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S. HRG. 111–72

TREASURY SECRETARY TIMOTHY F. GEITHNER

HEARING
BEFORE THE

CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION

APRIL 21, 2009

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TREASURY SECRETARY TIMOTHY F. GEITHNER
A602

S. HRG. 111–72

TREASURY SECRETARY TIMOTHY F. GEITHNER

HEARING
BEFORE THE

CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION

APRIL 21, 2009

Printed for the use of the Congressional Oversight Panel

(

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WASHINGTON

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2009

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

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DAMON SILVERS

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CONTENTS
Page

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Opening Statement of Elizabeth Warren, Chair, Congressional Oversight
Panel .....................................................................................................................
Statement of Hon. Jeb Hensarling, Member, Congressional Oversight Panel ...
Statement of Damon Silvers, Deputy Chair, Congressional Oversight Panel ....
Statement of Hon. John E. Sununu, Member, Congressional Oversight Panel .
Statement of Richard H. Neiman, Member, Congressional Oversight Panel .....
Statement of Hon. Timothy F. Geithner, U.S. Secretary of the Treasury ..........

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TREASURY SECRETARY TIMOTHY F.
GEITHNER
TUESDAY, APRIL 21, 2009

U.S. CONGRESS,
CONGRESSIONAL OVERSIGHT PANEL,
Washington, DC.
The Panel met, pursuant to notice, at 10:05 a.m. in Room SD–
628, Dirksen Senate Office Building, Elizabeth Warren, Chairman
of the Panel, presiding.
Attendance: Elizabeth Warren [presiding], Timothy F. Geithner,
Jeb Hensarling, Richard H. Neiman, Damon Silvers, and John E.
Sununu.

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OPENING STATEMENT OF ELIZABETH WARREN, CHAIR,
CONGRESSIONAL OVERSIGHT PANEL

The CHAIR: This hearing is now called to order.
Mr. Secretary, thank you for coming. We know your time is valuable. And with the hope of setting an example, I am going to be
brief, short on formalities here.
I also will begin by apologizing for my voice and my hacking. I
am afraid I am not at the top of my game right now.
We have spent nearly six months, both at the direction of Congress and by our appointments, reviewing the response of two administrations to an unprecedented financial crisis. Today, we have
an opportunity to speak directly to the American people about how
their $590 billion has been invested in a financial system, an investment that eventually must profit them and not just people on
Wall Street.
When the financial meltdown began, there was a strong sense of
fear and uncertainty among the American people, and who can
blame them? Every month since October more than half a million
jobs have been lost. The net worth of American families has plummeted more than 20 percent in 18 months.
The sense of fear and uncertainty has not gone away, but it has
been joined by a new sense of anger and frustration. People are
angry that even if they have consistently paid their bills on time
and never missed a payment, their TARP-assisted banks are unilaterally raising their interest rates or slashing their credit lines.
People are angry that small businesses are threatened with closure because they can’t get financing from their TARP-assisted
banks. People are angry that when they read the headlines of
record foreclosures, even if they aren’t personally affected, they see
their own property worth less, and they see their communities declining as a result of the foreclosures around them.
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People are angry because they are paying for programs that
haven’t been fully explained and have no apparent benefit for their
families or for the economy as a whole, but that seem to leave
enough cash in the system for lavish bonuses or golf outings. None
of this seems fair.
I appreciate your repeated statements about your commitment to
transparency and to accountability, and I appreciate the important
steps that you have taken in this direction, Mr. Secretary. But we
both know that more needs to be done. People need to understand
why you are making the choices that you are making.
People want to see action described in terms that makes sense
to them. They want to see that taxpayer funds aren’t being used
to shield financial institutions from the consequences of their own
behavior. They want to see that money, taxpayer money, is used
to advance the public interest and not just the interests of Wall
Street.
They also want to see that their Government is moving to reform
the regulatory system so that the economy will not veer into the
ditch again, to see reforms that will prevent the financial system
from taking huge and reckless risks with other people’s money in
the quest for short-term profits.
In measuring progress, as well as in assessing the current state
of the economy and institutions, we shouldn’t be afraid of facts.
There may be initial pain as the market reacts and reprices, but
the short-term pain is better than the problems we face with ongoing uncertainty and mistrust.
In a crisis, transparency, accountability, and a coherent plan
with clear goals are essential to maintain the confidence of the
public and capital markets. Sophisticated metrics to measure the
success and failure of program initiatives is also crucial.
One final note—Congress formed this panel in large part to ask
difficult questions and to provide an outside perspective. We all
share a strong desire to help the economy recover and to protect
taxpayers. I hope that the reports from this panel have been useful
to you and to your team at Treasury, and I appreciate your offer
to have your staff meet with our staff on a weekly basis. I hope this
is the beginning of an ongoing dialogue between the two of us.
With trillions of dollars of taxpayer money at stake and the fate
of the American economy in the balance, we need to work together
to find the most effective strategies for restoring confidence, stabilizing our economy, and restoring prosperity for all Americans.
[The prepared statement of Ms. Warren follows:]

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5
Thank you for coming here today.
Congressman Hensarling.

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STATEMENT OF HON. JEB HENSARLING, MEMBER,
CONGRESSIONAL OVERSIGHT PANEL
Mr. HENSARLING. Thank you, Madam Chair.
Mr. Secretary, welcome. We are very happy to see you here. We
note that this is the first appearance, I believe, of any Treasury
personnel, much less the Secretary, before the Congressional Oversight Panel. We certainly hope it is not your last.
I believe that this panel cannot effectively fulfill its congressional
role without having unfettered access to Treasury personnel, having the receipt of prompt and accurate answers to our queries, and
ultimately to have yourself and senior members of your team appear in public hearings as this.
And I hope, Mr. Secretary, that you feel that it is commensurate
with your duties under Section 2—Subsection 2(d) of the act that
provides for public accountability of your actions under the TARP
program. I fear that without this level of access that the Congressional Oversight Panel could potentially evolve into yet another
congressional advisory committee, unfortunately leaving the task of
effective oversight perhaps to others.
Now, as a member of Congress, I voted against the original
EESA, or as it has become known, the TARP bill. I respect those
who voted for it. I understand their reasons. I personally, though,
had a fear that we were looking at $700 billion in search of a program. I was concerned that once bailouts began, I am not sure how
one bails out on the bailout program.
I was concerned that the program eventually may lead to the
Federal Government being able to control the behavior of those
who received the money and lead us to a partial nationalization of
key sectors of our financial services industry.
Finally, I was concerned that the program might create a level
of moral hazard that could create even greater economic turmoil
down the road. I fear that many of my fears may actually prove
well founded.
Nevertheless, TARP is the law of the land. And as a member of
Congress and as a member of this Congressional Oversight Panel,
I plan to do everything in my power to ensure that the program
meets its intended goals and that it has proper oversight.
I look forward to your testimony in which I hope several key
areas will be touched upon. Number one is a greater understanding
by this panel and the general public of what the overarching strategy is for the program.
The public and this panel have a right to know how Treasury defines success and what the measurements of the success of the various initiatives that you are undertaking under EESA are. For
many, it is difficult to discern success. For many, it is difficult to
discern cause and effect.
Next, the public has a right to know what is the approach of
Treasury with regard to assisting failing companies and firms. Is
there any firm that is beyond the reach for taxpayer bailout assistance?

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What started out as a program to shore up the financial system
has now been used to aid automakers, which leads to the question
‘‘who is next?’’ The airline industry? The trucking industry? At
what point does Starbucks get in line for some type of bailout?
Now besides being on the hook for $700 billion under EESA, the
taxpayer is facing an incredible amount of increased liability, much
of it outside of EESA. We have had a $1.13 trillion stimulus plan,
costing the average American household $9,810; a $410 billion omnibus plan, costing the average American household $3,534.
Bloomberg has recently stated that the actions of Treasury, combined with those of the Federal Reserve—I am sure you have seen
the reports, Mr. Secretary—that the total taxpayer liability under
various bailout, economic recovery initiatives now totals $12.8 trillion, or over $110,000 per American household.
Now I, for one, don’t believe that the ultimate exposure will be
anywhere near that figure. But for those who maintain that the
taxpayer will actually make money on this deal, number one, I
hope you are right. And number two, as history is my guide, I severely doubt it.
I believe that also, given that taxpayer protection is the numberone item that you are to consider under your programs, there are
legitimate questions to be asked about press reports that say a
number of the TARP recipients are interested in repaying the taxpayer, but apparently Treasury is not interested in receiving that
money.
In addition, there are serious concerns on whether or not the
funding is being used as, again, a road to partial nationalization
as preferred stock is converted to common stock. And I hope, Mr.
Secretary, that you will address these issues in your testimony,
since many people have not been overly impressed with the management of AIG, much less Fannie and Freddie.
Again, Mr. Secretary, we appreciate you being here. We know
these are tough times. We know that you are doing what you think
is best in the Nation’s interest, and I look forward to hearing your
testimony.
And I yield back, Madam Chair.
The CHAIR. Thank you, Congressman.
Mr. Silvers.

