguez Orojuelas 10 laundlt( their lIatOOlics pttIcseds
while providing an ostensibly legi1imale souree or il'lOO!11e fGf ramily members and 8$SOcl~es,
For 100 years. QFAC invesligators IltlfSllOO Ule ~od(lO,ueZ. OreJuela'lI dirty a:ssetsarolJO(! lIIe wOI"kI.
oocoverlng new fron' companIes In Colombia. Ecuador. Spain and $lx OIlwr couo1f'1e5, In lhe fllNly
attempted 10 mask lIS IinanCiallral1s 3M circumvent our sanctions.
The ~d olllle5e s.ancti()on5 MS beef! drama-be, 'IM1en OFAC desi;pn31es II J)e1'S011 or compeny, an)'
must be Iflllen. Trade wilh orlhrtlugh lhe
Unfted Slates is cui {/f/, Even more importanlJy, Colormian businesses and banks follow sUil.leve1ing
atl lieS. wtIh enliliC$ that OFAC ha., listed. Time and !'Igattl, U,$.4tlSiljjnalOd rrarccMa1ta1T1Cke1'$ nave
betll barred from oPening bank aCl;Xlu'/1tli in CoIombla Qr conducting business, And CoiQldlian
GSSeI$ held by a U.S. ~"or bank. anywlleft! In the won:t,
It1Alholili~ have Jrequently been a~le to ild 8galnst designated OQmJ)aJlies
It mnsM! klrlll'ituflt aCliDI1 IIgAinSt Ofogas La Reb-ajll,
Indee4l, in Ci;Ifomblll, being deslgn!l4t!'d
~
or propertie5. as Ihey dtd ill
OFAC is ftlferred to it$ 'muerte c/Yi~. Of cMl death.
This unallontlng presSUft!! was a key atlJ5e 01 leday'$ agreflmCt\ls. In a separalft agteerl'lflnt. 28
designated familv meMbefS of tile RodJlguez Orejuela famity haw 10day agre(!od 10 forfeit their Inl",!!'S.s
ill all f14Ircofir;s.«tlated enlilieS worldwide, inc!\Jding Ihe hundreds of entities designaled by OFAC since
1995. They haw also eommilled 10 assist U.S. aod Colombian gollBmmencs In an), fulUte forleiture
IIdiORS. If tIllt 28 Rodngooz Orejuela family member'S fully comply w~h the lenm of the agr"mefll and
meet all 1111111$ o. R!mDwl. we wlll I'rotk 10 remtJw Ihem from OFAC's JIst, Any 1uIure dealings wilh
narcoli1::i trilllcker!i. including on behaM of the lwo 5tilkj~ignated Rod~uez Otejuela bfOlher!i, will
land !hem baek oIllhe list,
Tod!IY's ou'come is II $U~S - two dangerous drug lon;is are headed 10 prison and Ih!;lir on,*~rll)l
nnandal empift! has. been dismantle". This re5ult is 8 team effort In every $enle of the word, and we
tldencl our d'eep apprecialJOn It) our tlediCated coIltmgtleS In Ine U.S. Allomey's Orbs in Miaml and
New VOlt. Ihe Drug Enforcemenl AcltnilliWatian, Ihe Oepartmer1ts or HomelarI(J S/leurlly and SUIte, arid
in the Coltmlbtian g.owrrun~ml And I wanlto tlxtend a spedal thanb 10 our l;!xc:eptional narwtics l!;Iam
&tOFACo
11
OVERVIEW OF
COLOMBIA'S DRUG CARTELS AND
DRUG CARTEL GROUPS
SECTION 1
For ease of reference, set forth below is a brief summary of the Cali, North Valle, and North Coast drug cartels and their principal component organizations. lO More detailed descriptions of these groups and organizations are set forth in Sections 2, 3, and 4, respectively, of this report and additional information can be found
in Appendix A and B.
Cali Cartel
The Cali drug cartel is based in the city of Cali, Colombia. Led by Gilberto RODRIGUEZ OREJUELA,
Miguel RODRIGUEZ OREJUELA, Jose SANTACRUZ LONDONO, and Helmer HERRERA BUITRAGO,
the Cali drug cartel orchestrated the manufacture of hundreds of tons of cocaine in Colombia in the early
1980s, which were then moved through the Caribbean and Mexico to U.S. markets. By the early 1990s, the
Cali drug cartel was responsible for approximately 80 percent of the world's cocaine supply. Actions taken
by U.S. and Colombian authorities led to the surrender or arrest of the RODRIGUEZ OREJUELA brothers,
SANTACRUZ LONDONO, HERRERA BUITRAGO, and other Cali drug cartel leaders between 1994 and
1996, and the dismantling of the Cali drug cartel's trafficking infrastructure. Colombian law enforcement
and OFAC actions led to the disruption of the business empires built with their illicit drug trafficking proceeds. The principal individuals designated by OFAC are:
•
Gilberto Jose & Miguel Angel RODRIGUEZ OREJUELA
•
Jose SANTACRUZ LONDONO
•
Helmer HERRERA BUITRAGO
•
Joaquin Mario & Guillermo VALENCIA TRU1ILLO
North Valle Cartel
Based in the northern part of Colombia's Valle del Cauca region, the North Valle drug cartel rose to prominence in the 1990s. It began as a splinter group of the Cali drug cartel following the arrest of Cali drug cartel
leaders Miguel and Gilberto RODRIGUEZ OREJUELA in 1995. Through its brutal tactics and alliances with
narco-terrorist organizations such as the United Self Defense Forces of Colombia ("AUC"), the North Valle
drug cartel was able to export over one million pounds of cocaine, worth an estimated $10 billion, to the
United States via Mexico between 1990 and 2004. In 2004, the Drug Enforcement Administration ("DEX')
described the North Valle drug cartel as the" largest and most powerful drug cartel in Colombia" and stated
that the North Valle drug cartel was responsible for one-third to one-half of the cocaine that reaches American shores. The principal individuals designated by OFAC are:
10.
12
Until the early 1990s, U.S. and Colomhian authorities had focllsed their efforts on the violent Medellin drug cartel. By the end of 1993, the heads of the Medellin drug cartel were either dead or in jail-Medellin Cartel kingpin
Pablo Escobar Gaviria was killed in a shootout with Colombian police in late 1993, the Ochoa Vasquez brothers
had turned themselves in to Colombian authorities, Gonzalo Rodriguez Gacha had been killed (1989) and their
financial empires were either destroyed, seized or in complete disarray. Ihe focus on the Medellin drug cartel <11lowed the Cali drug cartel to quietly grow in power and influE'nce and establish the financial networks that would
eventually attract the attention of U.s. authorjties prior to 1995.
•
•
•
Arcangel de Jesus HENAO MONTOYA
•
Victor Julio PATINO FOMEQUE
•
•
•
Diego Leon MONTOYA SANCHEZ
Gabriel PUERTA PARRA and Luis Antonio HERNANDEZ ZEA
•
Carlos Alberto RENTERIA MANTILLA
•
Raul Alberto GRAJALES LEMOS
•
Wilber VARELA
•
•
Jhon Eidelber CANO CORREA
Ivan & Julio Fabio URDINOLA GRA]ALES
SECTION 1
Juan Carlos RAMIREZ ABADIA
Luis Hernando GOMEZ BUSTAMANTE
Orlando SABOGAL ZULUAGA
North Coast Cartel
Various drug trafficking organizations based along the northern coast of Colombia have operated maritime
drug smuggling routes for the Medellin, Cali, and North Valle drug cartels since the 1970s. One major
North Coast drug trafficker, Julio Cesar NASSER DAVID, ran a drug and money laundering group based
out of the city of Barranquilla, Colombia. Since the 1970s, NASSER DAVID's organization has smuggled
multi-ton quantities of cocaine and marijuana to the United States via commercial shipments and maritime
vessels. This organization was seriously impaired as a result of NASSER DAVID's arrest in 1997, OFAC sanctions since May 1998, and NASSER DAVID'S subsequent death in 2001. The principal individual designated
byOFAC is:
•
Julio Cesar NASSER DAVID
13
Santa Marta
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SW Ba
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Buen ave ntura
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14 MAP OF COLOMBIA Cities in bold mark locations of Cali drug cartel businesses.
CALI CARTEL
During the time the Colombian National Police were engaged in their campaign to bring down
the Medellin drug cartel in the late 1980s and early 1990s, a group of powerful drug traffickers
from Cali, Colombia were building what was to become one of the most prolific and successful criminal enterprises in recent history. Led by Gilberto RODRIGUEZ OREJUELA, Miguel
RODRIGUEZ OREJUELA, Jose SANTACRUZ LONDONO, and Helmer HERRERA BUITRAGO, the Cali drug cartel trafficked approximately 80 percent of the world's cocaine by the early
1990s. At the height of their power, the Cali drug cartel's annual revenue reached an estimated
$7 billion.
Working collaboratively, the four principal Cali drug cartel leaders formed an organization
that handled both the entire chain of narcotics trafficking-such as raw material procurement,
processing, delivery, wholesaling, retailing-and subsequent laundering of the illicit proceeds.
While the Cali drug cartel consolidated the production and distribution of illicit narcotics into
one operation, the proceeds from these operations were distributed separately among four
major organizations, each headed by one of the four principals. Each organization largely invested, developed, and managed its own separate business empire. Each business empire grew
to include a vast network of companies, run by family members and a cadre of trusted business
associates in Colombia, Ecuador, Panama, Peru, Spain, and Venezuela. The Cali drug cartel
headquartered its business empire in and around Cali, Colombia, developing a political, social,
and business base of support.
The Cali drug cartel's operations began to unravel in the mid-1990s with a series of U.S. law
enforcement indictments, OFAC designations, and Colombian Government actions. Law
enforcement uncovered the various drug trafficking operations, while OFAC commercially
isolated the drug cartel's business empires by identifying and designating their companies and
principal managers. Ultimately, it was the sheer size of the narcotics trafficking enterprise that
made its operations vulnerable.
Sanctions against the Cali drug cartel began with the naming of all four Cali drug cartel leaders
by the President in the Annex to Executive Order 12978 on October 21, 1995.
As will be explained in more detail below, OFAC's continued sanctions pressure was a key
impetus to the guilty pleas of Miguel and Gilberto RODRIGUEZ OREJUELA in U.S. Federal Court in Miami, Florida on September 26, 2006. Miguel and Gilberto RODRIGUEZ
OREJUELA admitted to over two decades of drug trafficking and to laundering the proceeds
through the network of companies that OFAC had targeted in over a dozen investigations over
the past decade. The brothers were sentenced to 30 years in jail and ordered to forfeit up to $2.1
billion in assets.
SECTION 2
RODRIGUEZ OREJUELA ORGANIZATION
Background:
The Cali drug cartel was formed in the 1970s by Gilberto and Miguel RODRIGUEZ OREJUELA
and Jose SANTACRUZ LONDONO. While Gilberto and Miguel RODRIGUEZ OREJUELA
were initially involved in other criminal activities such as kidnappings in the late 1960s, they
gradually expanded into smuggling cocaine base from Peru and Bolivia to Colombia for conversion into powder cocaine. By the late 1970s, the RODRIGUEZ OREJUELA brothers were
known as major transportation specialists who moved cocaine out of Colombia into the United
States and other countries. Gilberto RODRIGUEZ OREJUELA was responsible for the strategic, long-term planning of the organization. Miguel RODRIGUEZ OREJUELA was the handson manager who ran the day-to-day operations. They maintained a sophisticated, highly-structured drug trafficking organization that was tightly controlled. Each day, details of loads and
money shipments were electronically communicated to heads of cocaine cells operating within
the United States. The RODRIGUEZ OREJUELA brothers were intimately involved in every
phase of the business-production, transportation, financing, and communications. They knew
the how, when, and where of every cocaine shipment, down to the markings on the packages.
They even set production targets for the cocaine they sold.
A November 1994 Drug Enforcement Administration ("DEA") report entitled, "The Cali Cartel:
The New Kings of Cocaine," stated that Gilberto and Miguel RODRIGUEZ OREJUELA controlled "what may be the most powerful of the Cali Cartel organizations."
In June 1995, a federal grand jury in Miami, Florida issued a landmark Racketeer Influenced
and Corrupt Organizations Act ("RICO") indictment against the leaders of the Cali drug cartel, including Miguel and Gilberto RODRIGUEZ OREJUELA, and charged the Cali drug cartel
with the importation of 200,000 kilograms of cocaine and the laundering of $2 billion from
1983 through 1995.
In reaction to law enforcement actions, the RODRIGUEZ OREJUELA brothers used a network
of family members and associates as front persons in their companies to disguise the true ownership or control of their assets. Both Miguel and Gilberto were identified early on in public
documents in Colombia as partners in several companies. Subsequently, however, they attempted to conceal their continuing control of these companies in order to insulate their assets
from seizure by law enforcement authorities. Their companies are now held under the names of
family members and associates who may appear as shareholders, officers, or managers at different points in the companies' histories, while in fact the companies continue to be owned or
controlled by Gilberta and Miguel RODRIGUEZ OREJUELA.
Gilberto and Miguel RODRIGUEZ OREJUELA were arrested by Colombian police operations
in June and August 1995, respectively. On October 24,1995, subsequent to their naming by
.•.•
17
SECTION 2
the President in the Annex to E.O. 12978, OFAC designated 13 businesses and 32 individuals
involved with the RODRIGUEZ OREJUELA organization, including its most important asset,
the Drogas La Rebaja drugstore chain.
In late 1996, the RODRIGUEZ OREJUELA brothers reached an agreement with the Colombian Government to plead guilty to drug charges in Colombia, rather than face future possible
extradition to the United States. However, they continued to control the Cali drug cartel from
prison.
Since the implementation of E.O. 12978 in October 1995 until September 2006, OFAC continued to identify new assets of the RODRIGUEZ OREJUELA organization and followed the organization's attempted evasions to preserve assets by changing names or restructuring of already
designated companies. This resulted in the designation of 246 front companies over 11 years
under at least 12 separate OFAC designation actions against the RODRIGUEZ OREJUELA
organization. OFAC identified assets of the organization in 10 countries, including Colombia,
Costa Rica, Ecuador, Panama, Peru, Spain, Venezuela, the Bahamas, the British Virgin Islands,
and the United States.
In December 2003 and March 2004, two new
federal indictments were unsealed and extradition warrants filed requesting that the Colombian Government extradite Gilberto and
Miguel RODRIGUEZ OREJUELA, based on
new U.S. charges of narcotics trafficking and
money laundering. Subsequently, they were
extradited to the United States in December
2004 and March 2005, respectively.
In September 2006, Gilberto and Miguel RODRIGUEZ OREJUELA pled guilty to all federal
drug trafficking and money laundering charges
brought by the U.S. Attorney's Office for the
Southern District of Florida and the u.s. Attorney's Office for the Southern District of New
York.
Related Impact:
EXCERPT FROM THE
SOUTHERN DISTRICT OF
NEW YORK INDICTMENT
"In 1996, after OFAC applied sanctions against
many of their principal companies, Gilberto
and Miguel RODRIGUEZ OREJUELA arranged
for their pharmaceutical drugs to be sold to
numerous companies outside Colombia in an
effort to protect their assets and avoid OFAC
sanctions. These foreign companies were effectively controlled by trusted associates of the
Cali Cartel. In addition, after their companies
were sanctioned by OFAC, Gilberto and Miguel
RODRIGUEZ OREJUELA and their criminal
associates established "new" or "re-organized"
companies from the previously sanctioned
companies. These "new" companies simply assumed the assets and continued to perform the
services of the previously sanctioned companies."
OFAC designations since October 1995 helped
identify the RODRIGUEZ OREJUELA financial
and business empire throughout the world. The
economic sanctions played a key role in the commercial and financial isolation of the
RODRIGUEZ OREJUELA businesses and impaired its organizational integrity.
In Colombia, subsequent to OFAC designations, the authorities have seized the majority of the
RODRIGUEZ OREJUELA organization's assets in the course of a number of large operations.
In September 2004, the Colombian Government finally seized the drugstore chain Drogas La
Rebaja in what was considered the largest asset forfeiture operation in Colombian law enforcement history. A team of 465 Colombian prosecutors, accompanied by 3,000 police and 20
accountants, seized all Drogas La Rebaja drugstores across Colombia. According to Colombian
officials, "This is the largest occupation ofproperty linked to the drug trade in the history of the
country." The drugstore chain was valued by Colombian authorities at approximately $220 million.
In August 2005, Colombian authorities followed up the September 2004 seizure of Drogas La
Rebaja by seizing nearly aU the RODRIGUEZ OREJUELA property on which the drugstores of
the chain were located.
In May 2006, Colombian authorities initiated a second follow up operation to the September
2004 seizure of Drogas La Rebaja and seized the RODRIGUEZ OREJUELA company Prosalud,
a 17-drugstore chain based in Cali, as well as numerous other affiliated companies, including
Credirebaja, the credit card company used by Drogas La Rebaja.
Also, in May 2006, a Colombian judge ordered the forfeiture of hundreds of assets belonging to
Gilberto and Miguel RODRIGUEZ OREJUELA, including 74 properties located in Cali, Bogota,
and San Andres, their shares in the professional soccer team America de Cali, and 17 companies. These property assets and companies, valued by Colombian authorities in excess of $45
million, had been seized in operations since 1996.
In September 2006, a major agreement was reached with Gilberto and Miguel RODRIGUEZ
OREJUELA when they pled guilty to drug trafficking and money laundering charges. They
agreed to a forfeiture of up to $2.1 billion in assets to be levied against their narcotics-related
assets found anywhere in the world, as well as all RODRIGUEZ OREJUELA business entities
worldwide. These entities are mainly the 246 front companies already designated by OFAC over
the past 11 years under at least 12 separate OFAC designation actions. In a separate agreement, 28 family members of the RODRIGUEZ OREJUELAs agreed to forfeit their right, title,
and interest in all RODRIGUEZ OREJUELA business entities worldwide, including all those
designated by OFAC since 1995. These family members also agreed to forfeit and/or divest
themselves of all the businesses on the OFAC list, in addition to continuing to assist U.S. and
Colombian Governments in any ongoing or later related forfeiture actions against their assets.
If the RODRIGUEZ OREJUELA family members fully comply with the terms of the agreement,
they will be eligible to be removed from OFAC's SDNT list. These agreements resulted from a
combination of the sanctions powers of the Department of the Treasury with the authorities of
19
SECTION 2
the U.S. Attorney's Offices in Miami and New York, the Drug Enforcement Administration, the
Departments of Homeland Security and State, and Colombian authorities.
In November 2006, the RODRIGUEZ OREJUELA brothers entered their gUilty pleas to money
laundering charges in the U.S. District Court for the Southern District of New York.
20
RODRIGUEZ OHEJU LA ORGANIZJ:\TION
KEY
FAMilY
MEMBERS
~
J.11me
RODRIGUEZ MONDRAGON
[l<~S'i!n"!Qn
Pal;' 21 ·0::1-199:>
Reldl r)r;~,tl'lr SOli c·, GIIl)('f!C'
Gllberto Jose
ROOR1GUEZ OREJUELA
EIII
Humberto
R{)ORIGUeZ MONDRAGON
Maria Alexandra
RODRIGUEZ MONDRAGON
DrS1eY.JtIGfl DJtc' 21 O~t, W%
R>:lJUonYllp 51}n 01 GLtI"f!O
[)('Slf,IIJ1l(VI DiJ!c 21 Dcl 19'"rS
R<?'.)!II:;mhID OJlJgnt~1 01
CedulJ lU,,gP~:..!I:.l
IYJI3 71·JW1·W63
tl!clulil lM:lJS,/;>
008 30 Mdr NtO
Gdt<JflO
C!:<.liIL3 Me 10048
nC~l :~-Mily'1'i'6'}
A1iaHS. °E I AjlXlrCClSta·
(me C!less Plil',.(1)
Date of Designation '21 ·Dcl -1995
POB COlornOO
DOB: 3H~II-193'9
cedwa Number: 606801S
Passport Number: T"321642
Indictments 1m RICO InOlc~ment of
Cali dll,g cattelln soutnern Distrli:!
of fiOorlda. DeC·2fXl3 (SOut11ern
Distllct ot Florida). Mar·2C()·~ ISoothern
D,stnct 01 NevJ York)
An'eStslCOOYictkms EXlradlKI{j 10 u.s
from COlCmbl,] In DtK-2\Xl4 Pie <)jt;{l
gUilty to all federal drug trafficKing an<1
ITxmey laur'tdeflng ct1arges In 5eDt·2C06
William
RODRIGUEZ ABADIA
C>e-:..gT1,JWll D.:J!-.; 21 Co:! 19'):,
R{'\J~lonSl1iC' So'! 01 t.'1~:lJf'1
(<'I1llla 11)71(-./:.9
~>Ir;,",Jr'Ofl
C(.juLl
-
Deslgn.Hlefl rutC' ]10(1·19%
R('IJt:crt-,,11'(l D.}JilfltC't oi Gdtx'r!(;
Ce.]",l,] 51741013
DOe ::0 Ilin 1963
'
[fJ
I
.~
.
KEY
Extradltl:d to
0,:1 19')5
}.
l1e l_Jtl0n.,llIp NiJ(;II('W
CC'{]ul') 167{l31.t&
DCa 25S1;'Pi, Nt"!
Ane~c.onvlctions::
,t
D.;,,;:tl~cr of ~"'~IJ(·I
}';In ,:D',
1
(ft!~I~nmonD,l1e :lH):l,j';>9"
the United States from Colombia In
March 2005. Pt<eaOed gwlty to all
federal drug IrarfiCl!:lflg anCl mone'y'
laiJflderlng Charges in Sep!-20C6.
