are well capitalized. and over time that capital will turn in to more and more lending. i think we have to go through a period where there are concerns by borrowers as well, small companies in some cases are fearful about 2)"s@ r these programs as necessary. we have to have a constant dialogue with the senate, with the house and with the american people. and with the financial committee to make sure that these programs are as effective as they can be. i know the secretary has been dedicated to making those things happen. >> thank you very much. >> going back to when this program would end, assuming it would be extended.

does that mean that the money would be paid back by october of 2010 for the program to end or does that mean that no more money would be lent out by october of 2010? >> senator, it would mean that no more money is going to be invested from this program, from that point on. >> okay. >> there still may be moneys outstanding. that's why it's also important that we have a strong and effective asset management capability within the office of financial stability. >> yes. >> and that will be one of my responsibilities if i'm confirmed as well to make sure that happens. >> and you may or may not have looked at this. you're talking about aig, bank of america, gm, chrysler, those paybacks are probably going to take some time, or what's your perspective on that? >> senator, i don't think any of us can forecast exactly how long that will take. i think it will take some time. the purpose of putting capital in there is to enable, for

instance, the auto companies to make that transition over some period. >> okay. jump back to the auto program. you had said that you're going to be jumping in waist deep at least, if not further, into this program. can you tell me, from your perspective right now, who is making the day-to-day decisions on that program, or will it be you? >> well, eventually, if i'm confirmed, i will be involved in making those decisions. >> the primary decision maker? >> the secretary is involved as well. >> yes. >> and i will report to the secretary of the treasury as well. and i'm sure we'll have a continual dialogue about that, along with others in the treasury department and throughout the government. >> one of the -- one of the concerns that ranking member shelby brought up, i believe, or maybe it was chairman dodd brought up the fact that we're not -- the t.a.r.p. recipients aren't loaning money, or at least in some cases that's the

case. yesterday it was brought up to me by a person who uses -- an industry, actually, that uses a lot of fuel that this t.a.r.p. money's being used to speculate in the oil market. would you have any control in your position to look at that? and, quite honestly, i've got some real problems with folks tinkering around in the oil industry that aren't taking delivery on the product, and maybe i'm alone in that, maybe i'm not. but it creates artificial balloons, when they pop, we have problems. would you have any ability in your position to take a look if, in fact, they're doing something like messing around in oil speculation, driving the prices up artificially? >> senator, i should point out that already the treasury department is producing monthly reporting on the lending activities of the banks that are receiving financial stability funds, and that reporting was recently expanded to include all the banks that have received

that funding. and we will work to make that reporting as fulsome as we possibly can. let me also point out that throughout this recession -- and i think back to the programs that have been put in place -- we've seen lending remain fairly steady throughout this period. and i think it's been important by injecting capital into these banks, as they wish to have it, that we've been able to sustain lending during this very difficult period. all of us want to see lending increased. may i also say, senator, that we will -- i will be glad to get back to you on your question about whether these moneys are being used for oil speculation. we want to develop more reporting, both to the oversight committees as well as to the congress. >> if they are -- yes. >> -- is it within your capacity to say no? >> senator, we -- we are not going to be in the business of micromanaging these banks. we're there to help them be financially sound.

>> i appreciate that. >> but the reports we can get, we can give direction on these reports. >> yes, sir. >> thank you. >> thank you. >> a couple questions, if i might, mr. chairman. your predecessor recently commented that firms deemed too big to fail have an unfair advantage over smaller competition because they can raise money more cheaply in the debt markets. what are your thoughts on that? >> senator, the administration's working right now on a proposal on financial reregulation that is very much needed. and i'm sure that it will be addressing broadly the type of issue that you're raising. >> do you -- so you do think it is a concern? >> i think that there's a concern on behalf of the american public and certainly myself that we have a strong, stable financial system.