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STATEMENT OF DAMON SILVERS, DEPUTY CHAIR,
CONGRESSIONAL OVERSIGHT PANEL

Mr. SILVERS. Thank you, Madam Chair.
Good morning, Mr. Secretary, and welcome. Like my fellow panelists, I am very pleased that you are able to join us here at the
Congressional Oversight Panel. And as my colleague Jeb
Hensarling notes, this hearing does mark the first public appearance of a Treasury official before our panel, and we are honored by
your presence.
I think every member of the panel recognizes the gigantic task
that faced the new team at Treasury upon their arrival in January
and the challenges that the transition represented to you, Mr. Secretary, in terms of staffing changes, policy review and formulation.
In that context, this hearing seems to come at the right time.
Our task this morning is to learn where Treasury thinks we stand

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as a Nation in addressing the financial crisis and, in particular,
what Treasury’s strategy is in relation to the job of stabilizing our
financial system and reviving the underlying economy.
The Obama administration inherited from the Bush administration a number of programs under the Emergency Economic Stabilization Act of 2008, the EESA that Jeb referred to, and you have
announced a number of initiatives of your own. We may not be able
to cover every aspect of this effort today, and we may also not have
the opportunity to fully address the administration’s plans in the
area of regulatory reform.
So let me just commend the administration’s announced plans for
regulatory reform for their general direction and urge the Treasury
Department to make a close study of this panel’s regulatory reform
report.
I would like to use what remains of my time to address those
areas where I think, Mr. Secretary, that your team and the Obama
administration has made significant progress and then to summarize what I see as the fundamental strategic issue facing the administration and the Nation. Then I hope to return to this set of—
the strategic issue in the question period.
First, the Treasury Department’s commitment to address the
roots of the financial crisis and the fate of American families facing
home foreclosure is an extremely positive step. The program could
be more robust, particularly around principal reduction. But the
basic design is thoughtful. The commitment to getting lender and
servicer involvement is real, and the percentage of income targets—the key number in any such program—those targets are the
right ones.
Mr. Secretary, you deserve real credit for your leadership in this
area, and I am happy to extend it, at least on my own behalf, this
morning.
Second, when you came into office, you told our panel you were
committed to greater transparency. I have been very pleased to see
that the Treasury Department has turned a corner under your
guidance. I understand that Treasury has produced 10,000 documents to the panel staff yesterday in response to a letter sent to
you on March 24, 2009, asking for materials related to AIG.
This progress is certainly encouraging, and I hope it is indicative
of a change in the way that the Treasury Department plans to handle future requests. In the past, our document requests have sadly
been answered by prolonged silence. Hopefully, you can provide
some reassurance today that those days are over.
Third and finally, I view the stress tests and a variety of the
statements you and your colleagues have made as acknowledgments that not all large banks are equally healthy. This is a departure from the approach of the prior administration, which tried to
treat all large banks as though they were in the same financial
condition, resulting, according to our February report, in a $78 billion taxpayer subsidy to the banks in the course of the Capital Purchase Program and SSFI transactions.
I commend you on that change. Candor is a good thing, and I
hope that the stress tests are conducted and the results made public in a continuing spirit of candor.

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However, now you and your team face a fundamental strategic
choice as to how to manage the problem of undercapitalized large
banks, the so-called ‘‘zombie banks.’’ I note that the four largest
banks in our system control more than 50 percent of bank assets.
In our April report, we looked at the history of bank crises in the
United States and abroad. We found a pattern that started with
President Roosevelt and President Hoover’s Reconstruction Finance
Corporation. Successful policy approaches to bank crises across
time and place seem to all have three steps, and the order in which
those steps are taken is important.
Step one is to have bank management that can be trusted to give
an honest accounting of the state of bank balance sheets. In this
regard, it can be a problem to ask the people who made the mess
to tell you how big the mess is.
Step two is to get a realistic measure of the whole in bank balance sheets. This can be done by marking to market, and it also
can be done by a hard valuation of expected cash flows by experienced and independent financial professionals. It cannot be done by
asking the people who invested in the bad assets in the first place
to tell the Government what those assets are worth.
Step three is to restructure bank finances—and ‘‘restructure’’ is
the key word here—in the first instance, by requiring investors,
particularly stockholders, to bear the losses. That is what capitalism is about.
Exactly who bears the losses and in what proportion must be determined carefully, balancing systemic risk considerations with taxpayer protection. Only then and only if necessary should public
funds be involved.
And finally, with public money has to come a proportionate upside for the public. It is the only way to keep the cost to the taxpayer my colleague Congressman Hensarling was talking about—
it is the only way to keep that cost at the end of the day at a bearable level.
I hope in this hearing we can compare this how-to manual that
history provides us with the Treasury Department’s thinking and
its announced programs. And in conclusion, let me express my
gratitude to you, Mr. Secretary, for joining us and my sympathy to
you for taking on, on all of our behalf, the giant challenge of repairing the damage a mistaken deregulatory philosophy has done to
our financial system, our economy, and, most of all, to America’s
working families.
[The prepared statement of Mr. Silvers follows:]

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The CHAIR. Thank you, Mr. Silvers.
Senator Sununu.

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STATEMENT OF HON. JOHN E. SUNUNU, MEMBER,
CONGRESSIONAL OVERSIGHT PANEL

Senator SUNUNU. Thank you, Madam Chair.
Thank you, Secretary Geithner, for being here today.
And without question, your attendance here is extremely important, but it is also extremely valuable. I think you understand that,
but it is worth emphasizing because it is fair to say there has been
some reluctance on the part of the Treasury staff to appear or to
schedule a hearing in public with the oversight panel.
I think the value is that this is the best possible forum for you
to describe the characteristics, the proposals, the ideas behind each
of the different programs created under the TARP. And of course,
it is the best possible way for the oversight panel to get clear and
accurate information that we will act on in preparing our monthly
oversight reports.
I view our role as looking carefully at the structure of the different TARP programs, their operation, and their performance.
Some of these programs are relatively straightforward. Some of
them are very complex. But our job is to look hard at those details,
present them clearly to Congress and to the public, and the importance of that role is twofold.
First, we want good information in the hands of the public because their confidence in the operation of the programs, their confidence in Treasury and in the Government and being able to deal
with the current financial crisis is going to depend on the clarity
of that information and, of course, the way they interpret that information.
And then, second, the information that is provided by the panel
and that is provided by the Treasury with regard to the structure
and performance and operation of these programs is going to affect
the way markets behave. Markets will react and respond based on
whether they think these programs are well designed, effective,
and whether they think the burden and the cost of the program is
being shared fairly, as Damon Silvers just described.
And unless that information is provided to the public, our markets won’t strengthen. They won’t operate efficiently. Credit won’t
be available to the families and small businesses that we want to
see it made available.
So I think that is a central role of the panel. I think it serves
the interest of Treasury, and I think it should be easier to establish
this kind of a forum.
It is also particularly important because, in my opinion, over the
last few weeks, as Treasury has put out various statements regarding the different programs, you have left more questions unanswered than answered. On the stress tests, it is unclear what the
motivation is behind making information public, what information
is going to be made public, and how does Treasury expect both the
general public and the markets to react to that.
On the TALF program, why is it that participation in the TALF
wasn’t as great as Treasury expected? On the new capital access
program, under what conditions is Treasury and the Government

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going to ask for conversion into common stock? What would be the
criteria? Will there be objective criteria, or will they be subjective
criteria?
And along that same vein, on the prepayment issue that Congressman Hensarling brought up, are we going to operate under
the existing term sheets and conditions under which banks originally received funding through the CPP, or is Treasury now going
to come up with a new list of subjective criteria that banks have
to meet in order to be allowed to repay taxpayer funds?
Those are significant questions in that they create uncertainty in
the mind of the public, and they also create a good deal of uncertainty in the marketplace. And the marketplace won’t operate efficiently, the financial markets won’t operate effectively for consumers or small businesses and the other credit services we need
unless they feel they are getting good, clear, consistent information
not just from Treasury, but from Congress as well.
We need more of this interaction, not less. I think it is in your
interest. I think it will help the panel to do a better job, and I look
forward to both your testimony and the questions today.
Thank you, Madam Chair.
The CHAIR. Thank you, Senator.
Mr. Neiman.

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STATEMENT OF RICHARD H. NEIMAN, MEMBER,
CONGRESSIONAL OVERSIGHT PANEL

Mr. NEIMAN. Thank you.
Good morning, Mr. Secretary. And I am also very pleased that
you are here today with us to share your perspective.
This is a unique opportunity not just for our panel, but for the
American people watching us today. I believe it is critically important for us to have this dialogue now, early in your term, to facilitate our working relationship going forward and to inform the
American public about your efforts.
Speaker Nancy Pelosi asked me to serve on this panel in part to
be a voice for the States and their residents. I am also, as you
know, the New York State superintendent of banks, and in that capacity, I feel my job is about more than just overseeing banks. It
is also about helping people in financial distress.
Under New York Governor David Patterson, we have taken aggressive actions at the State level in response to the crisis, from
borrower outreach and increased enforcement to one of the most
comprehensive legislative actions regarding mortgage reform in the
country. But the fact is that States cannot bring an end to the foreclosure crisis or get us out of this recession without a Federal partner.
However, people across the country aren’t sure if the Treasury efforts are working, which makes your job even harder at the Federal
level. I hope to use this hearing to ask you some tough questions,
but to also give you a chance to demonstrate that Treasury’s plan
can work.
You may be aware that I placed a blog post on a prominent Web
site yesterday that asked people to submit questions to you. I
placed it on the Huffington Post because that blog reaches over 10