OJte
DOe 1/M:J.,-w/'l
Juan Carlos
Aliases: °EI Seilor"
Date of OesignatJon: ] HXI 1995
POB: COlOmbia
008: 2J.NO'/-1943
Cedilla Number 6095803
Indictments: 1995 RlCO mdlctment
of Calj drug C.;1rt€'1111 SOuthern I)lWlct
of FlonO(l; Dec-2003 rSOlJthern DIStrlc1
of Florl(Jal; Mar-20J4 fScuthern Dt5tnct
of New York)
Claudia Pilar
RODRIGUEZ RAMIREZ
R('laI.Cl'sI1IP
DC~' :~'Ii,li-l%;,
MUNOZ ROORIGUfZ
Miguel Angel
RODRIGUEZ OREJUELA
carolina
RODRIGUEZ ARBELAEZ
Mana Fernanda
Andre Gilberto
RODRIGUeZ ARBELAEZ
RODRIGUEZ RAMIRfZ
Oc$j~:naIOr. [)"~e
Fernando AntoniO
GUTIERREZ CANCINO
~"'31.:rty.)n D,)1[~ 21-0ct-I\I95
Cc.::MJ 608"1071
009" ()('C1941
Jaime Alberto
ARlSTIZABAl ATEHORTUA
Oes.-<grulr:lfl DJtc S-Ma,·1?'6
Cl'dU!il: 16756325
(lOB
11
au, 1968
C'i''SlgrUIIOfl Dar,,: f"f etl-tO)]
1!.()C1-X0::1
","'-dtIOfiS/lip ().,iUi!:flt'::1 Of W,.!:uCI
(.;caulL!,6t.8IioF6S
COOS 18 NDV 1973
BUSINESS
D
!I
fi€'MhOn,hlp Son CIf G·it'.02r1G
CeelM 167"18937
DOB ?2MJt 1972
ASSOCIATES
D
Alfonso
GllOSORtO
Des;~nal()O
1);)1(, 21 O(1"m
O,dui<) 14949279
()(;t) , I·Dec·19M..
D
eduardo
MOGOUON RUEDA
D..'YIll'.'iI~' Da~('
21 .()(t· W9S
GeOula 1'1"94691
008 ~Feb-1953
ORGANIZATION CHART
21
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PI"tJffO!) IJ2
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C(, )tr'~:H~~
• S-,}r.'!I:jf.","S
In (Klobef 1995, srmuilaneoU1 to Ihf' Pr~ent's naming of Miguel and Grlbeno ROORIGUEZ cmEJUELA in
lhe A"'nl?~ 10 £~utiw Ordt!'f 12978. Of'AC named OROGAS LA R{SAJA.'Is .n SDNT,
r~u1t of ,Iwo
~~i9nation.it WdS {ul-<)ff from the U.S, financl.al sy1lem and (olomboan bank1 cI~ OOOGAS LA RE8AJA'~
OKco'lmh.lo(cinfj/lhco Op<-I.,lio<> to won on., c,un binis .~rn:t limili09 115 de.IIr"'9\ wilt. Olher busin~lol"~
~,I, jfl k: J
• P:J<,I',:CS CDnrJ0r UII:I
• 11.(J.IIJ;,J t (Jrnu!_ 1:"'1 '~' A~..:~>· (::'t<l it~J'_I!~';
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lOUl1et1I1l: BatranQUil1d. BQgolll. BucJrarnJf;gLl. CJII,
~J. p~(), Petelfll. and quitO. E'::uador
grew. ~ did
their drug stOle! ch.ain nd'ffi(!(j DROGAS LA REBAJA It quickly became (olombi.1'slargest ph.i\rmdc)" valued
by Colombian ilVlhOflIIC$.u lIpptO)r"mill4."ty S7l'O nulhon in 2004. lind 11'1... fl",g$h;p compdl')' 01 ,he
RODfll<jUEl OREJUHA or9,)niz<ltlon'~ fWlolnci.,I o>nd busini!S5 (!'ffipl'lI!,
Kf!2~S'i)tl
• h:"'!LJ
on OROGf:..,S Ll\ REBAJA
A~ 'he drug .. "frJ<kin9 C><9",ni/4Iion he.sdcd by M'9~~1 4nd G41~lo ROORIG\l[Z OREJUfLA
1
B)' Nrly July 1996. William RODRIGUEZ-the son of Migucl AODAJGUE2 ORfJU£UI. told .. Colombian n_5
md'Q"lin(' It\dllho:ir-bu~nl~!.ol·51.k(' DROGAS lA REBAJA '" m,)f ha~ to shu1 down,' ConWqlX'nUy, in tin
effort 10 evade OFAC sanctions, DRO<:iAS LA RE8AJA wai ostens.bly sold to lis 4,000 emplO)'E'es fOI
"PPrQxirn.tcC'ly S):2 milloon und<l'r a "'Qrk~... '~ (OQPC"'o'IC""""ilmed COPSE R'IJR which jlll('mp'l~ 10 OlWn 10(<11
bitnk a«o~t; aoo I!"Stablish bu>ines~ ties W1th U.S, films, tn A.pli.1997, OFAC ai~ named COPSERVIR.n <In
SDm.
DRO<iAS LA A:ESAJA conI inucd 10 If)' to t'v3de U.S, s.1nctioo~ However. OfAC~ 00'901"'9
I~
InIle~tig"Hion
of
ROORIGUEl QREJUl'LA organi.l.'llion and OROGAS LA Rf.!!AJA, ff"\leat.ed " I;ompte)( ne[wOtit of ;tOI1\
comp3nit'~
Ih,oIJg!lQul Colombl,) and nt'ighboring counllies, inc!IJoing [CUdoor, Pl"ru. VenE'lUt'ia. P,)n,)~,
Costa Ai£a . .!Is well as fin.all<j~ IrOOls in the ll.ah.Jm.u,tne. Ek.[I~h Virgin Islitndi, and SPdln. afAC r,,'gel~ th..s
I.Hge nctwark of front comp.ilnic1 in seven ~l"par"lc d~i9fl.i1\ion .actions b<'t¥oI~n 1999 .and 1004. fctCin';}
cICJSUtl!' of occounts and comrnefciai dealing. WI[h the~e froot~ In the Unlled StalE'~ and promp(mg sitJ1.laf
.Kbans C'l~l(" by "on·U.S, Pdrtl('~
In anempt~ to removE' the ~nctjom, (OPSfRVIR filed comp/.alnts In both the Unlted S.ull~ and Co4omboan
()UrIs in 199'8 .'Ind 2001, fo:1pc< ti'>'<"ly, In the Umted ~l"'t~, lhe ft.-dcr4A 0111"<1 Court for the Oi~lri" of
Columbia dlsmis~ COPSElIVlft's complaint in 1999 for lack of ~and.ng and tailu<e to 'Stale a cta.m. and
II~ (omt'$ d~~l()n wu upheld by the U,S. (wrt of Apjl(:'~I~ 'or Ihto D.C. Circuil il'1 2000, Coos><ratr.'O
Mulrioctiva, 2.21 f,Jd 195. In 2003,100 Colombian Con~tilvtion.al (ourt ruled i19a4n§t COP'SERVIR m rH
cOInplainl. allowin.g b.anb to close 1I,,()unl~ of SONTs due 10 ti~k..
OFAC's aclions
O'lt'f the y<'.1fS
.'Ig.aimt DROGAS LA RfBAJA and rl!'ialed f,onl5 prompled the Colombian
.he dfug 5.lore chaon, ~ln9 it In $eoptM100
G~lnmenl 10 1n<1I4U!' iU own a~t fotf~lutt CoI-«' a41in~1
2004. Shorl.., aftl?f lhe Soe'izurl? OFAC ~t,)blrmed i) IOcen~n51 policy thill allows u.s, suppliPfo [0 c<l9d91!' in
uansacllom wllk the drU9 ~tore ch.aln.IMJ!' pre5<l!'f\ling \he (ompan)l's comm.etclat viability under
Colombian Go\~nmf,lnl tc:.ntlot.,nod f,lnsurin<jl lhe (QI'1\inuro ~pIo~t of 4..QOO druljI ~IO'C wolko:rs.
22 TIMELINE
Od, }!;OJ
MI\'.iOOJ
ftCl.M.lf. ;>!XI)
PI'\:. ;>(QJ
l,!.y.
•
t:Ht:.~~
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!MtnbuCl(l\1 Y Sl!r\"CtOS A{lm~2!"lratr..'O;1
• Mmln'!,trdOl)t.] oe S!:-fVIUo:. ~1(I5 (.,Jhrm S. A
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• Comt'f(l';''\l,J()()( J Inti'rliJl S A
• Contact£{ C!)mUl1!GlC\D~, $110
• Coopcr~\)' Ul,~.,). C!l(ID0!;l:IVJ ~ Tr.,lYJjD
Asoc,,'100 00 C{)I~.r.OOI
• COOpefiIlI...a ~n::,;lfml CpklfTc•.'mi! CIXfTIe':Qi
• COOper~la MW~IJ~tr....l do" CC-IO<1,Q:J
'l)51",?X!Xlf1 COl'·',,'r.: 'Jlll.:leOf.~ Intt:t',1'; ·.f':ll
SA (jl k a IJomr..;xr;o:wt $ A)
, • llrOC.¥C !>A
• ~atmJ 3 {OJ Lmll1iJ{Ja
• ~anna XXlltoo
• NILI!> E:,c'U'<:'><.f ArbY" S A Id.~ .1 AI It!"::. S A I
• Corni"'::fOg,as Lict.l 1<1.1<:.03 COOP€"iltNil
M,Ii1!S>:;fViCtl}S;ji:o DrU.>;'''5UI~ Lto,. t
• CO{lpifittm"llil ~':l CooperillNil M •. i1;,'Kll...&
ct': tomerCl8klJCKlfl V s"",',1C'('6 rj.!
cos UCla
• O::·;:>;:~ya~N3 M.:1(3nt' 0\:, $1.;' Wi" 10 i: J
O.lo.')plroerE.';I, <I ~ it n.l(1m~r;;ur)
•
t~~a!l\'ill.',...lI:K1ria elf! Corlll.'·c DffJgti'.~1a
" fJlll',KC'UI.':;\ OlOf,J((o (a ",J. [;~O!dr((iI
• CC';:(,j(-(,1:r'iil ~.~'.1IJC'trva (li5trtOUIoora 0(:
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• [),sl.nIJlJ';'kifil {j,,, Villh~ (
,j
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• GenenC05 t~"Jle!> 5 . A 1.. k .j. C... (.es '5 A I
cocuw.~,
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• D.'E!rSJOnt!$ 'II {l\;;1r.tlK ,f€S lo. M M una
"UltJM de (OSt~W~lK(J~ Y ()t'~"l~~t'.lo{)t-.?'~ 5.1\
• [S/J.rx-na comefO;:;"l,JJ1cra ce Mt't1Ic.am£-'l·
~(;~ r.en~~fh<:f;~ S A hll:. a f ~pt'"..~ni1 !) A )
• MiJlena:; PI n135 v SU!l1tV':.tms S /, 1.a".1
• kJn\.'!gil de C;)5li1 f(I[21 S A In ~ d !n~f!rliJr!"'il
Ma!5JJtTl5.At
• IjIJI1!;( LWil
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ue bt!>lflttUl.:::;';;1 ~4ega~tH·n"1.J L!d;.,
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y Mar1re~inp' uoa (;,;:"
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• SlljlJlA.:(~~'" o::(,A!r iltl'i,cl;
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• CoitJrma Pel uSA
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• l!J,\l!'rones S,l>"llplol E U
• Fdm"2<I.' U'J.1
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• ',1;,1 Pl\ijiln,,,;;'yi'l WI..
• W;:;~;j II dtl£! l!lld
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fdrrnoJ~~utJ(Cl$ f~xC,i'I),)(md
• G Me Grupo M;;.l'J"ac ~)n CQ\)ftlC<O:lffO
L:da I
• Genera! lE NegoClO.'5 f' i\!lfT'.!1;;.lril(,C(l ! 1('..,
i<l.iI;.i!. G<!fIi!gd Utid 1
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bkrltfl.ti'\l!U.-
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• NUl D stnbUOGflt!$\tttl
, (lj'~lCt'~IJ!'ld1jGfd C\' j>rtJ(!Ul~11~4 F"fln.~eult
Y p,,:a!Llga)
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• f<:ogell'..a SA (il. <;.;3, I-VI!1VJS (;~I1'!fU:;r,
fiiffl1JC'~iJliCas SA)
'lnt~ju
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A7J«.'\do A[1''iar)
SA)
at' 0)1)":'11:;,,,, SA
mcl'i'lIIldlllg
.:11'
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• AL1rVJr 1,11 <l. Ct>OPl'fill,.'J -de [rub,!!;)
• L<lb'JI .Jt(.¥o~'~ CcnwW,)itldriOf.J Ijl!
WJfC,,::,,).ti('fltoS OrO'..":1111 :;, II IJ~ J DfOtJl.:Jl'l
• O!SIrIOO(.:l!'1<..'S (JIOITHI lWil
cor~
2004
• t.,lbora!cn'j5 Pr.:;fan1'.a U(1il
Crocbi.o Pilra eI Prc.gresJ) SO("111
• CredMtla
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ood t"OW{f1(R
• Irlccmme1ce S A
• Croolsol (,a.1t il COOt:J('1'J!Ni; 00 l>J"'Y'() "
fn."","'m,u'"
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• ur.::.::;a ~•.'.Jpn
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• CoIlf11e:J, U:lil
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• C A 't ; CO:j;~'I.}lIG\' L10s
• C YS Medios Lu
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I~'::t+
October, 2003
• f<SIl>tf.ln~;a PrOlf.l900{!<' E~;JI.liICJ" L'I\
FQmilnl'lj'p.(I5 W ~ il
ial"~T4i
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February, Marcil 2003
n hen:
po.'1>:ylllbfq
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SA;'
• PtOl1uctO$ Gab V (.1' Ulj~
• Pr~..aII.(J '( Bl€oesMf 5 A
• LJtH K"lI'lICflC<1H.l do:'
t.atmf<ltm3co'S 5.A )
• prem«;f S;;,<,e:5 $ A
• lien!ar Inrnol:t.i:arra S.A
• ~)nt.K:l()n!!·3 v i.k;tnt'lU(K"l!!~ HWtk)" Y
A.w. ..:mos SA
• S@lWT<l de! Wille r u
• 5eJ'ilOOS Fuluf<J l:tnltilCJ \<1 X. J SiifVllutJ,;
::"rmacos 5 A lti k a
"tocated irl:'C~t81bci E'.::uaoor. peru~~· .
~;MJ1a
Uda.~
• $l)J'ilOQ~ W1{f?£ f U
• SI1iJf\!el SA
, 5isIerr(ls Y 5er\'C'fl'; 1t'Cn,((1S rlT~"~"''l
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• SUpell)!n UclJ.
'TBCn.c.MCCIltlltt.oi"S~' A{ilnI"IW:II'.r.l'> ,!"
lecCl1t~
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\loa)
TIMELINE
23
Cali Drug Cartel: Gilberto Jose & Miguel Angel
RODRIGUEZ OREJUElA
TYPE OF INDUSTRY
AgroIndustrial
Construction
C{Jnsultil'lg
,
Investment
Bogota
• construcciones Avendano
Gutierrez y Cia. Ltda. (a.k.a.
Conage Ltda.)'
• Construcciones Colombo-Andinas Ltda.'
• Sharper SA'
• Direccion Comercial Y Marketing Consultoria Empresa
Unipersonal (ak.a. D.C.M
Consultoria E.U.)"
•
•
•
•
Claudia Pilar Rodriguez y Cia. S.C.S-'
Fiduser Ltda'
Inversiones Geele Ltda. (f.k.a. Ganadera Caqueta LtdaY
Valores Corporativos SA (a.k.a. Valorcorp SA)'
•
•
•
•
•
•
•
•
•
•
•
•
•
2000 Dose E.U (a.k.a. Doma EM)'·
A GRepresentaciones Ltda."
Amparo Rodriguez de Gil y Cia S. en c. 3
Asesorias Cosmos Ltda.'
Internacional de Divisas SA"
Inversiones Ara Ltda.'
Inversiones Camino Real SA'
Inversiones Capital Ltda."
Inversiones Jaer Ltda'
Inversiones La Sexta Ltda.'
Inversiones Miguel Rodriguez e Hijo'
Inversiones Mompax Ltda. (a.k.a. Mompax Udal'
Inversiones Mondragon y Cia. S.C.S. {f.k.a. Mariela de
Rodriguez y Cia. S. en cy
Inversiones Rodriguez Arbelaez y Cia S. en c. 3
Inversiones Rodriguez Moreno y Cia S. en C.'
Inversiones Rodriguez Ramirez y Cia S.C.5.S.'
Inversiones San Jose Ltda. 6
Inversiones y Comercializadora Ramirez y Cia. Ltda.'
Inversiones y Distribuciones Com pax Ltda. (a.k.a.
Compax Ltda; n.k.a. Inversiones y Construcciones
Cosmovalle Ltda.)'
M. Rodriguez O. y Cia S. en c.'
Mariela de Rodriguez Y Cia S. en C.'
Mariela Mondragon de R. y Cia. S. en c.'
Marin Estrada y Cia. S. en C.S'
Munoz y Rodriguez y Cia. Ltda.'
Obursatiles SA (a.k.a. Operaciones Bursatiles SA
Comisionista de 80Isa)"
Cali
• Agricola Humyami
Ltda.'
• Comercializadora
de Carnes del Pacifico Ltda 3
• Export Cafe Ltda 3
z
o
CI
w
a::
• Andina de Construcciones
SA (n.k.a. Interamericana de
Construcciones SA)'
• Constructora Central del Valle
Ltda. (a.k.a CCV. Ltda.)'
• Constructora Gopeva Ltda 3
• Constructora Tremi Ltda.'
• Interamericana de Construcciones SA (f.k.a. Andina de
Construcciones SA)'
• Inversiones y Construcciones
ABC SA (f.k.a. Inversiones
Camino Real SA)'
• Inversiones y Construcciones
Atlas Ltda. (f.k.a. Inversiones
Mompax Ltda.; f.k.a. Mompax
Ltda.J'
• Inversiones y Construcciones Cosmovalle Ltda. (f.k.a.
Inversiones y Distribuciones
Compax Ltda; aKa. Compax
Ltda.)4
• Reparaciones y Construcciones Ltda. (a.k.a. Reconstruye
LtdaY
• Valores Mobiliarios de Occidente SA'
• Asesorias de Ingenieria
Empresa Unipersonal (a.k.a.
ASing E.U.)'·
• Asesorias Economicas Munoz Santacoloma E.U. (a.k.a.
Asems E.u.)'·
• Asesorias Profesionales
Especializadas en Negocios
E.U. (a.k.a. Aspen E.U.)'O
• Prospectiva Empresa Unipersonal (a.k.a. Prospectiva
EU.)"
•
•
•
•
•
•
•
•
•
•
•
•
Outside of Colombia
Bahamas
• Ardila-Marmolejo, Ltd (f.k.a. Huyo-Giraldo, Ltd.)"
• Galaviz Corporation Ltd."
• Sepulveda-Iragorri Ltd."
British Virgin
Islands
• Kesman Overseas"
• Zaratan Corporation 13
Florida (U.S.)
Panama
Spain
Footnotes indicate date of designation by OFAC.
(1) 21-0ct-1995
(2) 29-Nov-1995
(3) 5-Mar-1996
(4) 17-Apr-1997
(5) 30-Jul-1997
(6) 26-May-1998
(7) 8-Jun-1999
(8) 22-Feb-2000
(9) 22-Dec-2000
(10) 6-Feb-2003
(11) 21-Mar-2003
(12) 8-May-2003*
(13) 17-0ct-2003
(14) 17-Nov-2004
• Blocked Pending Investigation.
1
24 ORGANIZATION TABLE
• Ash Trading, Inc 13
• Internacional de Divisas SA, LLC 11
• Sepulveda-Iragerri, Inc. 12'
• Farfalla Investment SA"
TYPE OF INDUSTRY
Radio/Sport
Rea' Estate
c
~
c
c
Other
c
'
c,
<
"
,
'
Bogota
• Consultoria Santafe E,U.lO
• Servlcios de la Sabana E.U. (a.k.a. Serbana E.U.)lO
Cali
•
•
•
•
•
•
•
•
•
•
• Color 89.S FM Stereo (a.k.a.
Radio Unidas FM SA)'
• corporaeion Deportiva America
(a.k.a. Club Deportiva America,
Club America de cali),
• Creaciones Deportivas Willington
Ltda.'
• Farallones Stereo 91.5 FM (a.k.a.
Radio Unidas FM SA)'
• Radio Unidas FM SA (aJ.a.
Color 89.5 FM Stereo and
Farallones Stereo 91.5 FM),
• Revista del Amer'lea Ltda.
• Sociedad Comereial y Deportiva
Ltda.'
• Sonar FM E.U. Dieter Murrie
(a.k.a. Prisma Stereo 89.5 FM,
Fiesta Stereo 91.5 FM),
• Sonar FM SA (f.k.a. Radio Un idas FM SA Color Stereo SA,
Color's SA)'
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Alero SA"
Aspoir del Pacifico y Cia. Ltda. 3
Clinica Especializada del Valle SA"
Comercializadora Orobanea SA (a.k.a. Socir SA)3
Comteco Ltda. (a.k.a. Comunieaciones Teenicas de Colombia Limitada)8
Comunieaeion Visual Ltda. (a.k.a. Comvis Ltda.)9
Contactel Comunicaciones SA'
D'Cache SA'
Derecho Integral y Cia. Ltda.'
Distribuidora Migil Cali SA (a.k.a. Migil; a.k.a. Distribuidora Migil Ltda; a.k.a.
Gran Cadena de Almacenes SA; a.k.a. Gracadal SA; n.k.a. Dism)'
Fundacion Vivir Mejor (a.k.a. F.VM.)'3
Fundaser (a.k.a. Fundacion para el Servicio del Ser Integral; a.k.a. Fundacion de Cali Para el Desarrollo Humano; a.k.a. Fundecali)13
Haydee de Munoz y Cia. S. en C3
Hielo Cristal y Refrigeracion Ltda. (a.k.a. Cuatro Frio)11
Industrial de Gestion de Negocios E.u.'
M CM YCia. Ltda 8
M.O.C. Echeverry Hermanos Ltda.'
Maxitiendas Todo en Uno'
Media Marketing E.U.tO
Occidental Comunicaclones Ltda. 8
::tJ
m
Ci)
o
z
parque Industrial Las Delicias Ltda'
Producciones Carnaval del Norte y Campania Limitada'
Recitee Ltda.'
Representaciones Zatza Ltda. 14
soraya y Haydee Ltda'
Supertiendas La Rebaja (a.k.a. Distribuidora Migil Cali SA)'
Tobogon'
Outside of Colombia
Bahamas
British Virgin
Islands
Florida (U.S.)
