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MEMORANDUM
To:Republican Members of the Committee on Oversight and Government ReformFrom:Republican Staff, Committee on Oversight and Government ReformRe:Full Committee Hearing: “Following the Money: Report of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP)”Hearing Date: Tuesday, July 21, 10:00 a.m.On Tuesday, July 21, 2009, at 10:00 a.m., in room 2154 of the Rayburn HouseOffice Building, the Committee will hold a hearing entitled, “Following the Money:Report of the Special Inspector General for the Troubled Asset Relief Program(“SIGTARP”).”The Majority Staff Memorandum lays out background information about TARPand SIGTARP’s previous report, issued in April. The hearing will feature just onewitness, Special Inspector General Neil M. Barofsky. Mr. Barofsky was confirmed bythe Senate on December 8, 2008, and was sworn into office on December 15, 2008.Mr. Barofsky will testify on the findings and recommendations included inSIGTARP’s third quarterly report to Congress and will also present the findings of SIGTARP’s first audit, entitled “SIGTARP Survey Demonstrates That Banks Can ProvideMeaningful Information on Their Use of TARP Funds.”This memorandum lays out key background information and questions to beaddressed at the hearing as well as the Minority’s views about the critical issues related tothis matter.1
 
Background
In response to severely contracted liquidity in global credit markets andinsolvency threats to investment banks and other institutions, as well as catastrophic predictions and warnings by the Bush Administration, Congress passed the EmergencyEconomic Stabilization Act (“EESA”) on October 3, 2008. Pursuant to EESA, theTreasury Department created the Troubled Asset Relief Program (“TARP”), originally promoted to Congress by then-Treasury Secretary Henry Paulson as a method of buyingup to $700 billion of “troubled” assets, defined generally as illiquid mortgage-backedsecurities.Within days of EESA’s passage, however, Mr. Paulson abruptly changed course,marginalizing the purchase of toxic assets in favor of the injection of funds directly into banks and other financial institutions through the use of TARP funds to purchase equitystakes. Thus began the partial nationalization of the U.S. banking system. On October 13, 2008, ten days after Congress passed EESA, Mr. Paulson convened a meeting inWashington with nine major bank CEOs in which he gave the “banks no choice but toallow the government to take equity stakes in them.”
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At that meeting, Mr. Paulson, aswell as current Treasury Secretary Timothy Geithner, Federal Deposit InsuranceCorporation (“FDIC”) Chairwoman Sheila Bair and Federal Reserve Chairman BenBernanke, forced these banks to sign “Major Financial Institution ParticipationCommitments,” in which the CEOs sold the U.S. Government preferred shares andwarrants in exchange for $125 billion in TARP funds.
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According to Treasury officials, the final decision to abandon the toxic asset purchases in favor of further capital injections was made on October 26, 2008, with then-Secretary Paulson formally announcing the shift on November 12, 2008.
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As of June 12,2009, the Bush and Obama Administrations have used TARP funds to partiallynationalize banks with the purchase of nearly $200 billion in preferred shares andsubordinated debt from 623 financial institutions, ranging from $301,000 to $25 billion per institution.
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The Bush and Obama Administrations did not stop with a partial nationalizationof the banking sector, however. As the SIGTARP, Neil Barofksy, has written in his prepared testimony for this hearing, “TARP funds are being used, or have beenannounced to be used, in connection with 12 separate programs that … involve a total(including TARP funds, loans and guarantees from other agencies, and private money)that could reach nearly $3 trillion.”
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1
 
See
JoAnne Allen, “Paulson gave banks no choice on government stakes: memos.”
 Reuters,
May 14,2009),
available at  
http://www.reuters.com/article/newsOne/idUSTRE54D0NH20090514.
2
 
See
 http://www.judicialwatch.org/news/2009/may/judicial-watch-forces-release-bank-bailout-documents
3
 
See
David Wessel, “Paulson Expected Criticism for Changing Course on TARP,”
The Wall Street Journal 
,(April 2, 2009),
available at 
 http://online.wsj.com/article/SB123867380519382149.html.
4
 
See
U.S. Government Accountability Office,
Troubled Asset Relief Program, June 2009 Status of Effortsto Address Transparency and Accountability Issues
, GAO-09-658, June 2009, at 15.
5
 
See
Statement of Neil Barofsky, Special Inspector General Troubled Asset Relief Program Before theHouse Committee on Oversight and Government Reform, July 21, 2009.
2
 
In preparation for its third report to Congress and this hearing, SIGTARP provided the Committee with the following chart detailing the nearly $3 trillion in potential obligations subject to SIGTARP oversight:
TOTAL POTENTIAL FUNDS SUBJECT TO SIGTARP OVERSIGHT, AS OF 6/30/2009
($ BILLIONS)
ProgramBrief Description or ParticipantTotal ProjectedFunding at Risk ($)Projected TARPFunding ($)
Capital Purchase Program (“CPP”)Investments in 649 banks to date; 8institutions total $134 billion; received$70.1 billion in capital repayments$218.0($70.1)$218.0($70.1)Automotive Industry FinancingProgram (“AIFP”)GM, Chrysler, GMAC, Chrysler Financial;received $130.8 million in loan repayments(Chrysler Financial)79.379.3Auto Supplier Support Program(“ASSP”)Government-backed protection for autoparts suppliers5.05.0Auto Warranty CommitmentProgram (“AWCP”)Government-backed protection forwarranties of cars sold during the GM andChrysler bankruptcy restructuring periods0.60.6Unlocking Credit for SmallBusinesses (“UCSB”)Purchase of securities backed by SBA loans15.015.0Systemically Significant FailingInstitutions (“SSFI”)AIG investment69.869.8 Targeted Investment Program (“TIP”)Citigroup, Bank of America investments 40.040.0Asset Guarantee Program (“AGP”)Citigroup, ring-fence asset guarantee 301.05.0 Term Asset-Backed Securities LoanFacility (“TALF”)FRBNY non-recourse loans for purchase of asset-backed securities1,000.080.0Making Home Affordable (“MHA”)ProgramModification of mortgage loans75.050.0Public-Private Investment Program(“PPIP”)Disposition of legacy assets; Legacy LoansProgram, Legacy Securities Program(expansion of TALF)500.0 – 1,000.075.0Capital Assistance Program (“CAP”)Capital to qualified financial institutions;includes stress test TBDTBDNew Programs, or Funds Remainingfor Existing ProgramsPotential additional funding related to CAP;other programs131.4131.4
Total$2,365.0 –$2,865.0$699.0
Source: Written Statement of Neil Barofsky, July 21, 2009
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