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million readers per month, thus representing a good, but imperfect
cross-section of American opinion.
Literally, within hours of the posting, there were hundreds of responses that expressed deep concerns and even skepticism about
the program, many accompanied by deeply personal stories. I read
these questions on the train ride down to Washington last night,
and it made me think a lot. It gave me a better sense of people’s
views, but it also made me really wonder why aren’t people seeing
progress in the Treasury’s plan?
Perhaps it is because it is hard to see results in 1, 2, or 3
months. But perhaps it is because things are not working out as
well as we would like.
So it seems to me that what is needed is a better system for
measuring success that Treasury could provide to inform the American taxpayer. For instance, how should we measure whether the
financial system is stabilizing? Should we be looking at credit default spreads or tangible capital ratios or some other metrics? How
will we know that we are making progress?
How do we measure if the program has increased the amount of
bank lending to consumers, to small businesses, to corporations?
What is the impact of the decline in borrower demand versus a
tightening of underwriting standards by banks?
Mr. Secretary, does Treasury have its own metrics for determining success in reaching its goals? And if so, can they be shared
with the American public and be posted on your Web site so that
all citizens can see how your plan is measuring up?
My worry is that if you do not, one of the most common questions
I encounter when I hear from people about your plan will remain
unanswered. One person put it quite bluntly on the blog, stating,
‘‘When are those banks going to stop sitting on all that money and
start lending again?’’
That question is undoubtedly a common question. And yet the recent snapshots from Treasury shows banks are making progress
and attempting to be responsive in meeting credit needs. However,
additional information is clearly needed to get to the bottom of this.
Metrics would help, and our panel will be issuing a report on this
question in May that will specifically look at credit availability and
small business and consumer lending, including your programs to
restart the securitization market.
It is my personal view that although disagreement exists among
some very smart people in this country, including Nobel Prize winners on both sides of the issues, you have a plan that can work.
But it can only work with the support of the American people. And
to support it, people need to understand it, and they need to feel
that they can adequately judge it.
So I see this hearing as an important contribution to an inclusive
process, and my questions today will reflect comments and concerns that I have received from a broad range of Americans. I hope
today is only the beginning of a more collaborative relationship,
and I look forward to your remarks.
Thank you very much.
[The prepared statement of Mr. Neiman follows:]

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16
The CHAIR. Thank you, Mr. Neiman.
Secretary Geithner, we will enter your formal testimony in the
record, of course, but we encourage or welcome your oral remarks.
If you could hold them to 5 minutes so that we could go to the
questioning, I would appreciate it.

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STATEMENT OF HON. TIMOTHY F. GEITHNER, U.S. SECRETARY
OF THE TREASURY

Secretary GEITHNER. Thank you, Chairwoman Warren, Representative Hensarling, members Neiman and Silvers, and Senator
Sununu, for the chance to come before you today.
Those were very thoughtful opening statements, very sensible
questions and concerns, and I look forward to the chance to begin
to address those as we continue a process of dialogue and engagement.
And I want to start by applauding the work of the panel to date.
These are very complicated questions. You have done a very nice
job in helping to frame the most important questions for the American people. I respect and admire what you have done, what you
are trying to do, and it is a very important part of the framework
of oversight that Congress set up to monitor use of these programs.
The United States and the world economy are still in the midst
of a very severe financial crisis, the worst in generations. And as
you know, no crisis like this has a single or simple cause. But to
state it simply, countries around the world borrowed too much, and
allowed the financial system to take on irresponsible levels of risk.
And as in any crisis, the damage has been brutally indiscriminate, causing damage on Main Streets across the Nation. Ordinary
Americans and small businesses who did the right thing, who
played by the rules, who were prudent and careful in their financial decisions, are suffering from the actions of those who took on
too much debt, took on too much risk.
I want to outline today the steps taken by this administration to
restore the flow of credit, to help get our economy back on track.
And I want to start by just saying at the time the administration
took office, there had already been very substantial actions by the
Government, using the authority provided by the Congress, to help
stabilize the financial system.
And those actions were critical, and they were very effective in
helping avert a systemic financial crisis. But the very sharp decline
in growth, both here and around the world, that continued over the
fourth quarter of last year was placing additional pressure, acute
pressure on the financial system, on banks in this country and
countries around the world.
Issuance of securities, which had been a principal source of credit
to the economy as a whole, had fallen to virtually nothing. Lending
terms and conditions were tightening. The cost of many forms of
credit remained extremely high. Banks were unable to raise equity.
Now that was the situation when we came into office. And leaving that situation, that challenge, unaddressed would have risked,
in our judgment, a deeper recession, more damage to the productive capacity of the American economy. It would have resulted in
higher unemployment, more business failures, greater damage to

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17
our future growth and productivity, and, as a result, higher longterm budget deficits.
Without action to strengthen the capacity of the financial system
to provide credit, the substantial spending and tax incentives in
the American Reinvestment and Recovery Act would have been less
effective, far less effective.
Now, in response to these challenges, we outlined a broad new
strategy to repair the financial system and strengthen its capacity
to support recovery. We started with a series of reforms to improve
transparency, accountability, and oversight. We published the detailed terms of financial assistance provided to individual banks.
We put in place new protections for determining eligibility for assistance. We required financial institutions to report monthly on
details about what is happening to lending activity.
We outlined new conditions on assistance to protect the taxpayer,
and the President outlined a set of broad reforms to compensation
practices to help ensure that taxpayer assistance was used to support lending rather than excessive compensation for executives.
Alongside these reforms, we launched a program of initiatives to
address four challenges that were at the heart of this financial crisis, and I want to review briefly each of those challenges and our
response to those challenges.
First, falling home prices and rising unemployment were making
it difficult—are still making it difficult for many responsible borrowers to meet their mortgage payments and stay in their homes.
Rising foreclosures risk contributing to further declines in house
prices, a further pullback in credit, and further job losses.
So, in response, this administration established a program we
call the Making Home Affordable Program to help keep mortgage
interest rates low, to help responsible homeowners refinance into
affordable mortgages, and to modify at-risk loans in order to help
millions of Americans lower their monthly mortgage payments and
stay in their homes.
Second, concern about future losses has led many banks to pull
back on lending. So, in response, we outlined a new program to ensure that the Nation’s major banks have a sufficient buffer of capital to provide credit for recovery.
As part of this effort, the Federal banking agencies, led by the
Fed, are completing a forward-looking assessment of the capital
needs of the 19 largest banks in the country to determine which
banks may need to raise additional capital.
Those banks that need more capital will have an opportunity to
raise that capital from the private markets or to request capital
from the Treasury in the form of a convertible preferred security.
It is important to recognize a dollar of capital generates between
$8 and $12 of lending capacity.
Third, the breakdown of key markets for new securities has constrained the ability of even credit-worthy small borrowers—businesses, families—to get the loans they need. Securities markets in
our financial system typically account for 40 to 50 percent of the
credit provided to the economy, and the crisis caused issuance of
new securities to grind to a halt.
So, as a complement to our program to bring more capital into
banks, we launched the Consumer and Business Lending Initiative,

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which expanded dramatically a program with the Federal Reserve
called the Term Asset-Backed Securities Loan Facility. And these
programs, as you know, provide financing to help catalyze issuance
of securities backed by student loans, credit cards, small business
loans, auto loans, corporate and commercial real estate loans.
Treasury has also put in place a program to provide direct support to small business loans through SBA supported programs. And
these programs have had some effect—I will come to this at the
end—in helping to promote new flows of credit through the
issuance of securities and to help reduce rates in those markets.
The CHAIR. Mr. Secretary, could I ask you just to wrap up?
Secretary GEITHNER. Yes, but this is very important for me to do.
The CHAIR. Of course, it is.
Secretary GEITHNER. Because you have asked me to lay out our
broad strategy and progress, and this is my first chance to do it.
I will take just a few more minutes, but I will leave time for questions.
The fourth key challenge we addressed in our program was the
challenge reflected in the fact that a range of legacy assets—these
are mostly real estate-related loans made during the height of the
boom—remain on the books of major banks, limiting their ability
to extend credit and to raise new equity.
So, in response, the administration created an innovative new
program to provide a market for those assets. Under this program,
private investors, such as pension fund managers, will compete for
the right to access capital from the Treasury and financing from
the Federal Reserve and the FDIC to purchase these real estaterelated loans and securities.
Private investors will set the purchase price, protecting the Government from the risk of paying too much. The Government will
share in the returns on those investments. Professionals will manage the assets, and together, this will help reduce the risk of loss
to the taxpayer over time.
Now these four programs are critical. They are designed to work
together. Each will reinforce the effectiveness of the other. We may
have to adapt and expand them over time, but they represent the
foundation of any credible strategy to help ensure that this financial system is working for rather than against recovery.
Now, Chairman, I was going to summarize briefly our priorities
on regulatory reform. I am going to leave that for a subsequent discussion. But I want to conclude by talking about some of the measurements of effectiveness of these programs.
The CHAIR. Mr. Secretary, I appreciate how many pages you are
turning there. But if we could wrap up, I know we want some questions, too?
Secretary GEITHNER. So let me just conclude with a few observations on the impact of these programs on the availability and cost
of credit. These are the most important measures of the state of the
system, and to date, frankly, the evidence is mixed.
Now it is important to note that evaluating the impact of these
programs is difficult because it is impossible to judge how the financial markets, how banks would have operated in the absence of
these actions. In normal recessions, demand for credit falls. In re-

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cessions that follow long periods of substantial borrowing, demand
for credit falls more sharply. This is such a moment.
There is no past experience that provides a good guide as to what
one could have expected to have occurred in our financial markets
absent the policy actions that have taken place already. Indicators
on interbank lending, on corporate issuance, and credit spreads
suggest some improvement in confidence in both the stability of the
system and some thawing in credit markets over the last several
weeks and months.
Just to cite a few examples. The 3-month LIBOR–OIS spread,
which is an indicator of the cost of unsecured lending or borrowing
among banks, has fallen to about 90 basis points from a peak of
about 365 in October. Nonfinancial corporate bond issuance was up
sharply in the first quarter of 2009 after falling sharply at the
end—in the second half of 2008.
Issuance of asset-backed securities rose in March after grinding
to a halt in October and November, but it still remains at about
half the level that occurred in the first half of 2008.
Despite these improvements, and these are material improvements, the cost of credit is still very high. Reports on bank lending
show significant declines in lendings for consumer loans, for commercial and industrial loans, although mortgage refinancings have
picked up considerably.
Now we are looking carefully at how to improve measurement,
as you are, of what is happening in credit markets and tie those
directly to the impact of these programs, and we look forward to
working with you on how to do that.
And I just want to end by saying that our central objective, our
obligation, is to ensure that the financial system is stable and it
is able to provide the credit necessary for economic recovery. But
stability itself is not enough. We need a financial system that is not
deepening or lengthening the recession. And once the conditions for
recovery are in place, we need a financial system that is able to
provide credit on a scale that a growing economy requires.
Meeting this obligation requires actions by the Government. It
requires the Government to take risks. The lesson of financial crises throughout history is that early action, forceful action, sustained action to repair financial systems to promote the flow of
credit is essential to limit the damage recessions cause and to
make it possible to bring recovery about at least cost to the taxpayer over time.
Now we need a financial system to support sustainable economic
growth, and we need to put in place a comprehensive set of regulatory reforms to deter fraud and abuse, to protect American families when they buy a home or get a credit card, to reward innovation and tie pay to performance, and to end these past cycles of
boom and bust. This is our commitment, and we have a lot to do.
Thank you for having me here, and I look forward to our conversation this morning.
[The prepared statement of Secretary Geithner follows:]