Panama
• Inversiones Carfeni, S.L.'3
• Inversiones Claupi S.L.'o
• Inversiones Espanolas Femcar S.L. lO
• Inverslones Inmobiliarias
Valeria S.L.'o
• Jaromo Inversiones S.L. tO
-
• Val ores Corporativos Espanoles S.L.tO
•
•
•
•
•
•
•
2000-Dodge S.L.tO
Cafe Andino S.L. 10
CPV Sistemas Graficos S.L.'o
Customer Networks S.L.'o
Galeria de portales, SA"
Rodriguez YTolbanos SA 10
Sociedad Inversora en proyectos de Internet, SA'3
Spain
ORGANIZATION TABLE
25
RODRIGUEZ OREJUELA Business Logos
armacoop
fUNDASEA
26 Business Logos
SANTACRUZ LONDONO ORGANIZATION
Background:
In the late 1970s, Jose SANTACRUZ LONDONO was first arrested by U.S. authorities on drug
charges. After being released, he continued his drug trafficking activities and by April 1980, he
had become a Drug Enforcement Administration ("DEA") fugitive. SANTACRUZ LONDONO
was ultimately the subject of four U.S. federal indictments for drug trafficking and money laundering.
By 1990, Jose SANTACRUZ LONDONO was considered to be one of the highest ranking
members of the Cali drug cartel leadership. He was also one of the most violent of the Cali
drug cartel leaders-he was wanted for the 1989 assassination of the former governor of Antioquia, Colombia, Antonio Roldan BetancUf, and ordered the 1992 slaying of a New York investigative journalist, Manuel de Dios Uname.
Although his talent rested in managing international cocaine transportation networks, his organization was also involved in drug production, wholesale distribution, money laundering, and
playing a key role in the Cali drug cartel's intelligence collection effort. SANTACRUZ LONDONO's major u.s. wholesale cocaine distribution and money laundering operations centered
around the New York City metropolitan area, but his organization also operated in Miami, Los
Angeles, San Francisco, Houston, Las Vegas, and Chicago.
In June 1995, a federal grand jury in Miami, Florida issued a historic RICO indictment against
the leaders of the Cali drug cartel, including Jose SANTACRUZ LONDONO, and charged the
Cali drug cartel with the importation of 200,000 kilograms of cocaine and the laundering of $2
billion from 1983 through 1995. On July 4, 1995, Jose SANTACRUZ LONDONO was arrested
by Colombian authorities in Bogota.
On October 24,1995, SANTACRUZ LONDONO was designated by the President in the Annex to E.O. 12978. OFAC subsequently designated 20 businesses and 11 individuals involved
with the Jose SANTACRUZ LONDONO organization-almost all located in Cali, Colombia.
On January 11,1996, Jose SANTACRUZ LONDONO escaped from La Picota prison in Bogota,
Colombia. In March 1996, SANTACRUZ LONDONO was killed outside of Medellin, Colombia.
As is often the case, family members and associates of SANTACRUZ LONDONO attempted to
preserve his organization's existing assets by changing the names of already designated companies. OFAC followed these attempted evasions and in July 1997, OFAC designated an additional
five front companies and five individuals acting for or on behalf of the SANTACRUZ LONDONO organization.
27
SECTION 2
Related Impact:
OFAC designations and economic sanctions played a key role in the commercial and financial
isolation of the SANTACRUZ LONDONO businesses in Colombia, in publicly exposing the
SANTACRUZ LONDONO organization, and in increasing Colombian law enforcement pressure targeting SANTACRUZ LONDONO's associates and financial assets:
+ In October 2003, the Colombian Government proceeded with the forfeiture of 201 properties that were held in the name of two front companies designated by OFAC as SDNTs and
controlled by Jose SANTACRUZ LONDONO and his family.
-+- In April 2004, the Colombian Government announced that they had two ongoing asset for-
feiture investigations against 644 properties of SANTACRUZ LONDONO. At the time of
the announcement, the investigations had already resulted in the forfeiture of 295 of these
properties.
+ In October 2005, the Colombian police seized 137 properties belonging to two front individuals for Jose SANTACRUZ LONDONO.
The SANTACRUZ LONDONO organization was seriously impaired as a result oOose SANTACRUZ LONDONO's arrest, OFAC sanctions, Jose SANTACRUZ LONDONO's subsequent
death, and the Colombian Government's subsequent seizure and forfeiture of the assets and
companies belonging to the SANTACRUZ LONDONO organization, as recently as October
2005.
SANTACRUZ LONDONO ORGANIZATION
KEY FAMILY MEMBERS
Amparo
JOse
CASTRO DE SANTACRUZ
De:stIl'MIJ{l(1 Date: 21-0Ct-1m
. SANTACRUZ LON DOf:.lO
RelilllCt\9llj): \'f1.e
Cec!ul<J:J8983611
006: lJ-J03n-194.8
DeCeaSed: 5-Mar-96
AliaSeS: ·Cllepe"
Date Of DesignatIOn: 21·0ct·1995
P08: Colombia
. DOl: 1-0ct-W43
Cedula Number: 144.32230
Passport Number:: A8149814
AnaMIlena
SANTACRUZ CASTRO
DcstgnallOO Date: 21·OCI-1995
RelationshiP: Daugfller
COO\lfa: 31m&:IiJ
008; :1I'M¥' 196$
Indiebnents: The SlJbject Of 4
indiCtments ill the U.s. includfng 1995
RICO Indictment of Cali cartel in
SOuthem O/S!Iict of Flo.rida,
An'estsICOINIctions: 411ested by U.S
authcrlbeS in me lare 197ClS.
Arrested bv Colornbiatl authorities
In Bogota on 4-Juf.199S
lescaperJ lHaI}-1996), MurOOr£1f In
Mar-1996,
KEV
BUSINESS ASSOCIATES
Hector fabio
BORReRO QUINTERO
Oeslgt>illlQn {);Jle: 21·Oct·W~
~. 1494$412
DCEl: 1o.~b·194a
Hugo
MAZUERO ERAZO
DeSignlMlOO ();Jte: 21<la·1995
a<dula: 2M5590
009. t7-.)ul·1936
1
L ----~-.~-..
I
~--------------------~)
'
ORGANIZATION CHART
29
Cali Drug Cartel: Jose
SANTACRUZlONDONO
TYPE OF INDUSTRY
Bogota
I·
Bogota
Aureallnmobiliaria Ltda.'
Call
Cali
z
o
<.:)
w
~
>
~
• Caviedes Dileo y Cia S.C.S. 4
• Caucalito Ltda. (f.k.a.
Ganadera Ltda.; f.k.a.
Ganaderia)2
• Comercializacion y Financia cion de Automotores SA
(a.k.a. Comfiautos SA)'
• Construcciones Astra SA
(I.k.a. Sociedad Construetora La Cascada SA; [k.a.
Construetora Cascada)'
• Ganadera Ltda. (n.k.a. Caucalito Uda}'
• Grupo Santa Ltda.'
• Hacienda La Novillera (a.k.a.
Noviliera Ganadera)'
• Hacienda Sandrana (a.k.a.
Sandrana; a.k.a. Sandrana
Ganadera)'
• Inmobiliaria Aurora Uda.'
• Inversiones Integral y Cia
S.C.A.'
• Inversiones Santa Ltda.
(f.n.a. Inverslones y Con• Inmobiliaria Samaria Ltda. &
strucciones Santa Ltda.)'
Cia. S. en C. (n.k.a. Nego• Miraluna Ltda. (I.k.a. EI Paso
cios LOS sauces Ltda. y Cia
Ltda.)3
S.C.S.}'
• Negocios LOS Sauces Ltda.
o Intercreditos SA (a.k.a.
(f.k.a. Samaria Ltda.)'
Comercio Inversiones y
Creditos Integral SA; a.ka. • Negoeios LOS Sauces Ltda. y
Interereditos Bogota; a.k.a.
Cia. S.C.S. (f.k.a. Inmobiliaria
Intercredltos Cali.)'
Samaria Ltda.)'
• Inversiones EI Paso Ltda.
• Preveneion y Analysis de
y Cia Sc.S(n.k.a. Miraluna
Riesgos Previa SA (ak.a.
Ltda y Cia. S.C.S.; f.k.a.lnverPrevia SA)'
slones Negoagricola SA),
• Samaria Arrendamiento'
• Inversiones Integral Ltda. 3
• Samaria Canas'
• Samana Intereses'
• Samaria Ltda. (nk.a. Negocios Los Sauces Ltda.)'
Footnotes indicate the date of designation by OFAC.
(1) 21-0ct-1995
(2) 30-Jul-1997
(3) 8-Jun-1999
(4) 7-Dec-2000
30 ORGANIZATION TABLE
• Samaria Tierras'
• Sandrana Canas'
• Soeiedad Constructora La
Caseada SA (n.k.a. ConstruccionesAstra SA; f.k.a
Constructora La Cascada
SA)'
• Urbanizaciones y Construeciones Ltda. de CalP
HERRERA BUITRAGO ORGANIZATION
Background:
Helmer HERRERA BUITRAGO (a.k.a. "Pacho" HERRERA), considered to be one of the highest
ranking members of the Cali drug cartel leadership, started his criminal career selling relatively
small amounts of cocaine in New York where he was arrested in the 1970s. By the early 1980s,
Pacho HERRERA personally directed cocaine distribution and money laundering activities in
the New York City area on behalf of the Gilberto and Miguel RODRIGUEZ OREJUELA organization. By 1990, Pacho HERRERA had established his own family-run cocaine trafficking operations and had become a major supplier of cocaine for both the New York and South Florida
illicit markets. Pacho HERRERA was the subject of two federal indictments for drug trafficking
issued by the U.S. Attorney's Office for the Eastern District of New York.
In June 1995, a federal grand jury in Miami, Florida issued a historic RICO indictment against
the leaders of the Cali drug cartel, including Pacho HERRERA, and charged the Cali drug cartel
with the importation of 200,000 kilograms of cocaine and the laundering of $2 billion from
1983 through 1995.
On October 21, 1995, Helmer HERRERA BUITRAGO was named an SDNT principal individual by the President in the Annex to Executive Order 12978 along with three other leaders of
Colombia's Cali drug cartel. On March 5,1996, OFAC designated 19 companies and an additional 69 individuals acting for or on behalf of Pacho HERRERA.
In September 1996, Pacho HERRERA surrendered to Colombian authorities and was incarcerated.
During 1997 in three separate actions, an additional 24 entities and 58 individuals were designated by OFAC as fronts for the HERRERA BUITRAGO organization, which Pacho HERRERA
continued to run from his Colombian prison cell.
In November 1998, Pacho HERRERA BUITRAGO was murdered in a Colombian prison by
rival drug cartel leaders.
Family members and associates of HERRERA BUITRAGO attempted to preserve the organization's existing assets by restructuring or changing the names of companies designated since
March 1996. OFAC followed these attempted evasions and in June 1999, OFAC designated an
additional nine front companies acting for or on behalf of the HERRERA BUITRAGO organization.
Related Impact:
The OFAC designations and economic sanctions played a key role in the commercial and financial isolation of the HERRERA BUITRAGO businesses in Colombia, in helping publicly expose
31
SECTION 2
the HERRERA BUITRAGO organization, and in increased Colombian law enforcement pressure targeting HERRERA BUITRAGO's associates and financial assets. Multiple companies,
including many of those designated by OFAC, and other properties have been seized by Colombian authorities and are pending forfeiture. For example:
SECTION 2
.. In November 2003, a Cali judge ordered the forfeiture of 1,256 Pacho HERRERA properties, including apartments, ranches, warehouses, and commercial real estate, which were
estimated by Colombian authorities to be worth over $80 million.
.. In September 2005, Colombian authorities seized 411 additional Pacho HERRERA properties, estimated to be worth more than $14 million.
.. In May 2006, two front persons for Pacho HERRERA were being prosecuted in Colombia
for unexplained income generated between 1998 and 2000 through their company, designated by OFAC as a Pacho HERRERA front in 1997.
The HERRERA BUITRAGO organization was seriously impaired as a result of OFAC's sanctions since March 1996, Pacho HERRERA's incarceration in September 1996, his subsequent
death in prison in November 1998, the Colombian Government's subsequent seizure and forfeiture of the assets and companies belonging to the HERRERA BUITRAGO organization, and
criminal prosecution of HERRERA BUITRAGO associates, as recently as May 2006.
32
~.
HERRERA BUITRAGO ORGANIZATION
/---------------------------------KEY FAMILY MEMBERS
luzMery
BUITRAGO DE HERRiAA
DE(;F.ASm
Hermer
Stella
HERRERA BUITRAGO
SUlay
HERRERA BUn'RAGO
Des~UQ(\ Date 5· Mar \9%
Oeslgn31JOn 0<1Ie ~H'.ar-19%
Ftel.:ltlOnsl1ip Mother
C«I\l1a 2%41219'
Relil1JQ'\$fHIl: SiSter
Cooula: 31143871
Deslgflalioo Date: 5,.,131' 1'm.
~Cianstllp SISter
CWu!a: 31 mm/1
OOEL 24-Aug· 1924
000: 7..QC1·t9Sl
008: 7J-NOV- 1961
HERRERA BUITRAGO
DeCe$S8d: 1998 (Muroore\1 in llfiSOO)
. Aliases: 'paeno'
DItt of DeSl&natJon: 21 -00·1995
pos.; COlOmIJIa
DOB: 24·Aug·1951
teIIula Number: 1024J821
Pi_It NumlMH: 1287011
Illdktments: SUbject oj two federal
Indictments for Clrug trafficking in ttle
Eastern O$l1iCt of New York; 1995
RICO IMictment of Cali drug cartel
in SOulhem District Of Florida.
ArrtstSICornridiclns: Anestild by U.s
authortoos in New York in 1975 and
t9~. 0Il1-seP\-1996, surrenooroo to
COloman authofloos. Remali11e<l
incarcerate<! tJnbJ murcJerea in prison
Wltllam
HERRERA BUITRAGO
~uonDate
lSJan·1991
Re/a1l()1t<)\iD Bro1her
CEdula. l(Jl~1
OOIU9-Nm-1geA
KEY
Atvaro
HERRERA BUITRAGO
oesign;JlIonoate: 5-Mi:lr-t<j%
Rel~hlp (l.f(nner
CCdula
'6.2~
OOS. 10·Cct-1%S
NUbia
8UlfRAGO MARIN
DeSlgnatil;o Dale 5-Mar-1m.
Reiallonsruo AIJTlt
C£!dula: 3113m1
!lOll: S·ApI- EMS:
BUSINESS ASSOCIATES
in NOV-1m.
Phanor
Juan Csrlos
ARlZABALETA ARZAYUS
MONlOYA MARTINEZ
~tlon
~tiO,,~
Dilte.1lrJan·1997
Cedula: 2.&795.10
006: ll-May-l938
Rafael Alberto
CULlAT WGSfR
OilSig1liltJOO D3tC':. 15-.100· 1997
COOtJl.J: 14962523
OOS: 2:HlCt·i940
15-J(51'I-1997
Cooula 16801475
008: l1·Cct·l966
Jose Isidro
JAIMES RIVERA
~tiol1
Dati!: 5<Mm-1<)96
tOO9OO:.l6
Cet1I;t&a;
000· 1~·1949
Ricardo .IO$e
ur~ARES
REYES
oe-<$tlOn Date: !).Mar-1996
C«llJla. '4440139
!lOll: 8·rw!ar·19S!>
Della Nhora
RAM'REZ CORTES
Designation oato: 5·/,i.or-1996
CEldula: 38943729
OOB; 2O-Jan·1959
ORGANIZATION CHART
33
Cali Drug Cartel: Helmer
HERRERA BUITRAGO
TYPE OF INDUSTRY
OonstllletiOn ': '
AgrO-lndustrial
Jnv~tnient '
Retail/OtHer
central Colombia
pereira
Valle del Cauca
palmira
• Colombiana de Cerdos Ltd a,
(aka. Colcerdos Ltda.)5
• Comercializadora de Carnes
Ltda. (aXa. Comecarnes
Uda.)6
• Matadero Metropolitano Ltda. \
I.
Valle de Oro SA'
Cali
Cali
• Agropecuaria Betania Ltda.
(n.k,a. Valladares Ltda.)'
• Agropecuaria La Robleda
SA (n.k.a, Manaure S,A,)2
• Agropecuaria y Reforestadora Herrebe Ltda (n,k.a.
Inversiones Geminis SA)'
• Criadera de Pollos EI Rosal
SA (f,k,a. Industria Avicola
Palmaseca SA)'
• Ganaderias del Valle SA'
• Industria Avicola Palmaseca SA (n,k,a, Criadera de
Poll os EI Rosal SA)'
• Industria Maderera Area
Ltda,'
• Inversiones Agricolas
Avicolas y Ganaderas La
Carmelita ltda,'
• Inversiones Geminis SA
(f.k.a. Agrapecuaria y Reforestadora Herrebe Ltda,)'
• Inversiones y Construceiones Valle SA (aka.
Incovalle SA)'
• Manaure SA (f.k,a. Agropeeuaria La Robleda SAP
• Mercavieola SA'
• Pracesadora de Pollos Superior SA (f.k.a Comercializadora Internacional Valle
de Oro SA)'
• Prohuevo de Colombia
ltda.'
• Valladares Ltda (f.k,a, Agropecuaria Betania Ltda.)'
z
o
-
Cl
W
0:
>
(II
•
•
•
•
•
•
•
• Adminstracion Inmobiliaria Bolivar SA'
• Alkala Asociados SA
(f.k.a. Invheresa SA)5
• Compania Administradora de Vivienda
SA (f.k.a. Inversiones
Geminis SA)5
• Consultoria Empresarial
Especializada Ltda Z
• Inmobiliaria Bolivar
ltda z
• Inmobiliaria U.MV SA'
Concretos Cali SA'
• Inversiones Ario Ltda.'
• Importadora y ComercializaConstructora Dimisa SA'
• Inversiones Betania
dora Ltda. (a.k.a. Imcomer
Construetora EI Nogal SA
Ltda.'
Uda.)2
(f.k,a. construexito SA, Cone
• Inversiones Culzat Gue- • Interventoria, Consultoria y
SA)5
vara y Cia. S.CS.2
Estudios Ltda. (a.ka. Ineoes
Construexito SA (a.k,a. Cone
• Inversiones EI Gran CriLtda.)2
SA)'
sol Ltda. (f.k.a. W Herrera • serviautos uno A 1A Limitada
Construvida SA'
y Cia. S. en C)5
(a.k.a. Diagnosticentro La
Distribuidora de Elementos
• Inversiones EI Penon
Garantia)6
Para La Construccion SA
SA'
•
Valle
Communicaciones Ltda.
(aka, D'elcon SA)5
• Inversiones Inverva/le
(a.k.a. Vallecom ltda.)'
Sociedad Constructora y
SA'
• viajes Mercurio Ltda.'
Administradora del Valle Ltda,
•
Inversiones Herrebe
(aka, Socovalle Ltda,)'
Ltda.'
• Inversiones Villa Paz
SA'
• Invheresa SA'
• San Mateo SA (f.k.a. Inversiones Betania Ltda.,
Inversiones Betania
SA)5
• San Vicente SA (f.k.a.
Inversiones Invervalle
SA, Invervalle SA)5
• Servieios Inmobiliarios
Ltda.'
Bogota
Bogota
• Constructora Altos del Retiro
Ltda 2
Footnotes indicate the date of
(1) 5-Mar-1996
(2) 15-Jan-1997
(3) 17-Apr-1997
34 ORGANIZATION TABLE
(4) 30-Jul-1997
(5) 8-Jun-1999
(6) 22-Feb-2000
• Inmobiliaria Gales Ltda
2
• Carnercia I de Negoeios
Claridad y Cia. S. en C'
• comercializadora Experta y
Cia. S, en C'
VALENCIA TRUJilLO ORGANIZATION
Background:
Since 1979, Joaquin Mario VALENCIA TRUJILLO and Guillermo VALENCIA TRUJILLO
have been active in narcotics trafficking. The VALENCIA TRUJILLO organization has had a
close relationship with other Cali drug cartel leaders, such as Helmer HERRERA BUITRAGO.
Joaquin Mario VALENCIA TRUJILLO and his brother Guillermo VALENCIA TRUJILLO have
also worked with other drug trafficking organizations led by Juan Carlos RAMIREZ ABADIA,
and Ivan URDINOLA GRAJALES.
In August 2002, Joaquin Mario VALENCIA TRUJILLO was indicted by a federal grand jury in
Middle District of Florida for allegedly moving more than 100 tons of cocaine, estimated to be
as much as 20 percent of the cocaine entering the United States each year.
On January 31,2003, Joaquin Mario VALENCIA TRUJILLO was arrested in Bogota, Colombia
on U.S. drug trafficking and money laundering charges, based upon his control of a large-scale
maritime drug trafficking operation centered in Colombia that threaded through Chile, Ecuador, Mexico, and Panama to the U.S. cities of Tampa, Miami, Houston, New York and Los
Angeles.
On March 27, 2003, seven weeks after the arrest of Joaquin Mario VALENCIA TRUJILLO,
OFAC designated Joaquin Mario and Guillermo VALENCIA TRUJILLO as SDNT principal
individuals along with 28 individuals involved with supporting their financial network. In addition, 28 front companies in the VALENCIA TRUJILLO's financial network were named, including a prominent paso fino horse farm, Criadero La Luisa, an industrial paper manufacturer,
Unipapel s.A., a plastics company, Geoplasticos S.A., a maritime services provider, Gran Muelle
S.A., and five financial firms, Compania de Fomento Mercantil S.A., Credisa S.A, Finve S.A,
Gestora Mercantil S.A, and Unidas S.A, all located in Colombia. OFAC worked closely with
the U.S. Attorney's Office for the Middle District of Florida and "Operation Panama Express," a
multi-agency drug task force based out of Tampa, Florida, in connection with the designation of
Joaquin Mario VALENCIA TRUJILLO and his financial network.
In March 2004, Joaquin Mario VALENCIA TRUJILLO was extradited to the United States
to stand trial. In October 2006, he was found guilty by a federal grand jury in Tampa of drug
trafficking and money laundering charges. On February 1, 2007, the court sentenced Joaquin
Mario VALENICA TRUJILLO to 40 years in prison and ordered him to forfeit $110 million.
Related Impact:
OFAC designations of March 27, 2003, helped identify the VALENCIA TRUJILLO business
empire. The following are examples of how some members and entities of the VALENCIA
TRUJILLO organization were isolated commercially:
SECTION 2
.. Criadero La Luisa E.U., an internationally-recognized breeder of paso fino horses, maintained an average of approximately 300 horses, some of which are worth more than $1
million. Criadero La Luisa sold highly-valued horse sperm for breeding to overseas clients,
especially in the United States, which accounted for the majority of the horse sales and
breeding service business. After the OFAC designation, these commercial and financial
relationships with U.S. persons were shut down.