>> yeah. >> and a system that's responsive to the long-term needs of the shareholders and the long-term needs of this country. >> okay. i'll let you off on that one. do you think -- well, just give me your opinion on the "too big to fail" thing as an overall perspective. and you know what mine is. i mean, i think if failure is not a possibility, that means the taxpayers are on the hook and that also means that there's not a lot of risk there, if you know that you cannot fail and you're one of those banks that are too big to fail. what's your perspective on that? do you think it's healthy? do you think we need to do something about it? do you -- what would you do if you were in my boots? >> senator, i think one of the reasons for this initiative on financial industry reform and re-regulation is to deal with the fact of what we were confronted with as a country

last year, when these huge institutions began to fail, and there was no real mechanism for an orderly resolution of those problems. i think what we need is to have a mechanism in place to -- if -- if that type of event should ever recur again, we're going to try very hard to make sure it wouldn't, that there's a mechanism for dealing with it. the other is to make sure that these organizations have a framework of regulation that will allow for transparency and active interaction between regulators and the financial institutions to try to prevent some situation like this from happening again. >> okay. very good. thank you, thank you, mr. allison. thank you, mr. chairman. >> thank you very much. senator warner? >> thank you, mr. chairman. i want to go back to comments that both senator schumer and senator shelby made. senator shelby raised the point

of, like your analogy, we got this bear, aig, and we don't know what to deal with it. and senator corker and i when secretary geithner was in recently -- >> senator warner, let me apologize. i did not see bob corker walk into the room. my colleague from tennessee. >> i was about to say good thins and you cut me off. >> no, my apologies, and my apologies to my colleague from my colleague from tennessee. senator corker? >> i'll let him ask his first question and come back. >> he thinks so highly of you. very smart of you, senator warner. >> i'm learning, mr. chairman. i'm learning. but we pressed -- we were very concerned and i think a lot of folks were very concerned about the whole aig situation. we were concerned about the fact that 100% payoffs with the counterparties with aig, and no haircut taking and secretary geithner said he didn't have authority and now there's a precedent set and consequently

even if we tried to give him authority perhaps it couldn't be fully utilized. that brings me to what senator schumer raised earlier, which is as we think about a repayment pattern from the financial institutions that received t.a.r.p. funds, we know they want to pay back these dollars. we know many of them want to pay them back as soon as possible. secretary geithner said as these banks start paying back, at least initially was his attempt to take back not only -- let them repay but also kind of wash out the warrants or buy back or sell back the wants rran warran. that we think through an overall strategynd policy goal for our repayments, and what i'm particularly concerned about is the warrants, the american taxpayers we as shareholders and

investors took an awful lot of upside -- or downside risk exposure. i'd like to see some of the upside here. none of us want to be long-term holders of investors in financial institutions, but my hope would be that, one, you'd have an overarching policy in terms of repayments. that, secondly, one thing you would consider, and we raised this with secretary geithner, while we, the federal government, may not want to hold those warrants too long because we don't want to have that potential even hint of political interference, i would hope we would at least consider some other options rather than selling them before we got full value which might include setting up a trust or selling them to a third party so we can share some of the upside so that there is an independent financial entity that's making sure that we get some value on the warrants since we the taxpayers have taken the risk. so if you can comment a little bit on your thoughts about a repayment policy and particularly as it applies to

the warrants. >> senator, first of all, i appreciate your concern about the taxpayers and the importance that the taxpayers receive an appropriate return on the investment that they've been making in these institutions. given the recent enactment of the reid amendment, which gives the treasury more flexibility as to timing of disposition of the warrants, the treasury is now looking at that issue actively. and i'm sure it will be announcing before too long what its policy will be on warrants given this change in the -- in the rules governing the management of the warrants. >> so in other words, that doesn't give me any hint of what your thoughts are. >> this is actively being discussed right now. and i'm sure that there will be policy that's made public before long. >> thank you, mr. chairman. >> yeah. and, of course, under the reid amendment, you can -- there's a lot of flexibility. >> yes, sir, there is.