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The CHAIR. Good. Thank you, Mr. Secretary.
Mr. Secretary, I am going to start the questions this morning
with accountability, a theme that this panel has talked about repeatedly, and clarity in government policy. So here is the question
I want to start with.
The auto industry has received taxpayer money, but it has been
linked to changes in management, changes in business practices,
breaking labor contracts, and causing bondholders to take losses at
a minimum. The banks have received 10 times more money than
the auto industry, and yet they seem to be receiving very different
treatment.
So the question I have is why the different treatment, and in
particular, do you think that the banks are better managed than
the auto companies were?
Secretary GEITHNER. A very important question and reasonable
question. Let me say a few things in response.
First of all, everything we are trying to do to get the financial
system working again is important to the success of the restructuring and rehabilitation of our automobile industry. It is true for
the economy as a whole and the industry of the United States,
without a financial system that is working to provide credit, you
are going to see much more damage, much more challenge, much
greater head winds for businesses across the country.
Second basic point: If you step back, you know, we are five quarters into this recession, and we are at least that long into a very
substantial, dramatic adjustment we saw following this unprecedented financial boom. So there has been very, very dramatic restructuring already across the financial system.
If you just look at the largest institutions in the world that existed 2 years ago and look at how many exist today, there has been
a very dramatic restructuring.
Third point, as your colleague said at the beginning, in assessing
what was necessary going forward to solve the problems that we
inherited, we made it clear that where we are going to provide capital in the future, we want to target it to where it is necessary. We
want to do it on a differentiated basis. We want to do it with conditions—not unconditionally, but with conditions not just to help protect the taxpayer, but to try to help ensure that the system
emerges stronger, not weaker.
That is a very important principle. And we have said, the President has said publicly, that where we provide exceptional assistance, because that is necessary to make sure there is capital in the
system, it will come with conditions to make sure there is restructuring, accountability, to make sure these firms emerge stronger in
the future.
Now——
The CHAIR. So let me just make sure I am understanding you to
this point. I just want to be sure that I am following here.
Secretary GEITHNER. Sure.
The CHAIR. Are you saying that the difference in treatment between how the banks were treated and how the auto industry has
been treated is effectively one of timing and that, going forward,
the banks will be treated with the same kind of accountability at
a minimum that has been demanded from the auto industry?

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Secretary GEITHNER. Well, I am trying to be candid. They are different challenges. They require different solutions. But there is less
difference than your question suggests.
Just to cite a couple of examples, if you look at where the Government had to act early in substantial force, in some of the largest
and weakest parts of the system, in that context—both in the context of Fannie and Freddie and in the context of AIG—we were
very clear that the conditions in that context came with changes
in board and management for exactly the reasons you said.
Now there has also been——
The CHAIR. I am sorry. I just want to make sure I am following.
You are saying that there have been changes in management at financial institutions——
Secretary GEITHNER. Where the Government acted—absolutely.
The CHAIR [continuing]. That have received TARP funds?
Secretary GEITHNER. Well, as I said, in the context of the interventions taken in Fannie and Freddie and AIG, just to cite three
examples——
The CHAIR. I am asking about the financial institutions.
Secretary GEITHNER. Well, those are financial institutions.
The CHAIR. I am asking about the banks.
Secretary GEITHNER. But the principle is important in this case.
And as I said, the President has said this publicly. I have said it
publicly. Going forward, where institutions need exceptional levels
of assistance, we will make sure that assistance comes with conditions that provide for the necessary degree of accountability to help
ensure these firms emerge stronger rather than weaker. And that
is an important principle. We are committed to do it.
Now what is necessary in each specific case is a judgment we are
going to have to make, but I think that is a very important principle. It is at the core of our program.
The CHAIR. Good. Thank you, Mr. Secretary.
I have a second question on accountability. In the last few weeks,
banks have been announcing—a few banks—that they have quarterly profits. But there has also been a renewed acceleration of
home mortgage foreclosures and new examples of raising fees on
customers who have met all of their contract terms and raising interest rates, even for consumers paying on time.
So I want to ask, do you think that banks receiving TARP funds
should be engaging in these practices?
Secretary GEITHNER. I just wanted to underscore our commitment, the administration’s commitment to doing everything we can
to help mitigate the damage homeowners are facing across the
country.
The CHAIR. I understand.
Secretary GEITHNER. Now if you look at the programs we have
put in place, they are very comprehensive, very aggressive, very
dramatic programs to make sure that people are getting relief
where they need it. And just to point out how powerful these are
already, if you look at the programs we have put in place they have
made it possible for already hundreds of thousands of Americans
to refinance and take advantage of lower interest rates. That is a
core part of our program now.

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And you are right that we are also moving quickly to put in place
these programs to help prevent foreclosures, and allow modifications. And we are making a lot of progress in that area.
As a condition for Government assistance, banks have to agree
to participate in these loan modification programs, and we are
going to make sure that they are doing so and that the American
people are going to see data on performance, on modifications, and
have a better chance to judge for themselves what is happening on
the modification front.
The CHAIR. Good. I will return to the question about changing interest rates, but my time is up.
Congressman Hensarling.
Mr. HENSARLING. Thank you, Madam Chair.
Mr. Secretary, as you can tell, all members of this panel very
much welcome your appearance here today. So let me ask you first
a process question since, again, this is the first time we have had
a member of Treasury appear before us in almost six months of existence.
If this panel chose to have a monthly oversight hearing, would
you make either yourself available or I believe Mr. Allison is up for
confirmation to head, I believe, the Office of Financial Stability?
Would either—assuming he is confirmed, would you make yourself
or him available for such?
Secretary GEITHNER. Congressman, I want to—let me say it this
way, okay, and you can hold me to this. I believe in the importance
of transparency, accountability, oversight. I think it is critical to
our credibility, I respect what you are doing in this context.
I will commit to make sure that we have as effective a working
relationship as possible so that you have the information you need
and an intensity of interaction with us to help you do your jobs.
That is in our interest because if you can’t understand what we are
trying to do and have a chance to assess it, then it is going to be
harder for us to do what we want to do, just as you said at the
beginning.
Now we have made it clear we are willing to meet weekly with
the panel and the panel’s staff, and I am prepared to examine any
proposal, consider any proposal to have more formal meetings like
this on a more frequent basis. But what I would like to do is when
I have a confirmed team in place of senior officials at the Treasury,
come back and we can work out something we can commit to, and
adhere to.
What I don’t want to do is commit to a frequency of interaction
at the senior level that I am not going to be able to live up to because, as you know, we are doing a lot of things, have a lot to do.
But if you give me a chance, once we have a confirmed team in
place, I will——
Mr. HENSARLING. I appreciate that, Mr. Secretary. Do we at least
have a commitment that this will not be your last appearance before this panel?
Secretary GEITHNER. Yes.
Mr. HENSARLING. Thank you. Thank you, Mr. Secretary.
In today’s Wall Street Journal—you frequently appear in the
Wall Street Journal—it doesn’t have a quote from you, but it characterizes something you said as ‘‘Treasury Secretary Timothy

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Geithner indicated that the health of individual banks won’t be the
sole criterion for whether financial firms will be allowed to repay
bailout funds.’’
Again, if there are firms that wish to repay taxpayers their
money, if the taxpayer money is at risk, if their relevant regulator
certifies that commensurate with safety and soundness of the financial institution, they can return that capital, if this is an accurate assessment of your position, why wouldn’t you take the money
back?
Secretary GEITHNER. In those conditions, we would welcome it.
It would be very helpful, help differentiate, help show progress. It
helps underscore the basic point that the institutions of our financial system are in very different circumstances.
But I just want to underscore what is really important. And I
said this at the end of my testimony, but I want to underscore it
again. My basic obligation and our responsibility is to make sure
that the system as a whole, as a whole, has the ability to provide
the credit that recovery requires. And so, we need to make a careful judgment about what policies are going to best promote that objective.
Under the laws and conditions established in the Recovery Act,
the judgment about when institutions can repay is a judgment that
the Federal banking agencies have to make, and they are in the
process of looking now at what set of standards and principles
should guide repayment.
Ultimately, though, we have to look at two things. One is do the
institutions themselves have enough capital to be able to lend, and
does the system as a whole, is it working for the American people
for recovery? And that is the standard we are going to look at.
But, of course, nothing would make me happier than for that——
Mr. HENSARLING. I am sorry, Mr. Secretary. My time is limited
at the moment. But just to understand then, there will be other
considerations besides the individual institution’s financial stability? I am a little confused on what——
Secretary GEITHNER. Well, I am not sure I would say it that way,
and as I said, this is a judgment that I don’t make. It is a judgment
that the Federal banking agencies make under the conditions that
were established in the Recovery Act. And they are in the process
now, the Fed and the other agencies, are in the process of working
through how to make these judgments.
But again, the critical thing we care about is whether the system
as a whole is in a position where it has the capacity to support the
credit the recovery requires. That is the ultimate test.
Mr. HENSARLING. Mr. Secretary, my time is running short here.
One more question, and that is there is great concern among many
on an apparent plan to convert the preferred stock positions in
many of the financial institutions to common stock, thus having essentially converting Uncle Sam into a control shareholder of many
of our largest financial institutions.
Is that the plan, and why?
Secretary GEITHNER. That risk worries me, too. So let me just
say a few things about what our objectives are.
Again, what we want to make sure is that there is the capital
the system requires and that it is targeted to where it is needed.