.. Unipapel S.A., a large industrial paper company located in the Yumbo area outside of Cali,
Colombia was principally run by Guillermo VALENCIA TRUJILLO. Unipapel s.A. was
forced to close after the OFAC action and was unsuccessful in its attempts to find a buyer.
.. The arrest in Colombia and subsequent OFAC designation ofJoaquin Mario VALENCIA
TRUJILLO shocked the public who knew him as a prominent breeder of paso fino horses
and his wife, Luz Mery TRISTAN GIL, as a national skating champion in Colombia (see
"VALENCIA TRUJILLO ORGANIZATION: EXAMPLES OF FAMILY MEMBERS INVOLVEMENT" box on the next page).
OFAC designations helped publicly expose the VALENCIA TRUJILLO organization and played
a key role in increased Colombian law enforcement pressure targeting VALENCIA TRUJILLO's
associates and financial assets. The Colombian Government has seized approximately $25
million in assets of the VALENCIA TRUJILLO organization, including many of the companies
already designated by OFAC. The Colombian Government is moving these seizures to forfeiture proceeding:
-+ In February 2003, the Colombian Government seized the paso fino horse breeding farm
Criadero La Luisa and more than 300 paso finDs horses belonging to Joaquin Mario VALENCIA TRUJILLO. In addition, they seized his residence in Cali, Colombia (valued at over
$7 million) in which they discovered over 54 valuable works of art and armored vehicles.
-+ In March 2003, the Colombian Government seized an additional 35 properties belonging to
Joaquin Mario VALENCIA TRUJILLO, including 8 companies deSignated by OFAC.
-+ In August 2003, Colombian authorities seized three large farms belonging to the VALEN-
CIA TRUJILLO organization valued at approximately $500 thousand.
.. In June 2005, Colombian prosecutors requested forfeiture of over $13 million in previously
seized assets belonging to Joaquin Mario VALENCIA TRUJILLO, including more than 300
paso fino horses, 10 companies, over 20 properties, vehicles and works of art located in the
cities of Cali, Jamundi, Buenaventura, Candelaria, Calima and Yumbo in the Valle region of
Colombia.
VALENCIA TRUJILLO ORGANIZATION:
EXAMPLES OF FAMILY MEMBERS INVOLVEMENT
Prior to designation, Joaquin Mario VALENCIA TRUJILLO, by all appearances, was a prominent and
respected businessman. However, his substantial business empire was created using illicit drug proceeds
and was run by trusted family and friends (see underlined names below). These businesses burnished his
reputation locally and internationally and gave him ready and immediate financial and commercial access
around the world. He used this access in part to facilitate his drug trafficking operations. OFAC's designations not only helped dismantle his businesses, but also struck at these key managers of his businesses, who
are now isolated in the Colombian business and financial communities. The following are examples of how
he involved family and friends in his operations:
Unipapel S.A. Ioaquin Mario and Guillermo VALENCIA TRUJILLO's main joint financial holdings
centered around the company Unipapel S.A., a large industrial paper company located in the Yumbo area
outside of Cali, Colombia. Unipapel S.A. managed the payroll for a large security contingent that protected
Joaquin Mario VALENCIA TRUJILLO's family and corporate network. Agueda VALENCIA TRUJILLO,
Joaquin Mario's sister managed the day-to-day operations of Unipapel S.A. from Cali and is also involved in
the corporate management of several other front companies.
Criadero La Luisa E. U. The crown jewel of Joaquin Mario VALENCIA TRUJILLO's financial investments
is his paso fino horse breeding farm. Iuan Pablo GAVIRIA PRICE, who has worked more than a decade for
Joaquin Mario VALENCIA TRUJILLO, managed Criadero La Luisa E.U. Some reports suggest that the
farm maintained about 300 horses. At the time, some of these horses were worth more than $1 million a
piece, and Criadero La Luisa E.U. sold highly-valued horse sperm for breeding to overseas clients.
Gestora Mercantil S.A. Carmen VALENCIA TRUJILLO, another sister of Joaquin Mario and Guillermo,
managed the financial aspects of the real estate company Gestora Mercantil S.A.
Unidas S.A. Agueda. Adela. and Carmen VALENCIA. sisters of Mario VALENCIA, ran Unidas S.A., a
financial loan company. Mario VALENCIA provided the start-up money for this firm.
Gran Muelle S.A. Guillermo VALENCIA TRUJILLO ran this Buenaventura-based maritime agency.
LuzMery Tristan E.U. Luz Mery TRISTAN GIL, Joaquin Mario VALENCIA TRUJILLO's wife and former
roller skating star, owns Luz Mery Tristan E.U., a roller skating promotion and merchandise company which
includes the Club Deportivo Luz Mery Tristan, a large skating complex in Cali, Colombia.
SECTION 7
VALENCIA TRUJILLO ORGANiZJ\ I()
KEY
Agueda
VALENCIA TRUJILLO
De-'",&naton D.lte 17 M]r, 2'003
~tlonShlp ~ler
JoaquIn Mario
C€d>.ta J8f!43514
VALENCIA TRUJILLO
Aliases "EI JC\'Cf1"
Date of DeslgnatJon 27·Mar·2003
POB: Cdll, Valle, Cofombia
DOB 21·Aug-1 957
CeduJa Number_ 16626888
Passport Number AtYJ30971
Indk:tments: Aug·2002 Middle
Dt>trict 01 Florida
AlTeStSIComnctions: 2S-Jan- 1979
arresterJ 1ft B<YlOta, C01011101,} lor drug
trafficKing,
Arf~!e\lln
!kJgma.
Colomllta on 3H!tn-2003 pursuant
to uS federallmbctment In the
Middle District of Flomj,l ExtriiOfleo
Mar·2004 to tne IJmtec1 Stales. Oct-2006.
fOun<l guilty of drug traff,O:.mg ¥lrj
money launderl41g.
DOS 100/IUb 1959
FAMilY
MEMBERS
Adela
VAL£NCIA TRUJILLO
De5lgrl<Jlon Date' 27 Maf 200J
Re~J.tlOflsh,p Stster
r..t:·(tu',1 317'n7~1
IX)t) 2O-0CH9~
c
~
DeSlgniltlOn !Alte 7/,Mar·''O:)J
ReI<JIIQIlShIP Sl~er
3'244070
CfXlu~il,
009 8 Apr· 1952
[J
lUJ
Consuelo
LuzMaria
TRISTAN GIL
CASTANO CASTANO
iA.'S'?.nallOfl (J.'}lf..' 27MJr 200.3
R{-:;WQn~,Illp
'.'IIft' of JOint;gl tol';JrlO I/a!::n:lil
u.'O'JI:J :m:9S1:iS:/
DOe 1 ApI!963
KEY
carmen Emilia
VALENCIA TRUJU.LO
De:5lgTIJtlon Date ;>7-Mi)f-X.03
Alvaro
VICTORIA CASTANO
[)t>SI¥Jl.;JtIOfi t'.4l\i;"
77-M3!-7OO:J
Aetahnn;tlJp: Wife of (,v;;.:rrnO './,):erKI;1
r1eliJh(Jl1$hlp 8rolw-m-la....
Cl'tiula i'9!9343S
008 2S r-.:t· 1951
CMuia 14'133828
BUSINESS
ASSOCIATES
[J
Juan Pablo
GAVIRIA PRICE
Ut'-JI~n-i~fCn I.:·Jt,_I.
"L}
j.1Jf ~~JJJ
(,11.11" It.~J'~Jill
YJa q !ul 1'1(y'::)
Guillermo
FabIo Heman
FRANCO VALENCIA
0,,<,'gl1<11 1(/l Datt) ;>7-/o,'Jf-?lXI3
(;,}(1l1\8
6076743
00£3 {j-Dt'c 1'-;>40
VALENCIA TRUJillO
AIlases:None
Date of Designation 27-Mar·03
P08 Cali, Vaile, COlombia
Cedula Numb«: 14942909
Freddy
RIVERA ZAPATA
oeSI.&fIiJltQr1 oate: 21.1.\¥-:zooJ
Ceoulal~
D
Gonzalo
CALDERON COllAZOS
!);3"'p'f1.,)rIOl~
Dak' ;rnJi,v-AXl3
Ce(/J)I3 Wf8'f778
OOll, 295-ept .952
38 ORGANIZATION CHART
Sonia
AGUILAR BERNAL
O'!SI;91.)1 I l"1 D.-Iti!
Ct.:\Jula
77-M<Jf-;'OO3
319382M
Cali Drug Cartel: Joaquin Mario & Guillermo
VALENCIA TRUJILLO
TYPE OF INDUSTRY
Agricultural
North coast
santa Marta
I'
Financial
Maritime
Paper'
Other
Bananera Agricola
SA
Bogota
• Finve SA {fk.a.
Financiera de Inversiones Ltda.)
• Todobolsas y Colsobres If. k.a. Rodriguez
Carreno Ltda. Todo
Boisas y Colsobres)
• Cia. Minera Dapa S.A
• Servicios Aereo de
Santander E.U. {a.k.a
SAS. EU.J
• Compania de Fomento Mercanttl SA
• Credisa SA (f.k.a.
Comercializadora
Automotriz SA)
• Gestora Mercantil
SA
• J. Freddy Mafia y Cia.
S.C.S
• Unidas SA
• Cia. Andina de Empaques Ltda. {a.ka.
coempaques Ltda.J
• Geoplasticos SA
(f.k.a. Colombiana de
Bolsas SA)
• Occidental de
Pa peles Ltda. (a.k.a.
Occipapel Ltda.)
• Constructora pynzar
Ltda.
• Luz Mery Tristan E.U.
(a.k.a. Club Deportivo LUZ Mery Tristan
World Class)
• Mira E.U.
• Novapinski Ltda.
• Pyza EU.
Cali
• Criadero La Luisa
EU. (f.k.a. Industria
Agropecuaria Santa
Elena Ltda.)
• Granja La Sierra Ltda.
z
o
C)
w
~
>
a::I
Valle de Cauca
• Dragados y Muelles
Gaviota Ltd a.
• Gran Muelle SA
• Trinidad Ltda. y Cia.
S.C.S.
Buenaventura
Yumbo
• Boisak EU. (a.k.a.
Boisak SA)
• Unipapel SA
Southwestern Colombia
• Construcciones
Progreso del Puerto
SA (a.k.a Con puerto
SA)
• Parque Industrial
Progreso SA
Puerto Tejada
• Valor Ltda. S.C.S.
Popayan
All Designated by OFAC as SDNTs on 27-Mar-200l.
. CRIADERO LA LUISA
I'l
t ., ( ..1!1h.'~d ~ Ii'! f. .lb.1JJ'.1 d~·1'.H.l_t1t!'!l1:l1).1l1"
Unipap~l_b~
ORGANIZATION TABLE
39
40 MAP OF COLOMBIA
Cities in bold mark locations ofNorth Valle drug cartel businesses.
NORTH VALLE CARTEL
The North Valle drug cartel, so named because its leaders are from the northern part of the
Valle del Cauca region in Colombia, is considered one of Colombia's most powerful cocaine
trafficking organizations. U.S. and Colombian law enforcement have investigated the assets
of Colombia's North Valle drug cartel since the early 1990s. It began as a splinter group of
the Cali drug cartel following the arrest and surrender of several Cali drug cartel leaders in
the mid-1990s. The North Valle drug cartel has now overshadowed the Cali drug cartel. The
North Valle drug cartel uses brutality and violence to further its goals. Members of the drug
cartel have murdered rival drug traffickers, buyers who failed to pay for cocaine, and drug cartel
members whose loyalty was suspect. Today, the North Valle drug cartel is a loose confederation of various drug trafficking families.
The North Valle drug cartel's criminal activities led to a May 2004 U.S. federal RICO indictment against its leaders in the U.S. District Court for the District of Columbia. The 2004 RICO
indictment claims that the North Valle drug cartel is responsible for one-third to one-half of
the cocaine that reaches the shores of the United States. According to the indictment, the
cartel worked together with various Colombian drug transportation specialists to transport
multi-ton loads of cocaine from Peru, Colombia, and other locations within South America to
Colombia. From Colombia, they shipped the cocaine loads to Mexico via speed boats, fishing
vessels, and other maritime conveyances for ultimate delivery to the United States. Since 1990,
the North Valle drug cartel has been able to export more than one million pounds of cocaine
worth more than $10 billion to the United States via Mexico.
In order to protect its distribution routes and cocaine laboratories, the drug cartel employs the
services of the Autodefenses Unidas de Colombia ("AUC"),11 a paramilitary group in Colombia
that has be.en listed as a Foreign Terrorist Organization by the u.s. Department of State and
a Tier I drug kingpin by the President pursuant to the Foreign Narcotics Kingpin Designation
Act. The AUC also provides personal protection for North Valle drug cartel members and associates.
OFAC investigations in recent years have documented the extensive network of agricultural,
aviation, cattle, commercial fruit production, investment, mining, pharmaceutical, and retail
companies set up by North Valle drug cartel leaders and their front individuals.
11.
The AVe was also designated by the Department of State as a Foreign Terrorist Organization ("FTO") in 2001, as
a Specially Designated Global Terrorist ("SDGT") under £.0. 13224 in 2001, and as a drug kingpin by the President in June 2003 pursU<\11t to the Foreign Narcotics Kingpin Designation Act.
41
SECTION 3
URDINOLA GRAJALES ORGANIZATION
Background:
In the 19805, Ivan URDINOLA GRAJALES became involved in narcotics trafficking. By 1989,
Ivan URDINOLA GRAJALES was managing a major drug trafficking operation that initially
focused on cocaine, but would eventually include heroin.
The URDINOLA GRAJALES organization was associated with the groups that would become
known as the North Valle drug carteL With Ivan at the helm, the URDINOLA GRAJALES
organization increased its power through violence and close ties to other powerful traffickers from the Valle del Cauca region. For example, Ivan URDINOLA GRAJALES was married
to Lorena HENAO MONTOYA, the sister of SDNT principal individual Arcangel de Jesus
HENAO MONTOYA.
In 1991, Ivan URDINOLA GRAJALES was indicted on drug trafficking charges in the Southern
District of Florida. Julio Fabio URDINOLA GRAJALES, Ivan's brother, was also a significant
drug trafficker twice indicted on drug trafficking charges in the Southern District of Florida in
the early 1990s. Colombian authorities arrested Ivan URDINOLA GRAJALES in April 1992.
Julio Fabio URDINOLA GRAJALES surrendered to Colombian authorities in 1994. However,
they continued to control their organization from prison.
Although, Julio Fabio URDINOLA GRAJALES, who confessed to drug trafficking, was sentenced to 17 Y2 years prison in Colombia, he received a sentence reduction and was released in
1998.
On February 22, 2000, OFAC designated Ivan URDINOLA GRAJALES and Julio Fabio URDINOLA GRAJALES as SDNT principal individuals, along with two associated individuals,
including Lorena HENAO MONTOYA, Ivan URDINOLA's wife, and six companies.
In February 2002, Ivan URDINOLA GRAJALES died in a Colombian prison. His brother, Julio
Fabio URDINOLA GRAJALES, was murdered in October 2004 in Bogota, Colombia.
On May 11, 2005, OFAC designated a group of companies associated with the GRAJALES
LEMOS organization that had close ties with Lorena HENAO MONTOYA.
Related Impact:
OFAC designations and economic sanctions have played a key role in financially isolating the
URDINOLA GRAJALES businesses, in publicly exposing the URDINOLA GRAJALES organization, and in increased Colombian law enforcement pressure targeting URDINOLA GRAJALES' associates and financial assets:
... In April 2001, a little more than a year after the OFAC designation of Ivan URDINOLA
43
SECTION 3
GRAJALES and his organization, a major Colombian daily reported the Colombian Attorney General's office initiated an asset forfeiture case against Ivan URDINOLA GRAJALES
and seized five of the six companies designated in 2000 and 116 of his other properties and
holdings.
~
SECTION 3
In January 2005, Lorena HENAO MONTOYA, an SDNT individual, pled guilty to bribing
Colombian officials charged with seizing the assets of her deceased husband Ivan URDINOLA GRAJALES, who had been named as an SDNT principal in February 2000. She was
sentenced by a Bogota judge to a prison term of four years and nine months, which she is
currently serving.
.. In May 2005, OFAC designated Raul Alberto GRAJALES LEMOS, a cousin of Ivan URDINOLA GRAJALES. It was discovered that in the 1990s Ivan URDINOLA GRAJALES obtained silent ownership of agricultural companies, which were managed by the indicted
trafficker Raul Alberto GRA]ALES LEMOS. Lorena HENAO MONTOYA inherited these
companies following Ivan's death. Approximately one month after the designation, Colombian authorities seized these agricultural companies, which were estimated to be worth
more than $100 million.
.. In May 2005, Raul Alberto GRA]ALES LEMOS was arrested by Colombian authorities on
charges of money laundering related to the URDINOLA GRAJALES organization.
The URDINOLA GRA]ALES organization was seriously impaired as a result of OFAC's sanctions, Ivan URDINOLA's death, the death of his brother Fabio URDINOLA, and the Colombian Government's subsequent seizure and forfeiture of assets and companies belonging to the
URDINOLA GRAJALES organization.
URDINOlA GRAJAlES ORGANIZATION
r
U£(;FASED
Jairo Ivan
KEY FAMILY MEMBERS
I
URDINOLA GRAJALES
Deceased: ~b-2002
Dele of Designation: 22-F~/)'2CCO
lOrena
POI: COIClrnl:Ja
DOB; HJec·1960
ted'" Number: 94190353
Passport Number. AD12lQJ3
HENAO MONTOYA
Oe$igN~1OO Pete: 72 -feb·lOO:J
Ret.ltIonsJ'up: ~ Of wan UfOtnola I3ril~
Cf~ula: 31981S3l
Indictments: 9·Aug-1991Dy u.s
SOuthem orstrict of florida
An'8stSICOIMctions: Arrested bV
Colo.n P1;)fice on :Ur/I4Jr·1992.
Remairled il')Carcerated Untl~ his death
DOll: 9.QcH96S.
In Feb-2002.
'---1;
BUSINESS ASSOCIATES
KEY
U£{JFASED
JuUo Fabio
URDINOLA GRAJALES
-
[]
>If~
...
' -......
__
9
.
sonia
TREJOS AGUILAR
De5lgrlatlOfl Dille ZU1!{)'2:tlX)
Qlo()./lir 6tJ,iS9V
Melba
TIWOS AGULAR
~boll
Date: lHYlay-:!005
CEcMa: 2mlS03
Julo fabio UROiNOlA GRAIALES
Deceased: 2004
Date of Designation: 22-Feb-2000
POB: COlOmbia
Cedilla Number: 1680'454
Indletmants: 3O·OCt·1992 and
13·Aug·1993 by U.S Southern District
ofFlortda
AnestslConvktlons: SlJrrel'ldered to
Colombian aultlorities in 1994.
Released from COlombian pnSOfl in t998..
MLII11ered in 8ogot8, COlombia,
Oct·2004.
ORGANIZATION CHART
45
North Valle Drug Cartel: Ivan & Julio Fabio
URDINOLA GRAJALES
TYPE OF INDUSTRY
Agro-Industrial
construction"
.Hotel'
, 'InveStment
Valle del Cauca
La Union
• casa Grajales SA'
• Frutas Exoticas Colombianos SA (a.k.a. Frexco SAV
• Grajales SA'
z
o
-
C)
W
Tulua
>-
Cali
~
CD
• Los Vinedos De Getsemani
SA (a.k.a. Hotel Lost Vmedos; a.k.a. Valle Lindo Hostal
Restaurante)2
• lnversiones Aguila Ltda.'
• lnverslones Grame Ltda. 2
• lnversiones Los Posso Ltda
S.C.S.'
• lnversiones Santa Cecilia
S.C.S.'
• lnversiones Santa Monica
Ltda.'
• Sociedad De Negocios San
Augustin Ltda.'
• lbadan Ltda.'
Cali
• Agroinversora Urdinola
Henao y Cia. S.C.S.'
• Constructora e lnmobiliaria
• Explotaciones Agricolas y
UNaile Cia. Llda.'
Ganaderas La Lorena S.C.S.'
• constructora Universal
• Industrias Agropecuarias del
Ltda.'
Valle Ltda.'
• Inversiones EI Eden S.C.S'
Footnotes indicate date of designation by OFAC.
{1122-Feb-2000
(21 11-May-2005
G.ajale,
46 ORGANIZATION TABLE
• Panamericana Ltda.'
:22: Opening Statf'ment by Secrcury Henry M. Paulson, Jr.<br>on the President's Fiscal Year 2009 ... Page 1 of 2
February 13, 2008
HP-822
Opening Statement by Secretary Henry M. Paulson, Jr.
on the President's Fiscal Year 2009 Budget
Before the House Committee on the Budget
Washington, DC-- Chairman Spratt, Congressman Ryan, Members of the
Committee: I am pleased to be here to discuss the President's budget for fiscal year
2009 .. As Treasury Secretary, my highest priority is a strong U.S. economy that will
benefit our workers, our families and our businesses. Through a measured
approach that balances our nation's needs with our nation's resources, the
President's budget supports that priority.
This is especially important now as, after years of unsustainable home price
appreciation, the U.S. economy undergoes a significant and necessary housing
correction. This correction, combined with high energy prices and capital market
turmoil, caused economic growth to slow rather markedly at the end of 2007.
The U.S. economy is diverse and resilient, and our long-term fundamentals are
healthy. I believe our economy will continue to grow, although at a slower pace than
we have seen in recent years.
Four weeks ago, recognizing the downside risks to our economy and that the shortterm cost of doing nothing was too high, President Bush called for an economic
growth package to provide a temporary boost to our economy as we weather the
housing correction.
The Congress responded with bipartisanship, cooperation and speed to pass an
economic growth package that is temporary, broad-based and will get money into
our economy quickly. We have demonstrated to the nation and the world that we
can come together to address the needs of the American people as we weather the
housing downturn.
Today, the President will sign the economic package into law and Treasury is
already working to send payments out to more than 130 million Americans. The IRS
will manage the current tax filing season and simultaneously prepare to issue these
additional payments starting in early May. Payments will be largely completed this
summer, putting cash in the hands of millions of Americans at a time when our
economy is experiencing slower growth. Together, the payments to individuals and
the investment incentives for businesses will help create more than half a million
jobs by the end of this year.