>> that was the idea. and i think what senator warner was suggesting, now that we have the flexibility, looking at a range of ideas that would give uses additional options within that range of flexibility other than making the choice of either -- of either selling those warrants or holding those warrants, it seems to me between those two book ends there's some opportunities here that we ought to examine. senator corker? >> thank you, mr. chairman. >> my apologies again. >> no, no, i under, there's a lot going on. mr. allison, first of all, thank you for being here and being willing to do this. i think we're fortunate in the public arena to have people like you with the background you have that are willing to offer yourself, and i want to thank you for that. >> thank you, sir. >> i have a lot of similar kinds of concerns. when we began this program with t.a.r.p., it was sold and we all focused on it in this way, i think as something where we were going to buy assets of value.

and we all talked about the fact -- i know we were highly involved in meetings about the fact that the $700 billion in all likelihood would yield a return that would get back more than $700 billion. and by the way, i think that very well could have been the case. it's evident with some of the things like aig and i don't want to create a debate here on the panel, but starting to use money for things like mortgage modifications and all that, that that's likely not going to be the case today. but as we look at the various -- as we look at t.a.r.p. or as you look at it, i would like to get an understanding -- i know that these things evolve. and there's fine print in bills and people are able to be very entrepreneurial by taking advantage of a few words in a bill and starting to do a lot of other things with it. which i think we've all learned

a lesson from in many, many ways. but is it your perfective that with these t.a.r.p. funds your primary goal is -- is in stabilizing the financial system, investing in things that will have value and that will return -- taxpayers their money? >> sir, as the law states, the financial stability program is intended to improve the stability of the financial system while protecting the interest of taxpayers. i think it's very important that i, if i'm confirmed for this responsibility, are mindful of both of those conditions. and i think it's early to say what the eventual returns will be to the american public. i can assure you that if i'm confirmed, i'm going to work very hard to make sure that these moneys are well invested and well managed and tightly controlled going forward. keeping the interest of the

taxpayer and the american people very much in mind. >> you know, as we look at where we are in the t.a.r.p. program today, somebody like you, i don't think, would take on a position like this unless you had responsibilities and you felt like you were making a difference. i mean, you have stature and you have substance, and yet as i look at the program and where we are, it seems to me that those decisions that are going to be left as it relates to t.a.r.p., other than making decisions about timing and when we -- when we take advantage of our warrants and those kinds of things, much of the heavy lifting may have already been done. and it seems like decisions about who we're going to invest in majorly will be made by the treasury secretary and that the t.a.r.p. leader may be more of an implementer. and i'm just wondering what kind of conversations you-all have had in that regard, because, again, looking at your resume and background, i'm just wondering what it is that is

luring you to this position. >> well, i'm -- i'm lured to the positionaking on this responsibility, if you confirm me, because i believe that this is still a very serious economic time for this country, that much still has to be done to restore stability. there are many positive signs, thanks to the initiatives by the administration and these programs. we're seeing spreads coming down, credit spreads, in the banking area. we've seen home sales more steady the past few months. and there are other signs, for instance, the banks being able to issue equity on their own, to issue unsecured debt. these are all very positive signs. but we also see housing prices are still falling. the commercial real estate market is still under pressure. small businesses are still having some difficulty. we have still credit spreads,

this measure of risk in the system, still higher than they historically have been and should be. there's still a great amount of work to be done here. i don't think at this point we ought to become complacent and because the banks are starting to repay some of this money, the crisis is over, we can just go ahead. there still could be -- as the president and as the secretary have said -- some bumps along the road here. i think we have to see this program through and make sure that it's well administered all along the way. as the chairman said, this is going to require close management and experienced management skills, and i think that's what i can help to bring to this and also provide assistance to the secretary of the treasury, who has the overall responsibility for these programs. >> very good answer. and one last -- this is my last question, mr. chairman. secretary paulson, last summer when he was given the authority, if you will, to -- to act as a