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So the process we put in place that the Fed is running now to do
an assessment of capital needs in a potentially deeper recession is
designed to make sure that there is more clarity, more transparency on bank balance sheets, that those institutions that may
need additional capital are identified. They have the opportunity to
raise that.
Now they will have a variety of different ways where they can
raise that capital. They will have the choice to raise it in the market. They will have the choice to do a range of conversions, or they
will have the choice to take it from the Government. And they will
be examining those options in cooperation with their Federal regulator over the next few weeks.
The CHAIR. Thank you, Mr. Secretary.
Thank you, Congressman.
Mr. Silvers.
Mr. SILVERS. Mr. Secretary, we have spent a fair amount of time
this morning on the question of the banks and what happens after
the stress tests and capital. This panel’s statutory mandate, as I
think has been referenced by a number of my fellow panelists, is
to oversee the effectiveness of the—in part is to oversee the effectiveness of the program from the standpoint of minimizing longterm cost to the taxpayers and maximizing the benefits for the taxpayers. And I am quoting from the statute.
Now we have a case study, a precedent under the act for dealing
with a sick bank, and that precedent is Citigroup. Citigroup has
come to the Treasury for additional funding in circumstances that
I think everyone recognized as dire in November. As a result of
that second funding, plus its initial funding under the Capital Purchase Program, if you look at Citigroup’s capital structure on a
mark-to-market basis, the cash we have put in is the majority of
the capital of Citigroup today.
Some would say that we have crossed the nationalization line already, and this chart represents that. This chart underestimates—
this puts it nicely. This chart underestimates the extent of public
investment in Citigroup and public funds at risk because it doesn’t
account for an asset guarantee of $300 billion, of which $270 billion
is Government money.
If you put that in there—it is hard to price. If you put that in
there, it would shift things very dramatically.
Now in contrast to capital at risk, public money at risk in
Citigroup, the upside that we have today in Citigroup—and this is
all, of course, as a result of transactions before January 20th. The
upside in Citigroup is 7.6 percent, according to our staff.
And again, this underestimates the degree of disparity because
the warrants that we have in Citigroup are not priced at the current common stock price. So the price of Citigroup could go up 400
percent, and a lot of our warrants wouldn’t kick in at all yet.
And as it has been mentioned before in this conversation, we
have the downside of ownership. We have a tiny bit of the upside
of ownership, and we have none of the control of ownership.
Now, obviously, there are going to be some changes here. They
haven’t happened today, but there are going to be some changes.
Those changes seem to point in two different directions at once.
They would appear to increase the upside from the current 7.6 per-

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cent, according to Citigroup’s Web site, to about 35 percent. Still
not commensurate with the risk.
But on the other hand, they would give away our senior position,
as we move from preferred to common. Unlike, for example, Warren Buffett, who holds his senior position as preferred and takes
his upside as warrants.
Now, Mr. Secretary, my question to you about this is do you believe this is the right way to go? Is this the model for what we are
going to do for the next sick bank? And secondly, what are we
going to do about this, all right? Is this the appropriate way to
treat the taxpayer?
And I recognize that in certain respects you are making changes,
and I would hope you would address those in that context.
Secretary GEITHNER. Mr. Silvers, I am not sure this is going to
satisfy you, but I want to just say a couple of things.
It is very difficult for me to talk about any individual institution
ever, given my responsibilities for the system, and I think you understand that. And as you said, you are describing a state of play
that existed on January 20th, I believe.
Mr. SILVERS. Well, Mr. Secretary, it exists today as a legal matter. This is the state of affairs today.
Secretary GEITHNER. It does. But as you said, it is in the process
of changing. So I guess I want to step back a little bit and make
some broader points. But of course, you will have a chance to judge
us by what we do going forward, and this is one way to evaluate
the tradeoffs and judgments we are making.
But let me just underscore one important point. We are not a private investor. We are the Government of the United States. When
we act to provide assistance for banks, we don’t do it for the benefit
of those banks.
The cost benefit returns to the American economy you cannot
evaluate by looking at the narrow financial terms of that particular
transaction. You have to look at the action through the prism of
what motivates it, which is how to make sure we have a financial
system that is stable, able to lend, and support recovery.
And that is important because, as you know and as you said
nicely in your opening statement, that is sort of an essential precondition for limiting damage for recession and recovery.
Now, just because you can’t look at the economic case for how
taxpayer dollars are being used and structure the conditions
through the narrow prism in which the transaction itself occupies.
You have to look at the transaction in the context of the broader
benefit it creates relative to the alternatives. And this is true for
any action we take.
Mr. SILVERS. Mr. Secretary, I have 10 seconds. How does protecting Citi’s common shareholders at the expense of taxpayers
benefit our economy?
Secretary GEITHNER. Well, let me do it in a slightly different way
again. But it requires us to go back a little bit. If you look at the
last 4 months of 2008, you can see catastrophic damage caused by
judgments about the level of failure you can tolerate throughout a
financial system. And as I said, the damage caused by those actions and judgments were brutal, indiscriminate, and catastrophic.

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They affected—as you said, Chair Warren, at the beginning of
the hearing—they affected the fortunes and lives of millions of
Americans here and around the world. They helped precipitate the
deepest loss in economic activity that the world has seen in a generation.
Now, so you have to think about these choices through that
broader prism, not through the narrow confines of the specific investment.
The CHAIR. Okay. Thank you.
Thank you, Mr. Silvers.
Senator Sununu.
Senator SUNUNU. Mr. Secretary, explain the process that will be
used to determine whether or not Treasury requests the conversion
of preferred shares under the CPP into common.
Secretary GEITHNER. Again, this is something that the primary
supervisor is in the process of thinking through and designing
strategy on, but I want to say it simply again. This capital assessment they are undertaking will reach a judgment about whether
and to what extent individual banks could use an additional buffer
of capital to make sure they can withstand deeper losses——
Senator SUNUNU. Let me stop you there. You are using phrases
like ‘‘could use.’’ I am sure every bank could use a little bit better
capital buffer.
Secretary GEITHNER. All right. Let me say——
Senator SUNUNU. So we need to be specific about whether or not
it is required and whether there is an objective measurement of the
requirement.
Secretary GEITHNER. Right. So the measurement—and again, you
are going to see the details of the parameters laid out by the Federal Reserve in the coming days that will help you decide that. But
that will be a defined measure of what additional capital, I will use
your word, should be required.
Now banks will have a range of different options for meeting that
capital requirement. And as the Fed has already said directly, what
is important is not just the overall level of capital, but the quality
of capital, including the amount of tangible common equity or Tier
1 common equity in the system.
Banks will have a range of different ways to meet those tests.
They will be able to work out with their supervisor how they are
going to meet that test. And as I said, in simple terms, their ability
is to take—raise more capital from the market or take capital from
the Government.
Senator SUNUNU. So what you describe there is a relatively objective process with clear criteria where sort of subjective measurements either don’t enter in or enter in to a very limited degree. In
other words, it will be an objective process that people can easily
understand. Fair enough?
Secretary GEITHNER. Well, I won’t say there won’t be judgment
in it. But that will be judgment that the supervisors work out and
judgments carefully informed by other independent measures of
risk, losses, earnings potential, those things.
Senator SUNUNU. I think it is important that it be as objective
as possible.
Secretary GEITHNER. I agree with you.

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Senator SUNUNU. And I think this also applies to the question
raised by Congressman Hensarling with regard to repayment. You
indicated that there would be a relatively objective approach based
on whether they have met the requirements under the regulator.
But then you alluded to the question that would be asked of is the
credit system working? Then finally, you said but that is going to
be asked at the regulatory level.
But I would suggest it is not really the job of regulators at the
OCC or OTS or at the State level to make subjective determinations about whether our credit system is working and whether a
particular institution is playing their role in that credit system
and, therefore, conclude that we are not going to let them repay,
even though they met all of the objective regulatory criteria.
So I will ask what level of subjectivity is going to come into play
on the repayment question?
Secretary GEITHNER. I actually wasn’t trying to reinforce your
concern or Representative Hensarling’s concern. I was just trying
to state it cleanly, which is that they are going to have to make
that judgment. That is the way the law is written.
Senator SUNUNU. Who is going to have to make it?
Secretary GEITHNER. The relevant Federal banking agency will
have to make that judgment, and they are going to have to look
at——
Senator SUNUNU. You are going to expect and ask the regulators
to make a subjective judgment about whether or not our national
system of credit and lending is working?
Secretary GEITHNER. No, I don’t—I didn’t mean to imply it that
way. They are going to have to make a judgment of whether it is
tenable, makes sense for that individual institution. I was just trying to underscore the fact that the basic objective that is guiding
what we do is to make sure the system is working as a whole.
But I understand your concern, and everybody wants clarity, objectivity. Because they are working through this now, I can’t tell
you today whether they are going to fully meet that test, but you
will know that relatively soon.
Senator SUNUNU. I simply underscore objectivity in this regard
is absolutely essential. Otherwise, you are going to be creating
more uncertainty than you intend, and you will be potentially
doing more harm than good along these same veins, agreed?
Secretary GEITHNER. Can I say that I agree with that? And as
I said, we would welcome, okay, capital coming back to the Treasury and the taxpayer as a result of the effectiveness of these programs.
Senator SUNUNU. Excellent. Ah, releasing stress test results. You
indicated that you were going to release some results. Then Treasury pulled back in the sense that you haven’t been clear about
what information you are going to release or in what context it will
be released.
First question is why release data publicly at all? It certainly
isn’t typical for bank examiners to release specific information
about the institutions they examine. So why release that information? And to the best that you can describe here, what will be released?