In addition to an economiC growth plan to help us weather this housing correction,
the Administration will continue to focus on aggressive action to try to provide
alternative options to foreclosures. That includes encouraging the HOPE NOW
alliance's outreach to struggling homeowners. Congress can do its part by finalizing
the FHA modernization and GSE regulatory reform bills and by passing legislation
that will allow states to issue tax-exempt bonds for innovative refinancing programs.
We continue to monitor capital markets closely and to advocate strong market
discipline and robust risk management. Working through the current stress is our
first concern. Through the President's Working Group on Financial Markets, we are
also reviewing underlying policy issues because it is just as important to get the
long-term policy right.
http://www.treas.gov/press/reJeases/hp822.htm
3/412008
u>-822: Opt!llO~ Stfltr.ment by Secr-:tary Henry M. Paulson, Jr.<br>on the President's Fiscal Year 2009 ... Page 2 of 2
While we are in a difficult transition period as markets reassess and re-price risk, I
have great confidence in our markets. They have recovered from similar stressful
periods in the past, and they will again.
The Administration will also continue to press for long-term economic policies that
are in our country's best interest - a pro-growth tax system, entitlement reform and
a balanced budget. To that end, the President's budget makes the 2001 and 2003
tax relief permanent, and keeps the federal budget on track for a surplus in 2012.
In the future, as in the past, our long-term economic growth will also be enhanced
by supporting international trade, by opening world markets to U.S. goods and
services and by keeping our markets open. Congress can help create jobs and
economic opportunity by passing the pending Free Trade Agreements with
Colombia, Panama and South Korea.
I appreciate the cooperative and bipartisan spirit that has brought the Congress and
the Administration together to support our economy, and look forward to that spirit
continuing as we work through this period. Thank you.
-30-
http://www.treas. .i}Jv/press/releases/hp~22.htm
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lP-823: Un~"1 Sr.cretary for Intern3~lOnal Affairs David H. McCormick<BR>Testimony before the Join ... Page 1 of 5
February 13, 2008
HP-823
Under Secretary for International Affairs David H. McCormick
Testimony before the Joint Economic Committee
Washington, D.C.-- Chairman Schumer, Vice-Chair Maloney, Ranking Member
Saxton, Senator Brownback and Members of the Committee, good afternoon. I very
much appreciate. t~e opportunity to appear before you today to discuss sovereign
wealth funds. This IS a timely hearing on a very important topic. At Treasury, we
have been increasingly focused on sovereign wealth funds for more than a year
now. I am pleased to be able to share with the Committee some of our views.
History and Context
First, some history: sovereign wealth funds are not new. The oldest of these funds
date back to the 1950s in Kuwait and Kiribati. Over the next four decades, their
numbers slowly grew. Three of the largest and most respected funds - the Abu
Dhabi Investment Authority, Singapore's Government Investment Corporation, and
Norway's Government Pension Fund-Global - were founded in 1976, 1981, and
1990, respectively. By the year 2000, there were about 20 sovereign wealth funds
worldwide managing total assets of several hundred billion dollars.
Today, what is new is the rapid increase in both the number and size of sovereign
wealth funds. Twenty new funds have been created since 2000, more than half of
these since 2005, which brings the total number to nearly 40 funds that now
manage total assets in a range of $1.9-2.9 trillion. Private sector analysts have
projected that sovereign wealth fund assets could grow to $10-15 trillion by 2015.
Two trends have contributed to this ongoing growth. The first is sustained high
commodity prices. The second is the accumulation of official reserves and the
transfers from official reserves to investment funds in non-commodity exporters.
Within this group of countries, foreign exchange reserves are now sufficient by all
standard metrics of reserve adequacy. For these non-commodity exporters, more
flexible exchange rates are often necessary, and Treasury actively pushes for
increased flexibility(1).
So what are sovereign wealth funds? At the Department of the Treasury, we have
defined them as government investment vehicles funded by foreign exchange
assets, which manage those assets separately from official reserves(2). Sovereign
wealth funds generally fa/l into two categories based on the source of the foreign
exchange assets:
• Commodity funds are established through commodity exports, either owned
or taxed by the government. They serve different purposes, including
stabilization of fiscal revenues, intergenerational saving, and balance of
payments sterilization. Given the recent extended sharp rise in commodity
prices, many funds initially established for fiscal stabilization purposes have
evolved into savings funds. In the case of commodity funds, foreign
currency typically accrues to the government and does not increase the
money supply and create unwanted inflationary pressure.
• Non-commodity funds are typically established through transfers of assets
from official foreign exchange reserves. Large balance of payments
surpluses have enabled non-commodity exporting countries to transfer
"excess" foreign exchange reserves to stand-alone funds. In the case of
non-commodity funds, foreign exchange assets often derive from exchange
rate intervention, which then increases a country's money supply. Monetary
authorities take additional steps to lower the money supply and stave off
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inflation by issuing new debt, but there may be a cost associated with this if
the cost of the new debt is more than the returns that the government earns
on its foreign exchange assets.
In contrast to t.raditional reserves, which are typically invested for liquidity and
saf~ty, sovereign wealth funds seek a higher rate of return and may be invested in
a Wider range of a~set classes. Sovereign wealth fund managers have a higher risk
tolerance than their counterparts managing official reserves. They emphasize
expected returns over liquidity, and their investments can take the form of stakes in
U.S. companies, as has been witnessed in recent months with increased regularity.
However, ~overeign wealth fund assets are currently fairly concentrated. By some
market estimates, a handful of funds account for the majority of total sovereign
wealth fund assets. Roughly two-thirds of sovereign wealth fund assets are
commodity fund assets ($1.3-1.9 trillion), while the remaining one-third are noncommodity funds transferred from official reserves ($0.6-1.0 trillion).
To get a better perspective of the relative importance of sovereign wealth funds, it is
useful to consider how they measure up against private pools of global capital.
Total sovereign wealth fund assets of $1.9-2.9 trillion may be small relative to a
$190 trillion stock of global financial assets, or the roughly $62 trillion managed by
private institutional investors. But sovereign wealth fund assets are currently larger
than the total assets under management by either hedge funds or private equity
funds and are set to grow at a much faster pace.
In sum, sovereign wealth funds represent a large and rapidly growing stock of
government-controlled assets, invested more aggressively than traditional reserves.
Attention to sovereign wealth funds is inevitable given that their rise clearly has
implications for the international financial system. Sovereign wealth funds bring
benefits to the system but also raise potential concerns.
Benefits
A useful starting point when discussing the benefits of sovereign wealth funds is to
stress that the United States remains committed to open investment. On May 10,
2007, President Bush publicly reaffirmed, in his Statement on Open Economies, the
U.S. commitment to advancing open economies at home and abroad, including
through open investment and trade. Lower trade and investment barriers benefit not
only the United States, but also the global economy as a whole. The depth, liquidity
and efficiency of our capital markets should continue to make the United States the
most attractive country in the world in which to invest.
In 2006, there was a net increase of $2.5 trillion in foreign-owned assets in the
United States, while U.S. net international investment abroad increased by $2.2
trillion. International investment in the United States fuels U.S. economic prosperity
by creating well-paid jobs, importing new technology and business methods,
helping to finance U.S. priorities, and providing healthy competition that fosters
innovation, productivity gains, lower prices, and greater variety for consumers. Over
five million Americans 4.6 percent of the U.S. private sector - are employed by foreign-owned firms' U.S.
operations. Over 39 percent of these five million jobs at foreign-owned firms are in
manufacturing, a sector that accounts for 13 percent of U.S. private sector jobs.
These five million jobs pay 25 percent higher compensation on average than jobs at
other U.S. firms. Additionally, foreign-owned firms contributed almost six percent of
U.S. output and 14 percent of U.S. R&D spending in 2006. Foreign-owned firms reinvested over half of their U.S. income - $71 billion - back into the U.S. economy in
2006. A disproportionate 13 percent of U.S. tax payments and 19 percent of U.S.
exports are made by foreign-owned firms. Without international investment,
Americans would be faced with painful choices regarding taxes, spending on
government programs, and their level of savings and consumption. Foreign
investors' economic interests become more dependent on the health of the U.S.
economy - giving the investor an incentive to support U.S. economic interests.
As many observers have pOinted out, sovereign wealth funds have the potential to
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W-823: Undt,r Sr,cretary for Intornational Affairs David H. McCormick<BR>Testimony before the Join... Page 3 of 5
promote financial stability. They are, in principle, long term, stable investors that
provide significant capit~1 to the system. They are typically not highly leveraged and
can~.ot be fo~ced by capl!al requirements or investor withdrawals to liquidate
positions rapidly. Sovereign wealth funds, as public sector entities, should have an
interest in and a responsibility for financial market stability.
Potential Concerns
Yet, sovereign wealth funds also raise potential concerns. Primary among them is a
risk that sovereign wealth funds could provoke a new wave of investment
protectionism, which would be very harmful to the U.S. and global economies.
Protectionist sentiment could be partially based on a lack of information and
understanding of sovereign wealth funds, in part due to limited transparency and
clear communication on the part of the funds themselves. Concerns about the
cross-border activities of state-owned enterprises may also at times be misdirected
at sovereign wealth funds as a group. Better information and understanding on both
sides of the investment relationship are needed,
Were protectionist pressures to lead to greater restrictions on international
investment, this would weaken the United States. The United States could lose out
to other countries in the competition for international investment and the benefits it
brings. U.S. businesses' worldwide operations could suffer. The United States is the
world's leading foreign investor. If the United States imposed new restrictions, other
countries could impose restrictions on U.S. investors, jeopardizing the benefits
generated in the United States by U.S. businesses that operate globally.
Protectionism could raise questions about whether we have faith in the dynamism
and productivity of the U.S. economy. Foreigners invest in the United States
because they have faith in our future and believe our economy will provide them a
good return. The United States has long welcomed international investment - and
has used this capital to create new U.S.-owned businesses, expand existing
businesses, and grow our economy. Protectionism could also damage the U.S.
relationship with major allies such as Western Europe, Canada and Japan, which
account for 90 percent of international investment in the U.S.
Second, transactions involving investment by sovereign wealth funds, as with other
types of foreign investment, may raise legitimate national security concerns. The
Committee on Foreign Investment in the United States (CFIUS), which is chaired by
Treasury, conducts robust reviews of certain investments that could result in foreign
control of a U.S. business to identify and resolve any genuine national security
concerns. The Foreign Investment and National Security Act (FINSA) became
effective on October 24, 2007, and strengthened the CFIUS process. CFIUS is able
to review investments from sovereign wealth funds, just as it would other foreign
government-controlled investments, and it has and will continue to exercise this
authority to ensure national security,
As we take our work forward on sovereign wealth funds, Treasury is also
considering non-national security issues related to potential distortions from a larger
role of foreign governments in markets. For example, through inefficient allocation
of capital, perceived unfair competition with private firms, or the pursuit of broader
strategic rather than strictly economic return-oriented investments, sovereign wealth
funds could potentially distort markets. Clearly, both sovereign wealth funds and the
countries in which they invest will be best served if investment decisions are made
solely on commercial grounds.
Finally, sovereign wealth funds may raise concerns related to financial stability.
Sovereign wealth funds can represent large, concentrated, and often. no~.
transparent positions in certain markets and asset classes. Actual shifts In their
asset allocations can cause market volatility. In fact, even perceived shifts or
rumors can cause volatility as the market reacts to what it perceives sovereign
wealth funds to be doing.
Policy Response
Treasury has taken a number of steps to help ensure that the United States can
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continue to benefit from open investment while addressing these potential
concerns.
First, we are aggr~ssively implementing reforms that strengthen the CFIUS
process, reflected In FINSA and Executive Order 11858, issued by the President on
January 23 .. We ar~ proceeding steadily through a vigorous drafting process for
new regulations which will become effective later this Spring following public notice
~nd comment.. One of the reforms codified by FINSA, which we have already
Implemented, IS an elevated level of accountability within CFIUS for review of
foreign government-controlled transactions. I want to be clear that CFIUS reviews
the investment transactions of sovereign wealth funds, based on the consideration
of genuine national security concerns, just as it would for any other foreign
government-contrOlled investment. FINSA protects our national security while
keeping investment barriers low and reaffirming investor confidence and the
longstanding U.S. open investment policy.
Second, we have proposed that the international community collaborate on the
development of a multilateral framework for best practices. The International
Monetary Fund, with support from the World Bank, should develop best practices
for sovereign wealth funds, building on existing best practices for foreign exchange
reserve management. These would provide guidance to new funds on how to
structure themselves, reduce any potential systemic risk, and help demonstrate to
critics that sovereign wealth funds can be responsible, constructive participants in
the international financial system.
Third, we have proposed that the Organisation for Economic Co-operation and
Development (OECD) should identify best practices for countries that receive
foreign government-controlled investment, based on its extensive work on
promoting open investment regimes. These should have a focus on avoiding
protectionism and should be guided by the well-established principles embraced by
OECD and its members for the treatment of foreign investment.
We have already seen meaningful progress along these lines. On May 12-13 of last
year, Treasury hosted a G-20 meeting of Finance Ministry and Central Bank
officials on commodity cycles and financial stability, which included perhaps the first
multilateral discussion of sovereign wealth funds among countries with these funds
and countries in which they invest. Following a period of extensive direct bilateral
outreach with sovereign wealth funds, Secretary Paulson hosted a G-7 outreach
meeting on October 19, 2007 with Finance Ministers and heads of sovereign wealth
funds from eight countries (China, Korea, Kuwait, Norway, Russia, Saudi Arabia,
Singapore, and the United Arab Emirates) to build support for best practices.
On October 20,2007, the International Monetary and Financial Committee - a
ministerial level advisory committee to the IMF - issued a statement calling on the
IMF to begin a dialogue to identify best practices for sovereign wealth funds. On
November 15-16, 2007, the IMF hosted a roundtable meeting for sovereign asset
and reserve managers. In response to the IMFC statement, the IMF added a
special session on policy and operational issues relating to SWFs for official sector
delegates. This marks the beginning of an important process in the IMF. IMF
Managing Director Dominique Strauss-Kahn opened the roundtable meeting and
underlined that some form of agreement on best practices for the operations of
SWFs could help maintain an open global financial system(3). A separate dialogue
is well underway in the OECD on investment policy issues with regard to SWFs,
building on the discussions on Freedom of Investment, National Security, and
"Strategic" Industries.
Fourth, Treasury has taken a number of steps internally and within the U,S.
Government to enhance our understanding of sovereign wealth funds. Treasury has
created a working group on sovereign wealth funds that draws on the expertise of
Treasury's offices of International Affairs and Domestic Finance. Treasury's new
market room is ensuring vigilant, ongoing monitoring of sovereign wealth fund
trends and transactions. Through the President's Working Group on Financial
Markets, chaired by Secretary Paulson, we continue to discuss and review
sovereign wealth funds. We also have initiated bilateral outreach to ensure an
ongoing and candid dialogue with countries with significant sovereign wealth funds
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{p-823: UnCh.:r Secrr.t;lry for International Affairs David H. McCormick<BR>Testimony before the Join... Page 5 of 5
and their management.
Treasury is actively coordinating with Congress through staff briefings and
committee hearings. As you may know, I testified on these issues before the
Senate Banking Committee in November. Also, in June and December of last year
we provided Congress with updates on our sovereign wealth fund-related work in
an appendix to the Report on International Economic and Exchange Rate Policies,
and we will continue to provide updates on a semi-annual basis.
The Treasury Department will continue its work on sovereign wealth funds through
sound analysis and focused bilateral and multilateral eHorts to help ensure the
United States shapes an appropriate international response to this issue, addresses
legitimate areas of concern, and together with other countries, remains open to
foreign investment.
(1) Russell Green and Tom Torgerson, "Are High Foreign Exchange Reserves in
Emerging Markets a Blessing or a Burden?" Office of International Affairs
Occasional Paper No.6, U.S. Department of the Treasury, March 2007.
(2) U.S. Department of the Treasury, "Sovereign Wealth Funds," Appendix 3 of the
Semi-Annual Report to Congress on International Economic and Exchange Rate
Policies, June 2007.
(3) IMF Convenes First Annual Roundtable of Sovereign Asset and Reserve
Managers, IMF Press Release, November 16, 2007.
http://www.imf.org/external/np/sec/pr/2007LprSJ7267.htm
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Ip-824: FAC) SHl-'.hT' F.xample~ ot How the Economic Growth Act of 2008 will Benefit Americans
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February 13, 2008
hp-824
FACT SHEET: Examples of How the Economic Growth Act of 2008 will Benefit
Americans
Examples of How the Economic Growth Act of 2008 will Benefit Americans
REPORTS
•
Fact Sheet
http://www.treas.)?dvfpress/releasesfhp824.htm
3/412008
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
FACT SHEET:
EXAMPLES OF How THE ECONOMIC GROWTH ACT OF 2008 WILL BENEFIT
AMERICANS
Married with children*:
I) Married couple with two children, wages of $4,000, no federal income tax liability before child tax credit.
Individual rebate
Qualifying child credit
TOTAL
$600
$600
= $1,200
=
=
2) Married couple with two children, no wages, veterans' payments 0[$2,000, social security benefits of
$2,000, no federal income tax liability before child tax credit.
Individual rebate
Qualifying child credit
TOTAL
= $600
= $600
= $1,200
3) Married couple with two children, no wages, no social security benefits, veterans' payments of$4,000, no
federal income tax liability before child tax credit.
Individual rebate
Qualifying child credit
TOTAL
= $600
$600
= $1,200
=
4) Married couple with two children, no wages, no social security benefits, no veterans' payments, AGI =
$25,000, federal income tax liability before child tax credit = $70.
Individual rebate
Qualifying child credit
TOTAL
= $600
= $600
= $1,200
1
5) Married couple with two children, AGI = $35,000, federal income tax liability before child tax credit =
$1,070.
Individual rebate
Qualifying child credit
TOTAL
= $1,070
= $600
= $1,670
6) Married couple with two children, AGI = $80,000, federal income tax liability before child tax credit
exceeds $1,200.
Individual rebate
Qualifying child credit
TOTAL
=
$1,200
= $600
= $1,800
7) Married couple with two children, AGI = $160,000, federal income tax liability before child tax credit
exceeds $1,200.
Individual rebate
Qualifying child credit
Phaseout reduction
TOTAL
= $1,200
= $600
= ($500)
= $1,300
Head of household with children:
1) Single parent with two children, wages of$4,000, no federal income tax liability before child tax credit.
Individual rebate
Qualifying child credit
TOTAL
$300
= $600
= $900
=
2) Single parent with two children, no wages, veterans' payments of $2,000, social security benefits of$2,000,
no federal income tax liability before child tax credit.
Individual rebate
Qualifying child credit
TOTAL
= $300
=$600
= $900
3) Single parent with two children, no wages, no social security benefits, veterans' payments of $4,000, no
federal income tax liability before child tax credit.
Individual rebate
Qualifying child credit
TOTAL
= $300
= $600
= $900
2
4) Single parent with two children, no wages, no social security benefits, no veterans' payments, AGI =
$20,000, federal income tax liability before child tax credit = $195.
Individual rebate
Qualifying child credit
= $300
= $600
= $900
TOTAL
5) Single parent with two children, AGI = $22,000, federal income tax liability before child tax credit = $395.
= $395
Individual rebate
Qualifying child credit
= $600
= $995
TOTAL
6) Single parent with two children, AGI = $60,000, federal income tax liability before child tax credit exceeds
$600.
Individual rebate
Qualifying child credit
= $600
= $600
=$1,200
TOTAL
7) Single parent with two children, AGI = $90,000, federal income tax liability before child tax credit exceeds
$600.
Individual rebate
Qualifying child credit
Phaseout reduction
= $600
= $600
= ($750)
= $450
TOTAL
Married, no children:
1) Married couple with no children, wages of $4,000, no federal income tax liability.
Individual rebate
= $600
2) Married couple with no children, no wages, veterans' payments of $2,000, social security benefits of $2,000,
no federal income tax liability.
Individual rebate
=
$600
3) Married couple with no children, no wages, no social security benefits, veterans' payments 0[$4,000, no
federal income tax liability.
Individual rebate
= $600
3
4) Married couple with no children, no wages, no social security benefits, no veterans' payments, AGI =
$20,000, federal income tax liability = $250.
Individual rebate
= $600
5) Married couple with no children, AGI = $25,000, federal income tax liability = $750.
Individual rebate
= $750
6) Married couple with no children, AGI = $60,000, federal income tax liability exceeds $1,200.
Individual rebate
=
$1,200
7) Married couple with no children, AGI = $160,000, federal income tax liability exceeds $1,200.
Individual rebate
Phaseout reduction
TOTAL
=
=
=
$1,200
($500)
$700
Single, no children:
1) Individual with wages of $4,000, no federal income tax liability.
Individual rebate
= $300
2) Individual with no wages, veterans' payments of $2,000, social security benefits of $2,000, no federal
income tax liability.
Individual rebate
=
$300
3) Individual with no wages, no social security benefits, veterans' payments of $4,000, no federal income tax
liability.
Individual rebate
=
$300
4) Individual with no wages, no social security benefits, no veterans' benefits, AGI = $10,000, federal income
tax liability = $125.
Individual rebate
= $300
5) Individual with AGI = $12,000, federal income tax liability = $325.
Individual rebate
= $325
4
6) Individual with AGI = $35,000, federal income tax liability in excess of $600.
Individual rebate
=
$600
7) Individual with AGI = $80,000, federal income tax liability in excess of $600.
Individual rebate
Phase out reduction
TOTAL
$600
= ($250)
= $350
=
-30-
5
IP-825: Trea~llrr.r Ann{1 Escobedo Chbral <br>Remarks on Housing before the National Association of ... Page 1 of 3
February 13, 2008
HP-825
Treasurer Anna Escobedo Cabral
Remarks on Housing before the National Association of Hispanic Media
Washington - Good morning. Thank you, Clara, for that introduction. I'm pleased to
join this distinguished group of publishers, editors, and writers from Hispanic-owned
or Spanish language newspapers. I want to thank you for the important work you
do. Not only are you important leaders for the Hispanic community - you are also
the critical messengers that help ensure our communities are kept informed.
