Today, the Senate Banking Committee held a hearing entitled Emergency Economic Stabilization Act: One Year Later. Chairman Christopher Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) opened the hearing by briefly discussing the history of the economic crisis over the past year, including the implementation of the Emergency Economic Stabilization Act (EESA), the $700 billion Troubled Asset Relief Program (TARP) and the creation of the related oversight bodies (the Financial Stability Oversight Board, the Special Inspector General for TARP, and the Congressional Oversight Panel), all as present for the hearing.
Testifying before the Committee were the following witnesses:
- Herbert M. Allison, Jr., Assistant Secretary for Financial Stability (TARP) , U.S. Department of the Treasury
- Neil M. Barofsky, Special Inspector General, Troubled Asset Relief Program (SIGTARP)
- Gene L. Dodaro, Acting Comptroller General, United States Government Accountability Office
- Elizabeth Warren, Chair, Congressional Oversight Panel (COP) for the Troubled Asset Relief Program
Members of the Committee peppered Assistant Secretary Allison with questions about the successes of the programs under TARP, including loan modifications under the Making Home Affordable Program and taxpayer returns under the Capital Purchase Program (CPP). Mr. Allison lauded the TARP and indicated that on November 16th Treasury will be publishing a complete picture of the valuation of all TARP investments, including audited financials and all related returns on such investments. The Committee also inquired as to what Treasury is doing to monitor its "exceptional[ly]" large investments, such as those in American International Group and Citigroup and whether Treasury believes there is the "likelihood is of taking huge losses" on certain of those investments, in particular General Motors. Mr. Allison's collective response was that each individual entity has made "notable progress," and that "success depends on management" and each companies ongoing business "strategy." Ranking Member Shelby questioned as to why Treasury was not taking a more active role in oversight of these investments, given Treasury's large ownership in these entities, to which Mr. Allison responded that the federal government's role "should be limited" and Treasury should not be "micro-managing" these entities, as such decisions are better left to each company's management and boards of directors. In sum, Mr. Allison stated that the "economic recovery has just begun," there still is a "great deal of work" to be completed for full economic recovery, and there are a variety of concerns that Treasury is considering regarding whether to extend TARP beyond its scheduled December 31, 2009 expiration.
Mr. Dodaro's overall assessment was that, one year later, the TARP program, in particular the CPP, "has made an important contribution and positive impact" to economic recovery, but many of the other portfolio programs, such as the Home Affordable Modification Program and the Public-Private Investment Program (PPIP), are still new and "face ongoing implementation and operational challenges" and the "ultimate return on investment remains very unclear." In response to questions about whether TARP has truly been successful, Mr. Dodaro stated that TARP should not be viewed "in isolation" and is "intertwined" and an "integrated strategy" with other efforts by federal agencies to rectify the economic crisis.
Mr. Barofsky discussed the development of SIGTARP and the important role it serves to formulate suggestions for the operation of and oversight of TARP. While acknowledging that Treasury has adopted some SIGTARP recommendations, he said that his "biggest frustration" is the failure of Treasury to make TARP fully transparent. He also reviewed SIGTARP's ongoing investigation efforts into fraud and abuse.
Ms. Warren agreed that there is often "reluctance to adopt" recommendations that COP has outlined in previous reports, such as suggestions that Treasury "repeat the stress tests." She said that COP is "very concerned about the stability" of the nation's banks. Looking forward, Ms. Warren said that "we are in a better position than we were a year ago," while stressing that, notwithstanding the PPIP, she "doesn't understand" where Treasury is going with the problem of toxic assets. Also, she shares Mr. Barofsky's concern that commercial real estate is an area that may warrant "special need" from TARP in the near future.