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Secretary GEITHNER. Well, again, it’s awkward because of the
timing of this hearing. But those are questions that the Fed and
their counterparts are working through right now. But I want to
underscore again that I do believe it is valuable, and this is the
core of the objective of this process that we worked out with the
Fed, to bring more transparency, more disclosure to potential losses
on bank balance sheets.
Without that, it is harder for banks to raise capital. Without
that, they are going to live with a deeper cloud of uncertainty over
their financial health than they need to. Transparency will be helpful in resolving that, and they are in the process of working
through now what is going to be sensible.
But I agree with your concerns. I understand your concerns
about this. But they are careful, thoughtful, pragmatic people, and
they will get it right.
The CHAIR. Thank you, Mr. Secretary.
Thank you, Senator.
Mr. Neiman.
Mr. NEIMAN. Thank you.
I would like to come back to the foreclosure efforts and give you
a little more opportunity to expand on those. I agree and we all
have focused on the fact that housing created this problem and has
to be solved if we are going to get out of it.
As you know, our March report focused on foreclosure efforts. It
looked at the drivers to delinquency, the interaction between affordability and negative equity, and set out a lot of the impediments to a successful mitigation program. We also made an initial
assessment of your program that was announced on March 4th and
how it addressed many, but not all of the impediments that we
identified.
In my role in leading the State’s Foreclosure Prevention Task
Force, in talking to a lot of housing counselors, what we are hearing back is there is still a sense of uncertainty as to when and the
timing around servicers and lenders signing on to those programs.
Can you give me and the panel a sense of the degree of industry
participation that you expect and a sense of the timing?
Secretary GEITHNER. We are moving very quickly. I think Treasury is now—I think that the majority of servicers in the country
have signed onto the new standards, and we are moving quickly to
put that in place and lay out the additional details in public.
But I think it is going to take a little time for us to be able to
judge what is actually happening. You know, this program provides
very substantial economic incentives for participation and for modifications. And that was based on a set of judgments that we made
about what was going to be necessary. But we won’t know really
until we see the pattern of modifications going forward, and until
we see how those work for a time, we won’t know how successful
they are in helping economically viable homeowners remain in
their home.
But we are moving, and I think reasonably quickly, given the
pressure and challenges we are facing.
Mr. NEIMAN. Do you see any other potential impediments that
will need to be addressed or the program tweaked or changed?

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Secretary GEITHNER. We can’t tell now. But it is a very complicated program, as you know, and it is a complicated set of incentives we are trying to change. But we are going to be pragmatic
about this. Where we see problems and opportunities, we will
adapt the program.
It is a challenge because, as many of your colleagues said, you
want clarity quickly. You want people to hold to those basic lines.
But if there are things around design or practical impediments to
better participation, we will try to fix those.
Mr. NEIMAN. Being last on the questioners, there is never confidence of whether it will come around to me again. So I do want
to bring us back to regulatory reform, which you did not get a
chance to in your opening, particularly from the role of the States
and the role that States play in consumer protection.
As you know, Secretary Paulson’s blueprint in establishing a regulatory framework eliminated the role of the States in consumer
protection and safety and sound supervision. I would like to get
your thinking as to where do the drivers for consumer protection
fall out in your regulatory proposal?
Secretary GEITHNER. We are going to be outlining in the next
couple of weeks a set of detailed proposals for how to change the
basic framework of consumer protection in the credit area in particular, both on credit cards, on mortgages, and other credit products. And you will see, following that, we will lay out the broader
changes to the oversight framework that we think are necessary to
make these new rules of the game work.
I would expect States to have an important role going forward
still, but the precise nature of that role you will see laid out in the
suggestions we make about what should happen at the Federal
level.
I just want to say, though, that I want to just say it starkly: We
had systematic failures in consumer protection. They caused enormous damage not just to the people who were taken advantage of,
but to the stability of the entire financial system. And it is going
to require very, very substantial changes to fix that.
Mr. NEIMAN. Great. All right. Thank you very much. My time
has expired.
The CHAIR. Actually, it hasn’t.
Mr. NEIMAN. Oh, okay.
The CHAIR. But you are welcome to——
Mr. NEIMAN. Fifty seconds left, I think I will pass. Thank you.
The CHAIR. Okay, that is fine. Thank you.
Actually, Mr. Secretary, I want to go back to the point about
foreclosures, and I must ask is an amendment to the bankruptcy
laws to deal with underwater mortgages a central element of your
foreclosure mitigation plan?
Secretary GEITHNER. As you know, the President has supported
and we are supportive of changes, the carefully designed changes
to the bankruptcy plan. We think you can do it in a way that would
help reduce these problems. That process is now working through
the Congress. We are working closely, of course, as part of that
process.
The CHAIR. If——

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Secretary GEITHNER. It is a difficult balance to get right, as you
know. But the President is supportive of this, and we are—and we
would like to work to see if we can find a good balance.
The CHAIR. If those changes are not made, what happens in
States like Nevada, Arizona, California, Florida, Illinois, where the
number of underwater mortgages is high, where we know that this
is related not only to the initial foreclosure but to redefault when
we try to do workouts. Are there any other proposals for dealing
with underwater mortgages when they are a great deal underwater?
Secretary GEITHNER. Well, let me just say two things in that context. One is the President has proposed and there is a lot of support in Congress for substantial changes to the Hope for Homeowners Program. And that program is designed to be somewhat
more responsive to that set of specific challenges.
But the President’s program also does provide meaningful payment relief to families that have very high loan-to-value ratios.
The CHAIR. Right.
Secretary GEITHNER. And does provide very substantial incentives for those payments to come down through reductions in interest and principal payments.
But our program is not going to solve all of these problems. It
is designed to target those homeowners that were relatively responsible in the amount of debt they took on, but you will have to look
at them in the context of the full range of other programs that Congress has authorized and the President is proposing to help mitigate the damage caused by the recession across the American economy.
The CHAIR. Thank you.
I want to ask one other question as long as we are talking about
structure here. In our most recent report, we talked about three
ways to deal with troubled institutions—liquidation, reorganization, or subsidization. And in the report, we discussed the fact that
Treasury seems mostly focused on subsidization and that——
Secretary GEITHNER. Treasury present or Treasury past?
The CHAIR. Well, I will let you address that question. And so, the
question is, because I think that is the right way to put it, the extent to which all of the tools in the toolbox are on the table and
the circumstances under which liquidation of failing financial institutions or reorganization in place of failing banks would be considered. Could you address that?
Secretary GEITHNER. That is a very sensitive, very important
question. Again, what we have to do is we have to balance the critical objective of making sure our system is working better. That requires that the core institutions in our country, the largest institutions in our country are able to fund and meet their commitments.
That is a central part of this process.
It requires that they have enough capital even to withstand a
deeper downturn. And it requires that they have a board and management and that will earn the confidence of markets, not just
their primary supervisor in the Government.
Now we want to protect the taxpayer. We want to achieve these
things at least cost to taxpayers as a whole. But again, the system
requires, the recovery requires, the economy requires small busi-

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nesses, families across the country, they depend on it and require
a better functioning financial system. And so, we will look at all
actions we think are necessary against those two basic objectives.
One is get the system working better. Protect the taxpayer. Do
that at least cost to the taxpayer. And what will be necessary will
be different in particular cases. It is going to require adaptation
and evolution. But those are the objectives we are going to balance.
And it is very hard, Chairwoman Warren, to tell you today what
exact mix of conditions will require. What I can tell you for sure
is——
The CHAIR. Fair enough, Mr. Secretary. I will stop with ‘‘all actions.’’ You had me at ‘‘all actions.’’ Let me——
Secretary GEITHNER. I don’t want to mislead you, okay? Because,
again, we have got a very careful balance, and I think anybody who
lived through—like we all did, lived through the second half of last
year, particularly the fourth quarter of last year, should be somewhat chastened and somewhat careful and cautious in thinking
about how we get that balance right.
And our action will be shaped by that experience, not just by the
core of the obligation we have, to try to make sure we are using
the taxpayers’ money wisely with appropriate conditions so that
the system emerges stronger.
The CHAIR. Well, I think the question, though, started with the
focus on are all the tools on the table—liquidation, reorganization,
and subsidization? Am I hearing you say yes?
Secretary GEITHNER. Well, we will take all sensible actions that
are consistent with those obligations we have to the American people. And again, the determination about what is least costly and
most effective will require a careful balance in these areas.
But Chairwoman, we will be careful and pragmatic and as effective as we can in reducing the ultimate cost to the taxpayer, trying
to get the system back to recovering at least risk to the overall
economy, at greatest benefit to the economy as a whole.
The CHAIR. I must set a better example and stop with my time.
So, Congressman Hensarling.
Mr. HENSARLING. Thank you, Madam Chair.
Mr. Secretary, I take some comfort in your testimony that we
share a number of goals. I would take a little less comfort that
there are policies in place to necessarily achieve some of those
goals.
With respect to both taxpayer protection and preventing the nationalization of key segments of our financial services industry, let
me revisit again the plan of the conversion of preferred stock to
common. At the end of the day, the financial institution after that
conversion has no new capital in a practical definition. It has no
new capital. So it is a bookkeeping entry.
And yet, what has happened, is the taxpayer clearly is at greater
risk, and I would assume you would agree with the position of common stock, than the taxpayer was with the preferred stock.
And then, in addition, you have got a much stronger mechanism
for Government control of that institution when we are already seeing the prospect of essentially the President of the United States
hiring and firing CEOs of Fortune 500 companies, determining
compensation levels, the prospect of some of my colleagues in Con-