I'm excited to be here today because I have some important messages to share
regarding ongoing efforts at Treasury, including our work to address the current
challenges in the housing market. And I'd like to call on your partnership and
support in these efforts.
As many of you know, our country is experiencing a period of adjustment in the
housing sector of our economy. While the long-term economic fundamentals of our
country remain strong, many individuals, families and communities are experiencing
the pain of resetting mortgage rates, home price depreciation, and neighborhood
foreclosures. A significant number of Americans have lost their homes due to
foreclosures, and many more are struggling. The Hispanic community is among
those struggling.
Over the past several months, I've had the opportunity to visit some of out country's
most affected communities. I've seen firsthand the negatives impacts of
foreclosures. The blow of a foreclosed home ripples through the broader community
- resulting in depreciated home values, higher crime rates, increased
unemployment, and placing a strain on the overall financial stability and health of
the community.
Clearly, foreclosures are painful for families, cities, the lenders and the larger
economy. As a result, we have redoubled our efforts to reach borrowers who may
need help. State and local leaders, community organizations, and the private sector
have been working hard to address this issue. But much work remains, and we
need your help.
Elevated foreclosure rates are expected to remain over the course of the next two
years. In fact, approximately 1.8 million subprime mortgages are expected to reset
in this same time period. The good news is that not all of these will end in
foreclosure. Some homeowners will be able to afford their new payments. Others
will refinance into a fixed rate mortgage on their own. Unfortunately for some whose
finances have been stretched to thin, foreclosure will be unavoidable.
However, there is still another group that falls in the middle. This is a group that we
can help through a targeted approach, but first we need to identify and reach them.
Over the past six months, Treasury has been working with the Department of
Housing and Urban Development to with the clear goal to help more Americans
remain in their homes. As a result, A new national alliance - HOPE NOW - was
launched at the end of last year. The Alliance - made up of our nation's leading
counselors, servicers and investors - has been critical to bolstering our outreach
efforts to vulnerable homeowners. Today, the Alliance has grown to make up over
94 percent of the subprime mortgage servicing market.
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Under the leadership of Secretaries Paulson and Jackson a new effort called
Project Lifeline was launched yesterday. This is a targets outreach effort to the
most vulnerable homeowners- those for whom foreclosure is most imminent. Under
this program, the largest members of the HOPE NOW Alliance will begin sending
letters to home?wners who are delinquent in their payments by 90 days or more.
These letters wIll offer a step-by-step simple approach that may enable
homeowners to pause their foreclosure for 30 days while a potential modification is
being worked out.
Now this is just a small step in what will continue to be a broader plan, but it is
significant for homeowners who otherwise would have gone into foreclosure
immediately.
Since its creation, HOPE NOW has been successful in offering a variety of other
resources to struggling homeowners. First, they adopted a centralized hotline that
offers free foreclosure prevention counseling. The hotline - 888-995-HOPE - is
operated by the Homeownership Preservation Foundation, and in order to sustain
the HOPE hotline, servicers and investors reimburse hotline counselors $100 for
every session completed. The $100 fee per counseling session was a major step,
as counseling has traditionally been supported solely by government and
foundation funding.
HOPE NOW servicers are also contacting all subprime adjustable-rate mortgage
borrowers at a minimum of 120 day before their mortgage is due to reset in an effort
to identify and help troubled borrowers. The earlier borrowers reach out for
assistance, the more options they'll find.
The HOPE NOW alliance also launched a direct mail campaign (ate last year. This
is a critical step. We know that half of borrowers who reached foreclosure never
reached out to their lender or a housing counselor to ask for help. In some cases,
this can be a cultural issue - instead of stepping out into the light and asking for
help, many borrowers hide in the dark, ignoring the letters from their lenders.
The HOPE NOW mail campaign is targeted to all borrowers who are 60 days or
more delinquent on their loans, but have still not contacted their servicer. The letter
provides good information about foreclosure prevention under one recognizable
and trustworthy HOPE NOW banner. Most importantly it shows them that help is
available if they ask for it.
To date, HOPE NOW has sent approximately 775,000 letters to borrowers who
could have the option to work out a more affordable solution, and they will continue
to reach more borrowers in the coming months. For borrowers who are reluctant to
cal! their (ender, they can caf( the 888-995-HOPE holline to reach an independent,
non-profit counselor who can help gUide them through their options.
Other HOPE NOW accomplishments include streamlining efforts between
counselors and services so that they can communicate better and improve their
efficiency as wef( as developing standard performance measures. Any strong
initiative must have measures of progress. We've already seen these measures put
to test.
Since its launch, the HOPE hot/ine has experienced a 540% increase. In August, it
was receiving an average of 625 calls per day and now it receives ~,O?O new calls
a day_ In addition, early results of the HOPE NOW outreach letters rndlcate over
16% of reCipients have contacted their servicer or a non-profit counselor to explore
potential mortgage solutions.
HOPE NOW also recently reported that the industry helped 545,000 homeowners
with subprime loans in the second half of 2007, and 150,000 of those homeowners
received modifications.
Even better the rate of modifications of subprime loans more than doubled from the
third quarte; to the fourth quarter of calendar year 2007, and we expect this
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IP-825: TI.?:t'imr.r Anna F.~robedt.) ~abral <hr>Remarks on Housing before the National Association of... Page 3 of 3
progress to continue.
We ~r~ ple~sed with the progress of the HOPE NOW Alliance. For our part, the
Administration has also worked with Congress to provide increased funding to
Neighb~rWorks for counselor networks and requested that Congress pass FHA
~oder~lzatlon. ~ongress passed the President's tax relief proposal, which was
signed Into law In December and will help relieve some of the burden on families.
The Administration will also continue working with the Congress on its proposal to
allow state housing authorities to issue tax-exempt bonds to help refinance
borrowers into more affordable mortgages.
These are all positive steps in the right direction. But this challenge will not
disappear tomorrow, and our work must not stop here. We must instead remain
committed to expanding our outreach network to reach as many struggling
individuals in communities throughout our country.
This is where your role as messengers to our communities can help. You have the
potential to empower your readers, viewers and listeners in the Hispanic community
with information that could be critical to helping them remain in their homes.
As Treasurer, I spend a lot of time talking about the importance of financial literacy.
In many cases, our most vulnerable communities - underserved communities,
those without bank accounts who lack access to basic financial services - are also
minority communities who lack the information they need to make smart financial
decisions.
At Treasury, we've been working hard to reach these communities, and we need
your help. There are a variety of financial education topics of great significance to
the Hispanic community - from understanding the importance of having a bank
account to knowing how to use credit to your advantage to knowing the terms of
your mortgage.
I challenge you to learn more about these issues and work to incorporate them into
your stories and publications. To promote foreclosure prevention, NeighborWorks
and the Ad Council have launched a PSA campaign targeted at struggling
homeowners.
These messages - for print, radio and television - are available in English and
Spanish. We need your help in spreading this message, and I invite you to partner
with us in this effort.
Our progress is only as great as our strongest partnerships. I encourage you to help
us spread this important message to as many homeowners as possible, and if there
is any way we can be of help to you, please let us know.
One last point before I close: Since taking office, President Bush has worked hard
to break down barriers to homeownership and expand the dream of owning a home
to more Americans. It is incumbent upon us to preserve this dream. At the end of
the day, if we can help keep more families in their homes, our country and ec.ono~y
will be better off as a whole. Once again, I applaud your efforts to keep the HispaniC
community informed. Working together, I'm confident we can help preserve the
American dream of homeownership.
Thank you.
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{P-826: Tre ..::mjl tn Host Mexican rrnancc Minister for Workshop on Financial Inclusion in Latin Amer... Page 1 of 1
February 13, 2008
HP-826
Treasury to Host Mexican Finance Minister for Workshop on Financial
Inclusion in Latin America
U.S. Treasurer Anna Escobedo Cabral will host Mexican Finance Secretary Agustin
Carstens and other Latin American leaders this week for a two-day Workshop on
Financial Inclusion, building on Secretary Paulson's initiative to improve Latin
Americans' access to basic financial services announced in a ~\JD.~.2Q07 speeCh.
The vast majority of the Latin American population functions exclusively in a cash
and barter economy. More than 70 percent of the residents of most Latin American
economies do not use basic financial services such as deposit and transaction
accounts, according to World Bank estimates. These households either lack access
to these services or fail to make use of services that are available.
Recent cross-country analysis by the World Bank indicates that financial exclusion
can dampen economic growth and contribute to financial instability.
The workshop will focus on a variety of issues on living without tools to build
financial security, including improving small business lending in Latin America,
regulatory landscape and the impact of remittances on the region.
Treasurer Cabral has carried out Secretary Paulson's initiative to improve access to
financial services in this region by meeting with policy makers and private sector
leaders in tl]eir home countries and by hosting conferences here in the United
States.
Opening remarks for the event will be open to the media.
•
•
•
•
Who U.S. Treasurer Anna Escobedo Cabral
What Opening Remarks Workshop on Financial Inclusion in the Americas
When Thursday, February 1410:00 a.m. EST
Where Treasury Department
Cash Room
1500 Pennsylvania Avenue, NW
Washington, D.C.
• Note Media without Treasury press credentials should contact Courtney
Forsell at (202) 622-2960, or GOLlr1rl?yJ=Qrs(,:IJ<glggJrea$,gQ\I with the
following information: full name, Social Security Number and date of birth.
- 30 -
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Page 1 of 3
June 12, 2007
HP-451
Remarks by Treasury Secretary Henry M. Paulson, Jr.
on Supporting Small Business in the Americas
at the Americas Competitiveness Forum
Atlanta, GA-- Thank you, Carlos, for that kind introduction. This inaugural meeting
of the Americas Competitiveness Forum is possible because of your leadership.
This is a unique opportunity to engage in meaningful discussion about ways to
enhance competitiveness and economic prosperity in our region.
I would also like to acknowledge Rob Mosbacher, the President of the Overseas
Private Investment Corporation. OPIC does valuable work mobilizing one of our
greatest assets, U.S. private capital, to promote social and economic development
in the Western Hemisphere and around the world.
I welcome this opportunity to share my thoughts and to emphasize the U. S.' stake
in the economic success of Latin America. This region is moving towards its
enormous potential as an engine of growth, opportunity and poverty reduction for its
own citizens and for the global economy. In recent years, a number of governments
have strengthened their policies - shored up public finances, reduced debt
vulnerability, opened markets, and laid the foundation for the growth we are now
seeing.
My message today is that spreading economic opportunity within and between the
nations of the Americas is urgent and possible. President Bush often refers to the
growing ties between Western Hemisphere nations. We share two-way trade flows
of more than $1 trillion and two-way investment of more than $1 trillion. Last year
workers from the region employed in the United States sent an estimated $45 billion
home to their families. The U.S. acts in our own and, we believe, the region's best
interest when we help neighboring nations build open economies and create
opportunity for all their people. This includes those who have not yet benefited from
this progress.
A key to spreading prosperity is supporting entrepreneurs. More people share in the
benefits of economic freedom and growth when small businesses thrive. Small
businesses tend to be labor intensive and are usually responsible for over 50
percent of new job creation. They are the engine of job and wealth creation in most
economies. So, in March, when the President asked the Treasury and State
Departments to develop an initiative to "help U.S. and local banks improve their
ability to extend good loans to small businesses," I was pleased to accept his
charge.
A thriving small business community can reduce poverty and inequality, as well as
create jobs. When individuals turn their ideas into productive businesses, they
make a transition from workers to owners. Ownership helps create sustainable and
stable economies with broader opportunities for all citizens. Economic and social
mobility have always been at the core of the U.S. system. We want to help Latin
American countries create the same mobility for their citizens.
We need to get real support to these entrepreneurs. They have good ideas,
markets to serve and the skills to operate in an often tough environment. They can
also form constituencies that drive governments to strengthen their business
climates and improve governance.
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Page 2 of 3
But, they often are frozen out of the formal financial sector. It is estimated that only
10 percent of small ~usinesses in Latin America have access to financing from
banks a~d commercial lenders. The other 90 percent depend on friends, relatives
or other Informal sources of capital that can charge 10 percent or more in daily
interest.
One key barrier to credit is that banks lack information about, and experience with,
smaller companies. Banks are often more comfortable lending to larger companies
that have collateral, formal financial statements and documentation. Small
companies may not yet have these resources, and so traditional lending criteria
don't apply. Banks need the tools necessary to assess the value and risk of these
smaller companies.
Lack of finance may mean the difference between success and failure, growth or
stagnation. These entrepreneurs need capital to expand into bigger space,
purchase additional inventory to serve growing demand and new markets, to buy
capital equipment. We see evidence in economies around the world that greater
availability of finance not only enhances growth, it reduces poverty and inequality,
and helps to build a middle class.
I'm pleased to announce our answer to President Bush's call - we have developed
a three-part plan to catalyze market-based bank lending to small businesses in
Latin America. By breaking down the barriers that block commercial bank financing,
we can work to build this necessary function in developing economies.
This initiative targets small, profitable firms with growth potential, and it has three
elements. The first two will provide support to banks willing to commit to specific
and ambitious targets for small business lending. The third will address the
regulatory environment.
First, we will promote the spread of new lending models that fit the unique
characteristics of smaller companies. We will offer the tools to adopt these models
so that banks can build capacity to quickly and accurately assess the credit quality
of small companies. This capacity building facility would be housed in the
Multilalerallnvestment Fund, MIF, of the Inler-American Development Bank. We
have committed to replenish this fund and we are actively working with the MIF to
develop a program which would provide up to $50 million over five years for this
purpose.
Second, the Overseas Private Investment Corporation, OPIC, and the lOB Group's
Inter-American Investment Corporation, IIC, will assume a portion of the risks
associated with this lending. OPIC has already identified banks with the potential to
provide up to $150 million using OPIC support through various vehicles that
address particular market needs. The IIC will also build upon ils relationships in the
region to offer a similar menu of options to banks under the initiative. These
vehicles include credit guarantees to banks to support small business on-lending by
banks in Latin America; local currency guarantees on small business loan portfolios
held by local banks; and partial guaranties for bond issues to fund small business
loans.
A third and equally important step is making sure that small business lending isn't
unnecessarily constrained by burdensome regulations or bureaucracy. Treasury's
Office of Technical Assistance and the MIF will work with local authorities to review
existing regulations. The team will identify and address obstacles to small business
lending, such as excessive collateral and capital requirements and interest rate
restrictions. The MIF, with support from Treasury, will also engage with regional
banking regulators and supervisors to define and promote the adoption of best
practices in micro, small and medium lending.
Taken together, these three steps - building new lending models, sharing the initial
risk for early-stage loans and helping to ensure a constructive bank regulatory
environment - will open new opportunities for banks to lend and for small
businesses to grow. Public efforts and funds will leverage private money to support
small businesses, and create the foundation for sustainable, non-governmental
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Page 3 of 3
market-based lending. We'll kick-start the model to help existing businesses in the
region best positioned to expand, and to help entrepreneurs with good ideas get
started.
Once participating banks demonstrate that it is profitable to lend to small
businesses, competition will bring other banks into the market and the need for ongoing assistance should diminish. Application of this model in Eurasia has created
over $12 billion in new small business lending to nearly two million companies and,
especially for small countries, transformed financial sectors.
Household financial education is also vital to the success of this initiative. Many
entrepreneurs get their start using their own savings or personal loans. Treasurer
Anna Cabral will host a Latin America Regional Conference this fall to discuss ways
we can enhance access to financial services, including financial service access of
entrepreneurs in the region.
Our interest in Latin America is strong, and it will continue. The countries of the
Americas are brought together by geography and history, and bound together by
common interest. The United States is committed to helping Latin America reduce
poverty, fight corruption, build the middle class, and generate more opportunities for
people who feel excluded from the region's growing prosperity.
Since becoming Treasury Secretary, I have visited Colombia, Guatemala, Peru and
Mexico. This region is a high priority for me, and I will return to South America in
July. I'll also continue discussing with my regional colleagues how we can work
together to improve economiC and social opportunities for people throughout Latin
America.
Thank you. I welcome the opportunity to answer a few questions.
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Page 1 of 2
July 20, 2007
Hp-497
Update: U.S. Treasurer to Launch Latin America Initiative
with Visits to Mexico, Central America
U.S. Treasurer Anna Escobedo Cabral wililravel to EI Salvador, Guatemala,
Honduras and Mexico next week, where she will launch the Treasury Department's
initiative to provide Latin Americans with better access to banks and other basic
financial services. Secretary Henry M. Paulson, Jr. discussed his goal of improving
the availability of basic financial services in the region in a June speech at the
Americas Competitiveness Forum
The vast majority of the Latin American population functions exclusively in a cash
and barter economy. More than 70 percent of the residents of most Latin American
economies do not use basic financial services such as deposit and transaction
accounts, according to World Bank estimates.
Treasurer Cabral will meet with representatives from the public, private and non·
profit sectors in each country and host a series of public discussions focused on
ways to give more Latin Americans access to basic financial services. This visit is in
advance of the Latin America Regional Conference, which Secretary Paulson
announced last month and Treasurer Cabral will host this fall. More details on the
trip will follow in the coming week.
Who
U. S. Treasurer Anna Escobedo Cabral
What
Press Availability
When
Wednesday, July 25 2:30 p.m. (Local Time)
Where
Central Reserve Bank of EI Salvador
Alameda Juan Pablo II, between 15 and 17 Av. Norte.
Apartado Posta (106)
San Salvador, EI Salvador
Who
U. S. Treasurer Anna Escobedo Cabral
What
Press Availability
When
Monday, July 30 4:30 p.m. (Local Time)
Where
U.S. Embassy in Honduras
Avenida La Paz
Tegucigalpa, Honduras
Who
U. S. Treasurer Anna Escobedo Cabral
Mexico Subsecretary of Finance and Public Credit Alejandro M. Werner
What
Breakfast Seminar on Improving Access to Financial Services in Latin America
When
Wednesday, August 1 8:30 a.m. (Local Time)
Where
Sheraton Hotel & Convention Center
http://www.treaS.E,jVlpress/releases/hp49'7 .f)tm
3/4/2008
Page 2 of 2
Avenida Juarez 70, Colonia Centro
Mexico City Federal District
Mexico City, Mexico
Who
U. S. Treasurer Anna Escobedo Cabral
What
Press Availability
When
Wednesday, August 1 11 :30 a.m. (Local Time)
Where
Sheraton Hotel & Convention Center
Avenida Juarez 70, Colonia Centro
Mexico City Federal District
Mexico City, Mexico
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Ip.827: TreasUI Hnlds Inaugural Meeting of President's Advisory Council on Financial Literacy
Page 1 of 2
PRESS ROOM
February 13, 2008
hp-827
Treasury Holds Inaugural Meeting of President's Advisory Council on
Financial Literacy
Washington - The Treasury Department today held the first meeting of the
President's Advisory Council on Financial Literacy to layout its agenda and goals
for the upcoming months. The new Council, established by President George W.
Bush on January 22, agreed to focus on expanding Americans' access to financial
services and increasing financial education for youth in school and for adults in the
workplace. The Council also called for research to measure the nation's level of
financial literacy.
"Every American should have the skills necessary to take control of his or her
financial future, and basic financial education is the first step to achieving that goal,"
said Council chairman Charles Schwab, who led the meeting. "This Council is
committed to making financial literacy a national priority, and to bringing together
the private sector, the govemment, the non-profit sector and our religious
communities to help give people of all ages and backgrounds the skills to
understand and manage their finances."
"The President formed this Council because he understands that financially literate
Americans fare better in life," said Assistant Secretary for Financial Institutions
David Nason. "The best way to raise our nation's level of financial literacy is for the
government to work with the types of private sector groups represented on the
Council."
The President and the Secretary of the Treasury have tasked the Council to work
with the public and private sector to help increase financial education efforts for all
Americans. Each Council member represents an industry involved with the delivery
of financial education.
Within the next 30 days, the group will form subcommittees including Financial
Literacy for Youth, Financial Literacy in the Workplace, Financial Access for the
Underserved, and Financial Education Research sub-committees. The
subcommittees will further layout the Council's agenda and goals for the upcoming
months. The Council is also expected to name a liaison to the Financial Literacy
and Education Commission, which released a financial education strategy report in
2006.
The Council also announced that it will be accepting public comments February 20 April 3~. Details on how to submit public comments will be published in the Federal
Register Notice on or about February 20 and posted on httRJLwww.treas.gov/ofe/.
The Council will next meet on June 18.
The new Council members are:
•
•
•
•
•
•
•
•
•
Mr. Ted Beck, National Endowment for Financial Education
Mr. John Bryant, Operation HOPE, Inc. (Vice Chairman)
Mr. Theodore Daniels, Society for Financial Education and Professional
Development
Vice Admiral (retired) Cutler Dawson, Navy Federal Credit Union
Dr. Robert Duvall, National Council on Economic Education
Dr. Tahira Hira, Iowa State University
Mr. Jack Kosakowski, Junior Achievement USA
Ms. Sharon Lechter, CEO and Founder of Lechter Development Group
Dr. Robert Lee, FreshMinistries, Inc.
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3/4/2008
p-827: Treasl!ry Holds Inaugural Meeting of President's Advisory Council on Financial Literacy
Page 2 of 2
• Ms. Laura Levine, Jump$tart Coalition for Personal Financial Literacy
• Mr. David Mancl, Office of Financial Literacy of the Wisconsin
• Department of Financial Institutions
• Mr. Don McGrath, Bank of the West
• Ms. Janet Parker, Society of Human Resource Management
• Mr. Ignacio Salazar, SER National
• Ms. Mary Schapiro, Financial Industry Regulatory Authority
• Mr. Charles Schwab, Charles Schwab Corporation (Chairman)
-30
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1p-828: OpeW1Z Stfltement Prepared for Delivery by Treasury Secretary Henry M. Paulson, Jr. on the E...
Page 1 of 2
February 14, 2008
hp-828
Opening Statement Prepared for Delivery by Treasury Secretary Henry M.
Paulson, Jr. on the Economy and Financial Markets before the Senate
Committee on Banking, Housing and Urban Affairs
Washington- Chairman Dodd, Senator Shelby, Members of the Committee: Thank
you for the opportunity to be here today. I am pleased to appear with my colleagues
Chairman Bernanke and Chairman Cox. I appreciate their leadership on the
challenges confronting our economy and capital markets, and look forward to
continued close, productive working relationships.
The U.S. economy is fundamentally strong, diverse and reSilient, yet after years of
unsustainable home price appreciation, our economy is undergoing a significant
and necessary housing correction. The housing correction, high energy prices and
capital market turmoil are weighing on current economic growth. I believe that our
economy will continue to grow, although its pace in coming quarters will be slower
than what we have seen in recent years.
Four weeks ago, recognizing the downside risks to our economy and that the shortterm cost of doing nothing was too high, President Bush called for an economic
growth package to provide a temporary boost to our economy as we weather the
housing correction.
The Congress responded with bipartisanship, cooperation and speed to pass an
economic growth package that is temporary, broad-based and will assist our
economy quickly. We have demonstrated to the nation and the world that we can
come together to address the needs of the American people as we weather the
housing downturn.
Yesterday, the President signed the economic package into law and Treasury is
already working to send payments out to more than 130 million American
households.
The IRS will manage the current tax filing season and simultaneously prepare to
issue these additional payments starting in early May. Payments will be largely
completed this summer, putting cash in the hands of millions of Americans at a time
when our economy is experiencing slower growth. Together, the payments to
individuals and the investment incentives for businesses will help create more than
half a million jobs by the end of this year.
In addition to this growth plan, the Administration will continue to focus on
aggressive action to try to provide alternative options to foreclosures. This includes
encouraging the HOPE NOW alliance, a coalition representing over 90 percent of
the subprime servicing market, and non-profit mortgage counseling organizations,
trade associations and investors.
This industry-wide effort employs multiple tools to reach and help struggling
homeowners, including streamlining able subprime borrowers into re-financings and
loan modifications.
The HOPE NOW effort is making progress. According to updated statistics, in the
second half of 2007 the industry assisted 869,000 homeowners, including 545,000
subprime borrowers who received loan modifications and repayment plans. The
progress rate is accelerating; the number of subprime modifications in the fourth
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lp-828: OpeTl~ng Statemf.nt Prepared lor Delivery by Treasury Secretary Henry M. Paulson, Jr. on the E...
Page 2 of 2
quarter doubled over the rate in the third quarter. In 04 alone, of the estimated 1.5
million homeowners of all types delinquent 60 or more days, over 470,000 received
help from their servicer and almost 30 percent of those received a loan
modification.
~ expect th~t this progress will accelerate in 2008. In January, the industry began
Implementmg a new framework to streamline mortgage modifications for able but
struggling subprime borrowers. As announced by the American Securitization
Forum, this framework will greatly speed the financial evaluation process borrowers who have made their initial payments but cannot afford the interest rate
reset may be fast-tracked for modification or re-finance, allowing mortgage
counselors and servicers to devote time and resources to the more difficult cases.
Currently, I am focusing on two aspects of this effort: first, on ensuring that the ASF
framework is adopted throughout the industry, so that the industry is better
prepared to deal with the rising volume of subprime mortgage resets; and second,
on ensuring that the HOPE NOW alliance produces timely metrics 50 that policy
makers and industry participants can evaluate progress and make adjustments as
needed.
I appreciate this Committee's leadership and specific efforts to address issues that
have arisen during the housing downturn. Finalizing the FHA modernization bill will
provide additional tools to help homeowners and I encourage you and the House to
reach consensus as soon as possible. Enactment of GSE regulatory reform is also
a very high priority for Treasury and the Administration, and I commend the
chairman and committee members for your willingness to move forward promptly.
While not under this committee's jurisdiction, the Administration has also proposed
legislation that will allow states to issue tax-exempt bonds for innovative refinancing
programs. This tax proposal is in addition to that signed into law in December,
which provides temporary tax relief for homeowners facing increased taxes due to
forgiven mortgage debt. All of these initiatives may help mitigate the housing
headwinds, and we remain open to other good ideas as we move forward.
Treasury continues to monitor capital markets closely and to advocate strong
market discipline and robust risk management. While we are in a difficult transition
period as markets reassess and re-price risk, I have confidence in our markets.
They have recovered from stressful periods in the past, and they will do so again.
Working through the current stress is our first concern. Through the President's
Working Group on Financial Markets, we are also reviewing underlying issues
ranging from enhancing risk management to market infrastructure, to reporting and
disclosure, to ratings and investor practices. We know a short-term boost to our
economy is needed. We also know that it is just as important to get the long-term
policy response right.
Thank you and I am pleased to take your questions.
·30-
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~p-829: Treasaer Annn Escobedo Cubral <hr> Welcome Remarks at the Workshop on Financial Inclusi...
Page 1 of 2
February 14, 2008
hp-829
Treasurer Anna Escobedo Cabral
Welcome Remarks at the Workshop on Financial Inclusion in the Americas
Washington - Good morning. Thank you for being here. I'm extremely pleased to
welcome you to Treasury's historic Cash Room - a room where cash was once
produced, counted and stored. I'm also very pleased and honored that Secretary
Carstens could join us today. On behalf of Secretary Paulson, I'd like to thank
Secretary Carstens for your strong partnership.
I also want to thank the government representatives from Guatemala, Honduras
and EI Salvador for being here. Secretary Paulson regrets not being able to join us
this morning. Promoting economic growth, fighting poverty and income inequality
and expanding infrastructure and investment throughout Latin America remain
priorities for President Bush and Secretary Paulson.
In fact, this workshop is part of a broad Treasury priority to advance financial
inclusion. Your participation here today underscores the important role financial
inclusion plays in expanding opportunity and economic development throughout the
world.
Inclusion in the financial mainstream is essential for a country's long-term economic
growth and financial stability. In many Latin American countries, up to 70% of the
population functions entirely outside of the financial system. By providing
households with the opportunity to safely save, borrow, and invest, we can
empower individuals with the ability to take advantage of economic opportunities
and build financial security.
Countries have struggled with this issue for decades. In fact, we face the same
challenge in the U.S. where an estimated 10 million residents do not participate in
the financial mainstream. We know there are many reasons why these individuals
are unbanked - some face language or cultural barriers, some live in rural areas
with no convenient access to financial institutions, and some simply have never had
a relationship with a financial institution.
To be sure, the unbanked population is diverse, and a diversity of financial products
and services are required in order to meet their unique needs. This requires
innovation, creativity, and most importantly cooperation across a range of sectors.
The high cost of establishing and maintaining vast brick and mortar branch
networks has been one of the biggest hurdles to expanding access. Advances in
technology now make it possible to reach even the most isolated communities with
high quality, low cost finanCial services. But we al\ have a role to play. Governments
must work to foster a sound and effective regulatory environment that gives the
private sector the opportunity to put innovation to work.
What we've found in the United States, and quite frankly, in other countries we've
worked with, is that our efforts to advance financial inclusion are only as strong as
the partnerships we can create with each other. Over the next day and a half, we'll
explore the challenges that hinder participation in the financial mainstream, and
we'Ulearn about a variety of business models and partnerships that are helping to
break through these obstacles.
We'll also discuss strategies to meet the diverse needs of underserved
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lp-829: Treas,Jn~r Anna Escobedo Cahral <br> Welcome Remarks at the Workshop on Financial Inclusi...
Page 2 of 2
communities, and ways that we can empower consumers to make the most of the
financial opportunities available to them. This is critical when we talk about
remittances - an issue of great importance to all of the countries here. Remittances
can have a potentially meaningful impact if we can help those receiving this money
to build their assets and invest wisely.
Unfortunately, a majority of remittance senders and recipients are unbanked which means a percentage of their money is being spent on transfer fees that
contribute to large transaction costs. If we can help channel remittance money
through the formal financial system, remittances have the potential to become a
driving force for economic growth through savings and investment.
Micro, small, and medium enterprises have the potential to be the powerhouses of
our economies, but many entrepreneurs are intimidated by formal bank settings and
requirements for opening accounts. Instead these entrepreneurs turn to informal
lenders which increase their cost of doing business. Opening the formal system to
these business owners will make them more competitive and increase their
opportunities for growth.
Throughout this workshop, we aim to address a broad set of issues in a short
amount of time. But these issues are important because at the end of the day - for
every country represented here - getting more people involved in the mainstream
financial sector is about investing in our communities. Financial inclusion is a step
toward economic mobility. It's the work of every one of us here today to find
creative ways to offer a bridge into the formal financial sector.
I look forward to a meaningful exchange of ideas and solutions throughout this
workshop. This is meant to be a discussion, so I encourage everyone to share your
thoughts. By tomorrow afternoon, we will leave with at the very least a room full of
very strong and valuable partners, and I'm confident that our work together will
ensure that more people experience the benefits of the region's growing prosperity.
Again, thank you for being here, and now I'm pleased our keynote speaker. Agustin
Carstens assumed office as Secretary of Finance and Public Credit of Mexico on
December 1, 2006 with the new government of President Felipe Calderon. Prior to
taking up his current position he was Deputy Managing Director of the International
Monetary Fund. Mr. Carstens has a Ph.D. and an MA in Economics from the
University of Chicago. He has a B.A. in Economics from ellnstituto Tecnol6gico
Autonomo de Mexico. He brings to his position expertise gained from a career at
the Banco de Mexico among other notable positions.
Secretary Carstens is a leader in the region and a strong partner to us at Treasury.
I'm pleased to introduce Secretary Agustfn Carstens. Thank you.
-30-
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1p-830: CitiZl'n~' Guide Pmvides E:a!;y Puhlic Access to Government's Financial Report
Page 1 of 1
February 14, 2008
hp-830
Citizens' Guide Provides Easy Public Access to Government's Financial
Report
Washington - The Treasury Department and the Office of Management and
Budget (OMB) today released The Government's Financial Health: A Citizens'
Guide to the 2007 Financial Report of the United States Government. The eightpage Citizens' Guide provides readers with a user-friendly reference tool for finding
key results of the EiD~nGi1'l,Lf!~RQd released in December 2007. This is the first time
the Federal government has issued this type of summary. A similar summary report
will be published annually hereafter.
Drafted in coordination with the U.S. Government Accountability Office (GAO), the
Citizens' Guide provides an oveNiew of the U.S. government's short-term and longterm financial outlook, including the government's biggest fiscal challenge, the
unsustainable growth in entitlement programs.
In the next 35 years, the automatic spending portion of the budget will completely
swallow all available revenue, which means that resources will not be available for
some of the federal government's basic responsibilities, such as national defense
and homeland security. The Citizens' Guide makes this kind of information easily
available to a broad audience, explaining these realities in clear and stark terms.
The Citizens' Guide is available electronically at
bttR:l/wliVwJm§,ttE:!qs,gQv!frSL!mmi:lfYfindeK,btml.
-30-
http://www.treas,suvlpresslreleasesfhp830 htm
3/412008
The Government Is On An Unsustainable Fiscal Path
Chart 1: The Government Is On An Unsustainable Fiscal Path
Percent of GOP
60
50
40
projected
deficits
without
reform 1
2007
30
1
20
1
-~~--~-------~-~.----~------------Revenue
10
1970
1980
1990
2010
2000
2020
2030
2040
2050
2060
2070
2080
[ley'tJat,$: "
-: ,_
-'-'.;'!
'-'.cl:::~"" :~h.~
. 2007;' ~i9a:~ ?art.AS beil~fj{payments began to exceed the program's tax revenue.
<>':;., ;' '~:;-':':~;;,'~:~~'. ";.;; , ','; ;':,,~:;;;~,~'~>\";:"" '
" ~"
, $ocjaf's.~eu~~~6e,I'\'fit:payments will begintQ)exceed the program;stax revenue.
,
' , ' . ' . ~ .,.
~ c_'"
''Y''''.''' ..
";- ~..
.... '
,
<
•
Medid~~eN~t~"'Jt4mFUn(Fa$$ijt$wm
not be enough top,ayfull benefit$:Qnaercurrentlaw;benefits
'wouid b({redy~~~;t679Jjero~hfof scHeduled ben~fits in 2019, de~Jiriln9:1029 peJyentby2081.
'Federal debt h~'dbYtl)!1;Publicwillexce,~dth~hjstoricaJ higf:Jdf f09jJ~rcentof GOP.
Social Sec~rjtyTrus:tFLJl1ds' ~ssets will not be enough fo pay full benefits. Under current law, benefits
to 75 percent ot $chedule.;ibenefits in 2041, declining to 70 percent by
,for altretlreesWQufdberequ'ced
298t~
,.' '
,'
'+ot~~~yeiniTlent cost will berrore:than':three!times revenue.
Notes:
1. Projected deficits represent projected cost in excess of revenue, where revenue as a percent of gross domestic product (GDP) is
set equal to its historical average and projected cost is based on scheduled Social Security and Medicare benefits and current cost
trends. While the precise amounts of the government's financial responsibilities are far from certain-they are based on many
complex calculations and assumptions, including life expectancies and health care cost-their magnitude and the need to control
them are evident.
2. The dates and events presented above are taken from the 2007 Annual Reports of the Social Security and Medicare Boards of
Trustees and the 2007 Financial Report of the United States Government.
A Citizen's Guide to the 2{J07 Financial Repurt q(thc Us.
C;Ol'CnW7PI1[
Overview
This Citizens' Guide (guide) highlights important information in the 2007 Financial Report of the
United States Government.! The Secretary of the Treasury, Director of the Office of Management and
Budget COMB), and Comptroller General of the United States believe that the information discussed
in this guide is important to all Americans.
While attention has been recently focused on addressing emerging challenges in today's economy, the
last 3 years show economic growth and improvement. Revenue went up, deficits went down, and cost
stayed fairly constant. But as you can see in chart 1, the government faces a huge fiscal challenge in
the years ahead. This year, 2008, is the year in which the first of the approximately 80 million baby
boomers-those born between 1946 and 1964-become eligible to draw Social Security benefits.
Scheduled Social Security and Medicare benefits together with other federal programs' projected
long-term cost are much greater than the resources (revenue and borrowings) available to pay for
them. 2 Unless action is taken to bring program cost in line with available resources, the coming surge
of entitlement spending will end in a fiscal train wreck that will have an adverse effect on the U.S.
economy and on virtually every American.
Where \Ve Are Now
•
Strong growth in individual incomes and corporate profits contributed to 4 consecutive years of
tax revenue growth-revenue was up by 46 percent since 2003 to $2.6 trillion in 2007,3 Social
Security and Medicare tax withholdings accounted for almost a third of total revenue in 2007.
•
Social Security Trust Funds' revenue exceeded what the government paid out in benefits by
$186 billion in 2007. This surplus was credited to the Trust Funds.
•
The government's total operating cost remained relatively constant-$2.9 trillion in 2006 and in
2007.
•
Revenue increases and relative cost stability resulted in a drop in the government's net operating
cost-to $276 billion-and a decline in the unified budget deficit (budget deficit)-to $163 billion
in 2007.
•
To fund cumulative budget deficits, the government has borrowed a total of $5 trillion from the
public as of the end of fiscal year 2007. The government has also borrowed excess annual cash
flows from the Social Security and Medicare Trust Funds and similar funds to finance other
government cost. Including interest, the government owes $4 trillion to these funds, which is
backed by the full faith and credit of the government, resulting in total federal debt of $9 trillion.
Where We Are Headed
•
As baby boomers retire and health care cost continue to rapidly rise, the cost of the Social
Security, Medicare, and Medicaid programs will account for a growing portion of government
cost.
:The administration annually issues two complement<lIY reports on the government's finances. Th,' Flllowla! Rl'/i!)y1 1J{IIlI' Ullilcd Srar('s COl'crnmnll
IFil1(An('wl Rrl'"rf). issued by the Departlllen! of the Treasury, analyzes how revenue was spent 111 the fiscal year on prograllls and services and discusses the
government's resulting financial position. Cost is reported at the time an obligation to pay arises rather than when payments are rrlJde The Prnldmr's Bur/fin
is the government's primary lool for financial pionning and control. It focuses on taxpayers' dollars the government collects, how It uses them to support
progmms and services, and whether this use results in a surplus or deficit
2This calculation assumes future government revenue as a percent of GDP is at its average historical rate of ahout 18 percent, and uses current spending
trends to project the cost of federal programs other than Social Security arlll Medicare.
3The government's fiscaJ year begins Octoher I and ends September 30.
A Citizen's Guide to the 2007 Financial Report of the u.s. Govcnnnent
•
Absent reforms, the Social Security Trust Funds will be exhausted in 2041 and the Medicare Part
A Trust Fund will be exhausted in 2019. Revenue dedicated to these entitlement programs under
current law will not be enough to pay for scheduled Social Security and Medicare Part A benefits.
•
The projected cost of all federal programs will exceed available resources. Unless the government
brings program cost in line with available resources, resulting budget deficits will be so large that
the government will not be able to borrow enough to fund them.
•
Our children and grandchildren will bear a greater burden of the cost if we delay in implementing
fundamental reforms.
2
A Citizen's Guide to the 2007Financial Report (i the US. Government
What Came In and What Went Out
What came in? In 2007, government revenue totaled $2.6 trillion. What went out? The government's
operating cost totaled $2.9 trillion. The "bottom line" net operating cost-the difference between
revenue and cost-was $276 bi11ion-a $174 billion decrease from 2006. It is also more than
$100 billion greater than the unified budget deficit, as it includes approximately $90 billion in
accrued, but as of yet unpaid, post-employment benefits to the millions of people who are part of the
government's current and retired civilian and military workforce. The budget deficit is the amount
by which the government's spending exceeds its revenue, and thus, is a measure of how much the
government has to borrow from the public. The budget deficit decreased $85 billion to $163 billion in
2007.
In 2007, a growing U.S. economy led to record revenue of $2.6 trillion. Chart 2 shows that
government revenue increased steadily from 2003 through 2007, largely because of taxes on
increasing individual incomes and corporate profits. Social Security tax revenue of $648 billion
and Medicare tax revenue of $200 billion accounted for almost a third of total revenue. The recent
slowingofU.S. economic growth will have an effect on 2008 revenue.
Chart 2: Government Revenue 2003-2007
Dollars in trillions
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2003
2004
2005
2006
2007
. . Total revenue
~ Social Security and Medicare tax revenue"
CJ Individual income tax revenue"
. . Corporate income tax revenue
"In the Financial Report, Social Security and Medicare tax revenue are combined with individual income tax revenue.
3
A Citizen's Guide to the 2007 Financial Report of the u.s. Government
The government's net cost in 2007 was relatively constant compared to 2006. Chart 3 shows that
in 2007, the Department of Health and Human Services (RRS), Department of Defense, and Social
Security Administration, plus interest on debt held by the public, accounted for approximately
three-fourths of the government's total net cost. Medicare cost of $368 billion and Medicaid cost of
$188 billion accounted for more than 80 percent ofRRS' total net cost in 2007. 4
Chart 3: Government Net Cost 2007
Other
HHS
$111 billion
HHSMedicare and
Medicaid
$556 billion
Department
of Defense
$665 billion
22.8%
Interest on debt
held by the public
$239 billion
Social
Security
Administration
$626 billion
All other
entities
$713 billion
The Debt
The government incurs debt when it borrows from the public to fund its budget deficits.
The government also incurs debt when government funds invest their excess receipts in
government securities. Of the government's total debt of about $9 trillion at the end of 2007,
approximately $5 trillion was debt held by the public in the form of Treasury securities, such as bills,
notes, and bonds. The public includes individuals, corporations, state and local governments, Federal
Reserve Banks, and foreign governments.
The balance of the debt-nearly $4 trillion-was intragovernmental debt. This represents debt held
by government funds, including the Social Security ($2.2 trillion) and Medicare ($359 billion) Trust
Funds. These government funds are typically required to invest any excess annual receipts in federal
securities. When the government borrows these excess receipts, it still has an obligation to repay them
to the government funds with interest. If expected budget deficits continue, as the government funds
redeem the federal securities to pay for benefits or other program cost, then additional borrowing
from the public will likely be required.
\1edicare cost is net of related premium revenue.
4
A Citizen's Guide to the 2007Financial Report of the
u.s. Governmcnt
\Vhere We Are Headed
An Unsustainable Fiscal Path
The projected growth in spending for Social Security and Medicare benefits affects every citizen
in the nation. s Scheduled benefits under these programs are expected to exceed dedicated revenue
(e.g., payroll taxes and premiums) by more than $40 trillion (present value) over the next 75 years,
under current laws and policy.6 The fiscal imbalance is even larger looking beyond 75 years. 7
Moreover, without reform
•
In 2007, Medicare Part A benefit payments began to exceed the program's tax revenue.
•
In 2011, the Medicare Part A Trust Fund begins to decline as benefits exceed payroll taxes and
trust fund interest.
•
In 2017, Social Security benefit payments will begin to exceed the program's tax revenue.
•
In 2019, Medicare Part A Trust Fund assets will not be enough to pay full benefits. Under
current law, benefits would be reduced to 79 percent of scheduled benefits in 2019, declining to
29 percent by 208l.
•
In 2027, Social Security Trust Funds begin to decline as benefits exceed tax revenue and trust
fund interest.
•
In 2040, federal debt held by the public will exceed the historical high of 109 percent of GDP.
•
In 2041, Social Security Trust Funds' assets will not be enough to pay full benefits. Under
current law, benefits for all retirees would be reduced to 75 percent of scheduled benefits in 2041,
declining to 70 percent by 208l.
•
In 2080, total government cost will be more than three times revenue.
SThe dates and events described in this section are taken from the 2007 Annual Reports of the Sbcial Security and Medicare Boards of Trustees and the 2007
Financial Report.
6.rrus estimate, included in the fiscal year 2007 Statement of Social Insurance, may be found in the 2007 Financia! Report.
7The 75.year horizon includes the
revenue from people working in the latter part of the 7S-year period but not the associated benefits that will be paid when
these same people retire after the end of the 75 years.
5
A Citizen's Guide to the 2007 Financial Report ((j'the U.S. Govermnent
Fundamental Reforms Are Needed Now
Chart 4 shows government revenue and spending as a percent of GDP from 1970 through 2080. 8
Since World War II, federal revenue as a share of GDP has been roughly constant at around
18 percent. 9 Whenever taxes rose, policy actions tended to pull them back.
Chart 4: Government Revenue and Cost 1970-2080
Percent of GOP
60
50
40
30
20
10
Q
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
- - - Revenue
c=J
Other government programs
~
Net interest
~
Medicaid
_I
LJ Medicare
Social Security
If revenue is held constant at about 18 percent of GDP (the historical average level), government
spending will eventually exceed the government's ability to pay. By 2070, total government cost is
projected to be SO percent of GDP mainly because of mounting interest cost. Cost-to-GDP ratios have
not been this high since World War II, when cost briefly reached 44 percent of GDP. By 2080, cost
reaches nearly 60 percent of GDP, more than three times the average historical level of revenue as a
percent of GDP. The dates and numbers would change with different forecasting assumptions, but
under a wide range of reasonable projections, the increases in budget deficits will be dramatic.