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gress telling Detroit what kind of automobiles they need to produce
to become profitable.
Many of us don’t want to go down that road, and I am having
a lot of trouble here seeing the upside to any strategy for the conversion. So could you further elaborate on what you would be trying to achieve? And again, going to Senator Sununu’s point, what
is the most objective criteria that can be applied to that decisionmaking process?
Secretary GEITHNER. Congressman, they are thoughtful questions. And as you can see from the diversity of views on your panel,
there are very different views about how we balance these different
objectives and constraints.
I am concerned about the potential damage you do to franchise
value and expectations across the financial system. If you have this
expectation of creeping, long-term Government involvement, Government ownership, I agree with you that can cause damage. We
have seen one compelling example of that today, and that is something that troubles me.
On the other hand, it is important that we get a better capitalized financial system. And you are right that a conversion itself
doesn’t add to the overall level of regulatory capital. It does change
the composition in ways that actually could be helpful to a bunch
of the objectives that firms face.
So let me just underscore this basic principle. At the conclusion
of this process that the Fed is undertaking to assess the potential,
the capital needs of banks going forward, where there is a need for
additional capital, total capital and common capital, then those
banks will have a series of options for how they meet that need.
And they will work out with their primary supervisors what is the
best mix of those options.
And they will be balancing lots of different considerations, including the ones you described in that context, but I can’t tell you
today exactly where they are going to come in that context. That
is a process they are going to have to undertake, and it is going
to require a fair amount of care and effort.
And they will make different choices, I suspect. Different firms
will make different choices, and they will have different judgments
about what they want to do to the composition of capital.
Mr. HENSARLING. Related to that, Mr. Secretary, let me segue
into AIG since, clearly, it is easier to invest in these companies
than it is to divest. We have now had, I believe, four different infusions of taxpayer capital—two by the Fed, two by Treasury under
TARP. I believe we are at roughly $180 billion of taxpayer liability
exposure and counting.
I believe the Federal Reserve Chairman recently testified before
the House Financial Services Committee that had he had the ability to place AIG into receivership late last year, he would have
done it. One can question whether or not he had the ability to do
that, as Chairman of the Federal Reserve. But I assume either you
or he, as the taxpayer representative, owning 80 percent of AIG,
certainly you have the ability to do that today.
What is the exit strategy from AIG?
Secretary GEITHNER. The United States Government came into
this financial crisis without a legal framework that allowed it to in-

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tervene and manage more effectively the risk posed by institutions
like AIG. It was a tragic failure of the country.
A lot of the trauma we faced in the course of the fall was the
result of that basic failure. We still do not have that authority
today.
Mr. HENSARLING. Not as majority shareholder?
Secretary GEITHNER. No. We do not now have the ability nor the
tools that were designed in the wake of the financial crises of the
last decades that were given to the FDIC for individual banks and
thrifts to allow the Government to intervene more quickly, earlier
and more effectively to protect against the damage posed by weakness of these institutions.
And we would like to work with Congress to legislate authority
over the coming weeks and months. But even with that authority,
we would face very difficult judgments again, because in that context you are dealing with the potential risks to financial stability
more generally, to other institutions, to insurance companies
around the United States from the potential failure of a large firm
like that.
But that imperative of getting better authority in place is a centerpiece of what the President is trying to work with Congress to
achieve now.
The CHAIR. Thank you.
Thank you, Congressman.
Mr. Silvers.
Mr. SILVERS. Mr. Secretary, before I come to my question, let me
just say that I very much welcome and appreciate your comments
about the value of transparency earlier in response to Senator
Sununu’s question. I appreciate your comments about the centrality of consumer protection, and I very much support and agree
with the notion that there needs to be a broader resolution authority.
Now I want to return to the theme of my first questions, but now
turning to the public-private investment partnerships. I take at
face value the representation that these partnerships are not designed to be a covert method of subsidizing the banks, that they
are designed to get fair prices for the assets that are being purchased.
My concern, which I wish you to address, is that again, as in the
case of Citigroup, there seems to be a profound and inexplicable
imbalance between public risk and public capital, taxpayer money,
and private capital and private gain. And it ranges from—in the
investment partnerships from the legacy securities program option
one, where we have the fantastic amount of 33 percent of the capital coming from the private sector and 50 percent of the gain going
to the private sector.
To add its far extreme, option two is only 25 percent private capital. And over in the legacy loans program, where there may be the
greatest risk because loans have been less marked down than securities, the amount of private capital is 7 percent, but the gain to
the private sector is 50 percent. And even that 7 percent of private
capital could be obtained through the TALF at taxpayer risk.
Now I just don’t get it, Mr. Secretary, how this represents protecting the taxpayer. And I would like you to explain why it does.

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Secretary GEITHNER. Mr. Silvers, this is an important question,
and the virtue of these programs is they are going to come with a
level of transparency to allow everybody to evaluate what the economics are for the investor in the Government. And as you see the
terms of these things refined in public, you will have a better basis
for making that assessment.
Now, very important to underscore again, you can’t measure the
returns to the taxpayer through this narrow prism. It doesn’t provide a full measure of it. And you are counting as capital—I
haven’t had a chance to look at these carefully. You were counting
as capital in the left-hand panels of your charts, the financing the
Government is providing at a price against a bunch of collateral
with haircuts against that collateral.
And that is not capital in the same sense that you are looking
at——
Mr. SILVERS. Can I just stop you there?
Secretary GEITHNER. That is financing against collateral at a
price.
Mr. SILVERS. But can I stop you there?
Secretary GEITHNER. Yes.
Mr. SILVERS. What I am measuring here is money at risk, right?
If it turns out——
Secretary GEITHNER. But the——
Mr. SILVERS. Mr. Secretary, if it turns out that the assets that
these partnerships buy are not worth the price paid—not because
of anything terrible, but because of just risk, all right? And if we
eat through the equity in those partnerships, is it not the case that
the FDIC and the Fed are on the hook?
Secretary GEITHNER. Absolutely. This is secured lending against
collateral at an interest rate with pricing designed to help protect
the Fed and the FDIC from that risk. But what I am saying is you
are equating capital, which is fully at risk, with financing against
collateral.
Now really the critical thing, as you know from our previous conversations, is compared to what? And the alternative programs
that many have advocated for dealing with these legacy assets——
Mr. SILVERS. Well——
Secretary GEITHNER. It is important to let me finish this. The alternative programs have the Government taking on all the risk,
taking on all the risk and mispricing the assets, taking all the
downside risk and having all that protection.
Now they would get in return all the potential upside in this
case. But that tradeoff is a bad tradeoff for the Government because the Government is highly unlikely to be in a position to be
able to get the valuation right and will be at great risk for overpaying for those assets and having a much worse risk reward.
Mr. SILVERS. All right. Let me stop you right there. What I don’t
get—and I practice law, and you have been in banking—is a deal
where——
Secretary GEITHNER. Actually—I have never actually been in
banking. I have only been in public service.
Mr. SILVERS. Well, a long time ago. A long time.
Secretary GEITHNER. Actually never.
Mr. SILVERS. Investment banking I meant.

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Secretary GEITHNER. Never investment banking. Spent my entire
life in public service in the Treasury and at the Federal Reserve.
Mr. SILVERS. Well, all right. Very well then.
Secretary GEITHNER. But I would be happy to——
Mr. SILVERS. But 7 percent on the one hand, 50 percent on the
other. What prevents us from hiring the very same bond managers
that we are going to hire, work for the public, and get 100 percent
of the gain for the public? I don’t understand what the 7 percent—
what is so important about the 7 percent——
Secretary GEITHNER. Let me try——
Mr. SILVERS [continuing]. That we give them 50 percent of the
upside.
Secretary GEITHNER. Let me try and do it simply again. The left
panels of your chart are not an accurate description of the risks to
the taxpayer in the financing they have at risk. I would be happy
to try and give you a better alternative measure of it, but it will
require that you do a full assessment——
Mr. SILVERS. Is it mistaken in the legacy loan program that the
private capital is 7 percent max?
Secretary GEITHNER. It is—just to say you are mixing capital
with financing in a way that doesn’t do justice to the economics of
it. But the critical thing again is——
Mr. SILVERS. Mr. Secretary, I asked you a different question. Is
it not 7 percent?
Secretary GEITHNER. It is not the right—you are mixing two different types of economic risk.
Mr. SILVERS. I think I understand 7 percent and 50 percent, and
I don’t——
Secretary GEITHNER. Again, I am not trying to be—it is just
a——
Mr. SILVERS. My time has expired.
The CHAIR. Gentlemen?
Secretary GEITHNER. It is not an accurate representation. But
can I answer this one question about the——
The CHAIR. Ten seconds.
Secretary GEITHNER. Okay. Mr. Silvers, in the alternative model
where the Government sets the price for the assets, regardless of
who manages, who it hires to manage, the Government will be at
acute risk of overpaying, providing the subsidy you want to avoid,
and having a tradeoff where the taxpayer is taking on at the outset
a much greater share of the losses across the financial system.
That is what we are trying to avoid because we don’t believe that
is in the best interest of the taxpayer.
The CHAIR. All right. Mr. Silvers, will you continue?
Mr. SILVERS. No, we are done.
The CHAIR. Senator Sununu.
Senator SUNUNU. Thank you, Madam Chair.
Mr. Secretary, just for the record, I would never mistake you for
an investment banker. [Laughter.]
Secretary GEITHNER. I don’t think he meant that as a compliment, but I will take that as a compliment.
The CHAIR. I am not sure that makes me feel better.
Senator SUNUNU. In the first 3 weeks of April, there were two
TALF auctions. The first one I would describe as modestly success-