!Projected spending is based on scheduled Social Security and Medicare benefits and current spending trends. Revenue as a percent of GOP from 2010 to 2080
is assumed to equal its historical average.
sGDP is one way of measuring the size of a nation's economy and is defined as the total market value of all final goods and services the nation produces in a
given period. The projection that the government's revenue as a percent of GOP will remain relatively constant is based on historical data and trends that are
not expected to change.
6
A Citizen's Guide to the 20()7FiHanciai Report rlthe
u.s. Governmf'nt
Chart 5 shows the extreme effect on the debt of projected budget deficits indicated in chart 4. These
combined trends will cause government debt levels to more than triple by 2040 and to more than
double again by 2060. The nation's debt could approach 600 percent of GDP by 2080. This far
exceeds the historical high of 109 percent of GDP that occurred during World War II.
Chart 5: Federal Debt Held by the Public 1940-2080
Percent of GOP
700
600
500
400
300
World War II
historical high
200
2007
109%
1
100
o
1940
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
The nation must change course before the deficit and debt reach unprecedented heights. The
government must bring program cost in line with available resources. Delays in taking this action will
increase the magnitude of the reforms needed and will place more of the burden on our children and
grandchildren.
While the precise amounts of the government's financial responsibilities are far from certain-they
are based on many complex calculations and assumptions, including life expectancies and health care
cost-their magnitude and the need to control them are evident.
7
A Citizen's Guide to the 2007 Financial Report of the US. Government
Looking Ahead
In the 2007 Financial Report, the Secretary of the Treasury indicates that the nation must look to the
future, particularly the spending demands of Social Security and Medicare, and squarely face the need
for fundamental reform if these programs are to be sustained. The government must strive to make all
disclosures transparent, provide all points of view with relevant data, and expand financial and fiscal
reporting in order to explain why estimates of future Social Security and Medicare costs increase year
after year.
The issues discussed in this guide affect, and should be of interest to, every citizen. The Financial
Report's comprehensive reporting is intended to inform and support the decision-making needs of
lawmakers and the public and to help keep the United States on solid financial ground.
Finding Out More
You will find more detail on these matters in the Financial Report. You are encouraged to explore the
information it contains and to ask questions about how the government manages taxpayers' money.
The 2007 Financial Report of the United States Government and other information about the nation's
finances are available at:
•
U.S. Department of the Treasury's Financial Management Service,
http://www.fms.treas.govlfrlindex.htm1;
•
OMB's Office of Federal Financial Management,
http://www.whitehouse.gov/omb/financiallindex.htm1; and
•
GAO, http://www.gao.gov/financial/fy2007financialreport.html.
This guide can be obtained on-line at the above Web sites.
This Citizens' Guide highlights information in the 2007 Financial Report. The Government
Accountability Office's (GAO) complete audit report on the U.S. government's consolidated
financial statements can be found beginning on page 159 of the Financial Report. For 2007, for
the first time, GAO issued an unqualified or "clean" opinion on the Statement of Social Insurance.
However, certain material financial reporting control weaknesses and other limitations on
the scope of its work prevented GAO from expressing an opinion on the remaining financial
statements.
'.
,~
Image Sources
Cowr.. ............ " .............. l·}lOtoDisc (US klJlk not c:.' 1
Page 1 ......... " .................... PhotoDisc (:;;tilck of 1'\ventv dollar hilb)
Page 2 ............................... P!:ol:nDi;.;,; (dCll1il of one hundred dolhll' hills)
Page 4 ............................ ". Photo Disc: (pill' of dollar bills)
Page G............................... Digita] Vision lonc hundrc:J dnllmh:lIs)
Page 8 ............................... Digit;]1 Vi~ion (assorted CS pklptT ('urrcllcy)
Inside back cover. ........ " .. Bra ndXPic:t1lfCS (milze of money)
p-83 1: Trt<JSury International rapital (TIC) Data for December
Page 1 of 3
FROM THE OFFICE OF PUBLIC AFFAIRS
We recommend printing this release using the PDF file below.
To view or print the PDF content on this page, download the free AdQPft@AP[Q.P"!t@8eaqer@.
February 15, 2008
HP-831
Treasury International Capital (TIC) Data for December
Treasury International Capital (TIC) data for December are released today and posted on the U.S. Treasury web site (www.treasgov!tlc
which will report on data for January, is scheduled for March 17,2008.
Net foreign purchases of long-term securities were $56.5 billion .
• Net foreign purchases of long-term U.S. securities were $69.1 billion. Of this, net purchases by foreign official institutions were:
purchases by private foreign investors were $33.3 billion.
• U.S. residents purchased a net $12.6 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $45.2 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $34.2
holdings ofTreasury bills increased $15.5 billion.
Banks' own net dollar-denominated liabilities to foreign residents decreased $19.0 billion.
Monthly net TIC flows were positive $60.4 billion. Of this, net foreign private flows were positive $8.4 billion, and net foreign official flow
billion.
-30-
TI C Monthly Reports on Cross-Border Financial Flows
(B'U'
1 IOns 0 fd 0II ars, no t seasona11lyad'IluS t ed)
2005
12 Months Through
2006
Dec-06
Dec-07
Sep-07
Oct-I
Foreigners' Acquisitions of Long-term Securities
1
2
3
4
5
6
7
8
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line 1 less line 2) 11
Private, net /2
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
http://www.treaS.80VfpressfreleaseSfhpS31.htm
17157.5 21077.1
16145.9 19933.9
1011.5 1143.2
21077.1
19933.9
1143.2
29689.0
28683.2
1005.8
2332.7
2276.7
56.0
2671
946.6
125.9
193.8
482.2
144.6
946.6
125.9
193.8
482.2
144.6
818.1
198.1
107.0
332.6
180.4
27.7
11.6
2.3
11.3
2.5
9(j
891.1
269.4
187.6
353.1
81.0
255~
118
4:
L1
IS
2S
3/412008
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
9 a.m. (EST), February 15,2008
CONTACT Rob Saliterman, (202) 622-2960
EMBARGOED UNTIL
TREASURY INTERNATIONAL CAPITAL DATA FOR DECEMBER
Treasury International Capital (TIC) data for December are released today and posted on the U.S.
Treasury web site (www.treas.gov/tic).Thenextrelease.whichwillreportondataforJanuary.is
scheduled for March 17, 2008.
Net foreign purchases oflong-term securities were $56.5 billion.
•
Net foreign purchases oflong-term U.S. securities were $69.1 billion. Of this, net purchases
by foreign official institutions were $35.8 billion, and net purchases by private foreign
investors were $33.3 billion.
•
U.S. residents purchased a net $12.6 billion of long-term foreign securities.
Net foreign acquisition oflong-term securities, taking into account adjustments, is estimated to have
been $45.2 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities increased $34.2 billion. Foreign holdings of Treasury bills increased $15.5
billion.
Banks' own net dollar-denominated liabilities to foreign residents decreased $19.0 billion.
Monthly net TIC flows were positive $60.4 billion. Of this, net foreign private flows were positive
$8.4 billion, and net foreign official flows were positive $52.1 billion.
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars not seasonally adjusted)
2005
2006
12 Months Through
Dec-06
Dec-07
Sep-07
Oct-07 Nov-07
Dec-07
Foreigners' Acquisitions of Long-term Securities
I
2
3
4
5
6
7
8
9
10
II
12
13
14
15
16
17
18
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line I less line 2) II
17157.5 21077.1
16145.9 19933.9
1011.5 1143.2
21077.1
19933.9
1143.2
29689.0
28683.2
1005.8
2332.7
2276.7
56.0
2671.9
2553.9
118.0
2890.2
2819.9
70.3
2312.8
2243.7
69.1
Private, net 12
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
891.1
269.4
187.6
353.1
81.0
946.6
125.9
193.8
482.2
144.6
946.6
125.9
193.8
482.2
144.6
818.1
198.1
107.0
332.6
180.4
27.7
11.6
2.3
11.3
2.5
96.2
45.9
4.8
15.6
29.9
58.5
23.2
20.6
10.5
4.3
33.3
-9.5
-7.4
29.3
21.0
Official, net 13
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
120.4
68.7
31.6
19.1
1.0
196.6
69.6
92.6
28.6
5.8
196.6
69.6
92.6
28.6
5.8
187.7
3.0
119.1
50.6
15.1
28.3
14.4
9.2
4.6
0.1
21.8
4.0
10.0
7.4
0.4
11.8
0.4
6.0
4.9
0.5
35.8
11.0
4.1
8.2
12.5
3700.0
3872.4
-172.4
5515.9
5766.8
-25Q.9
5515.9
5766.8
-250.9
8177.1
8400.5
-223.5
557.8
598.8
-41.0
809.4
813.5
-4.1
728.9
708.3
20.6
598.6
611.2
-12.6
-45.1
-127.3
-144.5
-106.5
-144.5
-106.5
-128.6
-94.9
-19.7
-21.3
-9.1
5.0
11.0
9.6
-13.1
0.5
Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Securities to U. S. Residents
Foreign Securities Purchased, net (line 14 less line 15) 14
Foreign Bonds Purchased, net
Foreign Equities Purchased, net
19
Net Long-Term Securities Transactions (line 3 plus line 16):
839.1
892.3
892.3
782.3
15.0
113.9
90.9
56.5
20
Other Acquisitions of Long-term Securities, net IS
-143.0
-169.9
-169.9
-186.5
-20.6
-15.1
.11.2
-11.3
696.2
722.4
722.4
595.8
-5.6
98.9
79.7
45.2
-47.6
-58.9
-15.6
-43.3
146.2
-9.0
16.1
-25.0
146.2
-9.0
16.1
-25.0
216.4
49.2
29.9
19.3
4.1
-6.5
-4.8
-1.8
30.3
9.0
6.9
2.2
37.2
15.6
10.8
4.8
34.2
15.5
4.5
II.!
11.4
10.6
0.8
155.1
174.9
-19.8
155.1
174.9
-19.8
167.1
91.0
76.1
10.6
1.7
8.9
21.3
1.3
20.0
21.5
4.3
17.3
18.6
17.6
1.0
16.4
198.0
198.0
-119.2
-27.5
-39.4
34.0
-19.0
665.0
1066.5
1066.5
692.9
-29.0
89.7
150.8
60.4
578.0
87.0
926.2
140.3
926.2
140.3
395.1
297.8
-42.2
48.1
41.6
105.8
45.0
8.4
52.1
21
22
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
27
28
Increase in Foreign Holdings of Dollar-denominated Short·term
U.S. Securities and Other Custody Liabilities: 16
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
Official, net
29
Change in Banks' Own Net Dollar-Denominated Liahilities
23
24
25
26
30 Monthly Net TIC Flows (lines 21,22,29) 18
of which
31
Private, net
32
Official, net
II
n
13
14
15
16
17
IS
n.l
Net foreign purchases of U.S. securities (+)
Includes international and regional organizations
The reported division of net purchases of long-term securities between net purchases by foreign official institutions and net purchases
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and I O.a.4 on the TIC web site.
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign securities to foreigners.
Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United States; positive entries
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securities +
estimated foreign acquisitions of U.S. equity through stock swaps estimated U.S. acquisitions of foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign Countries.
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are collected
quarterly and published in the Treasury Bulletin and the TIC web site.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or broker/dealers.
TIC data cover most components of international financial flows, but do not include data on direct investment flows, which are collected
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data summarized here, the
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I On the TIC web
site describes the scope of TIC data collection.
2
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February 15, 2008
HP-832
Remarks by Treasury Under Secretary for International Affairs David H.
McCormick at the Tuck Global Capital Markets Conference
Open Investment and America's Prosperity
Hanover, N.H. - Thank you, Paul for that warm introduction. I would like to thank
you, Matt Slaughter, and the Tuck School for inviting me to this conference, and to
all of you for joining us today.
The leadership here al the Tuck School was prescient, even clairvoyant, in
scheduling a conference on global capital markets at this time - the timing could not
be better. In recent weeks, we have seen the biggest stock market declines since
9/11. Volatility has spread to European, East Asian, and Indian capital markets,
casting cold water on the notion of decoupling. And leaders around the world are
resetting their expectations for how quickly their economies and the rest of the
world will grow. We don't need our Bloomberg screens or Wall Street Journals to
know that the gains enjoyed from globalization over the past decade may be difficult
to replicate in the next one. All of us in this room have an obligation to understand
the nature of the challenge and to rise to meet it.
The Case for Investment
Investment flows are one of the most important ways our economy benefits from
globalization. As President Bush recognized in his May 2007 Open Economies
Policy Statement, "a free and open international investment regime is vital for a
stable and growing economy, both here at home and throughout the world."
The data supporting this assertion are staggering. While the headlines tend to focus
on trade in goods and services, these frows are dwarfed by cross-border investment
transactions. In 2006, for example, gross cross-border transactions in long-term
securities involving U.S. and foreign residents totaled $52 trillion, compared to only
$3.6 trillion in U.S. exports and imports of goods and services.
What holds true for the United States holds true globally. Between 1991 and 2005,
the World Bank's measure of global private capital flows increased by 500 percent,
almost twice as fast as trade flows. Looked at another way, daily foreign exchange
transactions have increased over 26 years from $880 billion in 1992 to $3.2 trillion
today. If we include transactions in financial derivatives, that figure rises to over $5
trillion daily.
The benefits we gain from international investment in the United States are as
important as its volume. You know the argument, and Matt's recent insourcing
study has provided great analytical underpinning to it, but the story bears repeating.
International investment in the United States fuels U.S. economic prosperity by
creating well-paid jobs, bringing new technology and business methods, helping
finance U.S. priorities, and providing healthy competition that fosters innovation,
productivity gains, lower prices, and greater variety for consumers.
In 2006, foreign-owned firms contributed almost six percent of U.S. output and 14
percent of U.S. R&D spending. They re-invested over half of their U.S. income$71 billion - back into the U.S. economy and made 13 percent of U.S. tax
payments. This activity, in turn, creates jobs. Nearly one in 10 U.S. private sector
jobs, in fact, are created by those foreign firms. U.S. affiliates of foreign firms
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employ over five million Americans and generate some five million more jobs
indirectly. And these are good jobs, paying on average 25 percent higher wages.
At th~ sam~ time, ~he U.S. economy and U.S. workers benefit from the ability of
Amencan firms to Invest abroad. In 2005, U.S. multinationals exported $491 billion
accounting for "!~re than 54 percent of total U.S. exports. Nearly half of this
'
amount, $189 billion, was exported to their foreign affiliates. Moreover, U.S.
multinationals accounted for over half of U.S. productivity growth between 1977 and
2000.
That's the good news. That is why President Bush, in his May 2007 open
economies statement, also pledged that, "the United States unequivocally supports
international investment in this country and is equally committed to securing fair,
equitable, and nondiscriminatory treatment for U.S. investors abroad."
Now for the challenge that brings us together today. Simply stated, the gains won
thus far cannot be taken for granted. Indeed, they are under threat. Globalization
can sometimes result in winners and losers. For example, the same forces that
create the benefits from global capital markets also create the risks inherent in
global interdependence. As a consequence of this phenomenon, some actors, such
as China and the oil-producing states, have gained new prominence through their
trade flows, accumulation of reserves, and creation of sovereign wealth funds,
shifting perceptions of the balance of economic power. Globalization has enabled
the pie to grow much bigger for all, but the benefits of globalization are
unfortunately viewed by some as a zero-sum game, fueling the forces of
protectionism.
The risks are real. Protectionist pressures leading to greater restrictions on
international investment, whether here or abroad, would weaken the United States.
We would lose out to other countries in the competition for international investment
and the benefits it brings. This would present Americans with painful choices
regarding taxes, government programs, and personal savings and consumption. It
would also have broader international implications. If America turned inward, other
countries COUld, and likely WOUld, impose restrictions on U.S. investors, jeopardizing
the growing domestic benefits generated by American businesses that operate
globally.
And so we are in the midst of a critical debate, and we must individually and
collectively press forward to win it. By "winning," I mean protecting and in some
cases expanding the principles of openness that have paved the way to our current
prosperity. We must avoid the well· known mistakes of the 1930s, in which
economic turmoil was met by economic insularity. With this in mind, I'd like to spend
the remainder of our conversation touching on three areas in particular where the
government's role in investment policy is both important and timely:
• Developing policy responses to the financial market and investment policy
issues raised by sovereign wealth funds;
• Addressing the national security aspect of foreign investment in the United
States and around the world; and
• Negotiating bilateral investment treaties to give our firms greater access to
foreign markets.
Sovereign Wealth Funds
Sovereign wealth funds have garnered the most column inches rece~tly, so let me
start with them. Current opinion seems divided as to whether sovereign wealth
funds are part of the problem or part of the solution to the challenges we face. Not
surprisingly, from my vantage pOint, the answer is "that depends" - it depends on
whether government policies and the practices of sovereign wealth fund managers
foster openness and market-based decision-making or insularity and investment
with ulterior motives.
While sovereign wealth funds have recently gener~ted sig~ificant ~t~ent.ion, they
have in fact been around for decades. The oldest, In Kuwait and Kiribati, date back
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to the 1950s. Three of the largest and most respected funds - the Abu Dhabi
Investment Authority, Singapore's Government Investment Corporation and
Norway's Go~ernment Pension Fund-Global - were founded in 1976, 1981, and
1990, respectively. By 2000, there were about 20 sovereign wealth funds worldwide
managing total assets of several hundred billion dollars.
What is new today is the rapid increase in both the number and size of sovereign
wealth funds. Twenty new funds have been created since 2000, more than half of
these since 2005, bringing the total number to nearly 40 funds that manage $1.92.9 trillion in assets with some private sector analysts projecting that sovereign
wealth fund assets could grow to $10-15 trillion by 2015.
Two trends have contributed to this ongoing growth. The first is sustained high
commodity prices, especially for oil. The second is the accumulation of official
reserve assets in non-commodity exporting countries and the subsequent transfer
of a portion of these assets to government investment vehicles such as sovereign
wealth funds.
To get a better perspective of the relative importance of sovereign wealth funds, it is
useful to consider how they measure up against private pools of global capital.
Total sovereign wealth fund assets of $1.9-2.9 trillion may be small relative to the
$190 trillion in global financial assets as of end-2006, or the roughly $62 trillion
managed by private institutional investors. But sovereign wealth fund assets are
currently larger than the total assets under management by either hedge funds or
private equity funds (estimated at $1.5 trillion and $700 billion, respectively), and
are set to grow at a much faster pace.
Sovereign wealth funds can promote financial stability. They are, in principle, long
term, stable investors that provide significant capital to the system. They are
typically not highly leveraged and cannot be forced by capital requirements or
investor withdrawals to liquidate positions rapidly. As public sector entities,
sovereign wealth funds should have an interest in and a responsibility for financial
market stability. All of this is in addition to the impact on economic growth of the
investments themselves.
At the same time, transactions involving sovereign wealth fund investment may
raise legitimate national security concerns, as well as a number of non-national
security issues. For example, through inefficient allocation of capital, unfair
competitive advantage, or through the pursuit of broader strategic rather than
strictly economic return-oriented investments, sovereign wealth funds could
potentially distort markets. On the financial markets side, sovereign wealth funds
can represent large, concentrated, and often non-transparent positions in certain
markets and asset classes that have the potential to affect market stability.
An important starting point for any discussion on sovereign wealth funds must begin
with the recognition that there is little evidence of any of this behavior. With this in
mind, the Treasury Department is taking active steps to better understand, and
where appropriate, to act on this developing phenomenon. This is the most effective
way to push back on a significant risk associated with sovereign wealth funds - the
rise of protectionism.
First, Treasury has taken a number of steps internally and within the U.S.
government to enhance our understanding of sovereign wealth funds. Treasury has
created a working group on sovereign wealth funds that draws on the expertise of
Treasury's offices of International Affairs and Domestic Finance. Treasury's market
room is ensuring Vigilant, ongOing monitoring of sovereign wealth fund trends and
transactions on a real-time basis. Through the President's Working Group on
Financial Markets, chaired by Secretary Paulson, we continue to discuss and
review these funds. In addition, we have initiated bilateral outreach to ensure an
ongoing and candid dialogue with countries with significant sovereign wealth funds
and their management. Finally, we provide semi-annual updates to Congress on
our sovereign wealth fund-related work in the Report on International Financial and
Exchange Rate Policies.
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Second, we are reaching out to other countries to make sure that we are all on the
same page. For example, last May, Treasury hosted a G-20 workshop on
commodity cycles and financial stability which included a session on sovereign
wealth funds. At last October's G-7 meetings in Washington, Secretary Paulson
hosted a G-? outreach ?inner w.ith Finance Ministers and heads of sovereign wealth
funds from eight countries - China, Korea, Kuwait, Norway, Russia, Saudi Arabia,
Singapore, and the United Arab Emirates - to build support for a set of best
practices for sovereign wealth funds.
Third, Treasury has proposed that the international community collaborate on a
multilateral framework for sovereign wealth fund best practices. At the IMF, we are
working to develop best practices for sovereign wealth funds that can build on
existing IMF guidelines for foreign exchange reserve management. A framework for
thinking about best practices might include: investing commerCially, not politically;
competing fairly with the private sector; promoting international financial stability;
and, respecting host country rules.
Understanding that investment is a two-way street, we are encouraging the
Organization for Economic Cooperation and Development to identify investment
policy best practices for countries that receive foreign government-controlled
investment, including investment from sovereign wealth funds. This effort would
complement the extensive work already underway at the OECD on open
investment and national security. Investment policy best practices should focus on
aVOiding protectionism, and should be guided by the well-established principles of
proportionality, predictability and accountability embraced by the OECD and its
members for the treatment of foreign investment. We hope to achieve results later
this year that may serve as a touchstone to guide countries that receive sovereign
investments.
Committee on Foreign Investment in the United States
On this and broader issues, we are working within the Committee on Foreign
Investment in the United States, known as CFIUS, to ensure sovereign wealth fund
investments do not harm on our national security. CFIUS, which Treasury chairs,
reviews certain foreign direct investments that may raise national security
considerations.
National security is paramount, and we take this responsibility very seriously. At the
same time, national security must not be used as an excuse for pursuit of
protectionist policies, industrial policy, or the creation of national champions.
Investment reviews must be strictly limited to gen
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