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ful, the second one as marginally successful. I think I am being
very generous in using that description. The first one yielded, I
think, $4.7 billion in financing, the second one $1.7 billion in financing.
To what do you attribute the relative lack of interest, and has
Treasury, in working with the Federal Reserve Bank of New York
that is, I think, managing these auctions, recommended or undertaken any changes in their structure?
Secretary GEITHNER. Let me just say one thing about the facts.
Actually, my sense is that it was relatively good for an early program. The amount of issuance of securities that came in those first
two auctions is about five times the level, substantially above the
level in the previous 5 months, and you have already seen a material reduction in the price of credit raised in auto receivables, et
cetera. So I actually think that it is pretty good in terms of impact
initially, but it is early days.
The principal explanation that people say in the markets about
why participation was lower than expected is concern about the
conditions that come with the assistance in the program, the range
of different conditions, uncertainty about whether they may change
in the future, and that underscores an important point.
If we are going to get out of this crisis at less cost, ultimate risk
to the taxpayer, we need the markets to be taking risk again. We
went for a long period where they took too much risk. The risk now
is they take too little. For them to be willing to take risk alongside
the Government, they need to have some confidence in the rules of
the game going forward, and that is going to be an important challenge we face together working with the Congress as we clarify
these conditions.
Senator SUNUNU. Well, let us try to clarify because there are
members of Congress now talking about applying the executive
compensation limits to the public-private investment partnerships.
Damon Silvers raises some concerns about the structure of those,
but this is separate from that.
This is an issue of changing the rules after the fact or changing
the rules in a way that would discourage participation. What is the
administration and the Treasury Department’s position on applying
rules for compensation or other rules to the public-private investment partnerships?
Secretary GEITHNER. We are in the process now of concluding,
completing a draft of a rule for applying those conditions. We are
going to apply the law. We are going to put out in the public domain for comment a draft rule. That will give everyone the chance
you here on the Hill are——
Senator SUNUNU. When will that be put out?
Secretary GEITHNER. It will hopefully be written in the next couple of weeks, relatively quickly. We are moving——
Senator SUNUNU. You are soliciting people to request participation as one of the lead partners or investors at the same time. Correct?
Secretary GEITHNER. Yes. You can’t feel more strongly than me
about the need for clarity early. But we need to go through a process to put out a draft rule for comments, solicit comment. But our
obligation is to apply the law, and we are going to do so in a way

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that is consistent with the requirements of the law and does as
good a job as we can at making these programs work.
Senator SUNUNU. So there will be a rule forthcoming, and what
is the Treasury’s position on application of the executive compensation limits that are in law today to those partnerships?
Secretary GEITHNER. Well, you will see in the rule how we propose to strike that balance. But it is my judgment that those compensation restrictions do not need to apply to the programs you referred to.
Senator SUNUNU. The insurance guarantee programs. The insurance guarantees have been provided or portfolio insurance has been
provided to Citigroup and to Bank of America. I believe at the end
of March, there was an assessment done—the value of the portfolio,
losses incurred in the portfolio.
Will there be a public disclosure of that assessment, and what
can you tell us about the relative value of those portfolios relative
to the book values that were insured?
Secretary GEITHNER. Senator, I am not sure I know the answer
to that, but let me—I would be happy to talk to my colleagues at
the Fed and have them report separately on that question.
My sense is, though, that the results of the stress test will give
you some indication, give the market some indication about that
question. But I should talk to my colleagues at the Fed and the
banking supervisors and ask them to respond to your question directly.
Senator SUNUNU. Thank you, Madam Chair.
Thank you, Mr. Secretary.
The CHAIR. Thank you.
And our last round of questions here, Mr. Neiman.
Mr. NEIMAN. Thank you.
The greatest criticism that we read about and where there seems
to be the greatest debate is over the viability of the Treasury’s
plan, particularly the program to purchase troubled assets. And it
is around the assumption in the plan that the critics would assert
that the values of those assets do represent the fundamental values. And the underlying assumption in your plan is that they do
reflect a significant liquidity discount.
My question really goes around to understanding the interplay
between the credit and the liquidity as the drivers of those asset
prices because this really does underline the assumptions and the
viability of that plan.
Secretary GEITHNER. That’s an extraordinarily difficult, complicated question. Hard to know. You are right that the price of any
security in the markets reflects not just a view of credit losses over
time, but it reflects a judgment of illiquidity and a whole set of
other risk premia that are about uncertainty.
It is very hard to decompose those things. But the markets where
you can tell—where you can say with complete confidence today
that these markets are not working in part because of the absence
of financing available to those markets.
So just to use the simple example, if you had to sell your house
tomorrow in a market where no one could get a mortgage, and you
had to sell tomorrow or the next week or 2 weeks, the value of your
house would be substantially less than what you think it might be

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worth if you were able to hold it over time or choose the timing,
and there was a market for mortgages available.
So to help get these markets started again, it is necessary for
there to be an alternative source of financing appropriately priced
from the Government for a temporary period of time. And that will
help establish a market and help separate out what is about credit
losses, what is about liquidity risk premia.
And underlying your question is a thing that is uncertain, which
is, is this going to prove attractive enough for it to actually work?
Or is it going to be less valuable to potential investors and banks
on both sides of the equation?
And as Mr. Silvers’s charts indicate, there is a wide divergence
of views at the moment about whether the financing is going to be
provided in a way that is too attractive or not attractive enough.
Mr. NEIMAN. And the private-public partnership, what is the
basis for why you think that is the mechanism to identify the appropriate pricing?
Secretary GEITHNER. Again, it is better than the alternatives. In
that context, people with money at risk will make the judgments
about what the risk is and what the values are. And they have to
compete for the right to put up that capital. They are going to hire
professional asset managers to do it. In our judgment, that is a better model than having the Government itself come in and independently try to value these things.
This is an, as you know, enormously complicated set of problems.
The assets are enormously complicated. There is no precedent for
what we are going through in this context, and the amount of uncertainty that you see in markets today is a reflection of that. So
we just made the judgment that it is better for the taxpayer to use
the incentive of an investor that is going to put capital at risk to
help solve that valuation pricing problem.
Mr. NEIMAN. I would like to come back to your opening remarks
where you talked about recognizing that 40 percent of consumer
lending has historically come from the secondary markets and
securitization. And this is the key point for us all to remember,
how so much of consumer and small business lending is supported
by the capital markets, and the TALF is designed to unfreeze those
markets.
How should we be evaluating bank lending levels in light of the
role of the security market and securitization, particularly in recycling capital?
Secretary GEITHNER. Very hard to do. You know, you can’t expect
banks to be able to fully compensate for the reduction in
securitization activity, it is not tenable in a short period of time.
That is why we are trying to move on both those channels of credit
flows, make sure banks are able to provide enough credit and try
to get these markets for securities working again.
But it is hard to know what the new system is going to look like
in that context. And what we are trying to do is, again, make sure
that the assistance we provide is priced so that as conditions normalize, demand for Government financing, for exceptional support
will fade and—as you already see happening across some of the
Fed’s facilities.

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Mr. NEIMAN. So in terms of my original questioning around
metrics and even on the front page of the Wall Street Journal yesterday in terms of the diversity in interpreting this data, have you
given more thought as to more appropriate metrics or greater clarity?
Secretary GEITHNER. I think the best thing is to be simple about
it, and the best thing to do is to ask what is happening to bank
lending by category of type of credit exposure like our new reports
require? What is happening to the issuance of securities, assetbacked securities and other securities, and what is happening to
the price of both bank lending and securities issuance?
Those three things capture what you need to do to measure it.
Now it still doesn’t tell you fully what is happening to demand for
credit from economically viable borrowers, but that is a good place
to start.
One more thing, the Fed’s senior loan officer lending survey is
another good qualitative measure of terms and conditions and that,
if you look at it, showed it rising to very, very adverse peaks and
starting to gradually improve. Those are four examples of things
you can look at.
Mr. NEIMAN. And even though my time is out, I would like to reclaim my 40 seconds that I had put away in my first round.
The CHAIR. Forty seconds, you are using it up. Go.
Mr. NEIMAN. What I would like to do is in recognition of the fact
that I have received hundreds of emails, both to my personal email
and to the COP Web site as well as to the posting, I would like
to categorize them, provide them to your staff——
Secretary GEITHNER. Send them to us.
Mr. NEIMAN [continuing]. And work on answers that we can respond and post publicly. So I appreciate that.
The CHAIR. Thank you.
Thank you, Mr. Secretary. I understand that you need to leave
to meet with the President and that we are going to end now.
We are going to hold the record open for 1 week so that panelists
may submit additional questions in writing so that you will have
the opportunity to respond on the record.
I just want to say that I am very sorry that you had to turn
through the pages on regulatory reform. It is a critically important
issue, and I am sorry that our time is so constrained that we
couldn’t spend more time on it, particularly both the long time and
the nearer term on regulatory reform, which I hope is going to address the consumer issues and in particular the question about repricing interest rates for small businesses and consumers who are
paying their bills on time.
Also to address the systemic issues, very important. I think it is
clear we have lots of questions. So I hope we will make this a regular meeting.
Thank you.
Secretary GEITHNER. Thank you for having me. A pleasure talking to you all. Excellent questions, as I said. Very thoughtful concerns. And we are trying to balance a lot of different considerations, and I know you will do what we do, which is look at these
programs against the alternatives.
The CHAIR. Yes. Thank you.

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Secretary GEITHNER. You can’t judge anything except against the
alternatives, and I know you will help us do that.
The CHAIR. Thank you, Mr. Secretary.
This hearing is adjourned.
[Whereupon, at 11:37 a.m., the hearing was adjourned.]

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