conservator for fannie and freddie, mentioned that before he left he was going to give a statement about what the ultimate outcome of those two organizations ought to be, the events of the day and the crises that continued sort of prevented that from happening, or if it happened, it was overwhelmed by other news that were happening at the time. you've been at fannie and you're a smart guy. and i'm wondering if while we're all here, since it's a major responsibility of all of us on this committee, if you could just tell us what you think, as we moved through this crisis, what the ultimate outcome should be with fannie and freddie. a lot of people have talked about privatization. a lot of people have talked about, you know, we ought to only use them as insurers. there's all kinds of things that have been stated. you've lived it and breathed it, and i wonder if you might share with us what you think the ultimate outcome of those organizations ought to be. >> senator, thank you for the

question. and let me just tell you what i used to tell the people at fannie mae, who were asking this question themselves. you could see they were quite concerned about the future of an institution where they had worked for many years. and, by the way, they're outstanding employees and they're working extremely hard today on behalf of the american public. what i told them was, let's not try to anticipate what form this company may take or whether it may even exist in the years ahead. let's look at what's in the best interests of the american public. let's do our jobs on behalf of the people right now who are desperate to stay in their homes. and that's the line of business of fannie mae, to keep people in their homes. i think that this will be an issue debated within congress, the administration will take its viewpoint on this down the road. i think what's most important is that we have a vibrant housing system in the united states, with liquid markets, so that

people can access credit in responsible eights to own their home. after all, that's part of the american dream. so at this point, i wouldn't offer any specific prescription. i think this depends on major government policy going forward. this is a pivotal moment, and i think that it causes -- it calls for a debate, a reasoned debate, about the future of the housing market and of housing policy in the united states. >> thank you very much. that was pretty much a nonanswer, and i guess -- i guess during a confirmation hearing when you don't know if you're going to be confirmed or not, it's maybe unfair to ask that. i sure hope as time moves on and you are confirmed, that you will be more clairvoyant and helpful to us as to what you think ought to occur.

but i certainly, like senator tester, will give you a pass and say you are well qualified to run for public office based on that answer. thank you. >> thank you, sir. let me just say i was going to suggest, by the way -- let me just mention my colleague before senator corker leaves. just so my colleague's aware, your reputation at fannie among the employees was just remarkable. at a time when they were being absolutely deluged and overwhelmed, you restored a sense of confidence to a workforce that was feeling rather battered in many ways. and i want my colleagues to know about that. that's strong leadership at a time like that. and obviously we like your ideas. i want to pick up on senator corker's point. this is a very important issue as to where we go with this policy, and the fact that you were there and understand that institution as well as you do and enjoyed the reputation with the workforce as strongly as you do, this is not the moment for it, but there will be a moment we'd like to invite your thoughts and ideas about how

that construct will occur. so, i second that -- >> thank you. thank you, mr. chairman. >> and i appreciate that. back to senator warner. do you want to finish up? >> yeah. i just have one more, one more point. thank you, mr. chairman. mr. allison, one of the comments you made in terms of your priorities was transparency, and i just want to get a little further confirmation on that as well. one of my frustrations actually led me to put forward legislation with senator martinez and senator brown, senator tester said he wants to join me in this to try to mandate -- since we've not seen it so far from the administration -- on a publicly accessible, single website basis the status of all of the investments we've made with the t.a.r.p. program. i mean, the chairman made clear there are 12-odd separate programs and initiatives, and the administration has gotten

better on this. you still need not only a technology degree but also a finance degree to try to find all this information on various websites around, and the fact that it can -- could and should be consolidated into a user-friendly, single site where the american people can check what we've done with this $700 billion and what the status of these loans or investments are is terribly important. because i can tell you, at least, again, in my state, an awful lot of folks thinks we've taken these funds and basically either thrown them into the winds or flushed them down the toilet and we're never getting them back. when in reality i'm optimistic that we -- i'd like to hope we get it all back, but that we will actually get a fairly good rate of return and that we will be -- have shored up the

financial system. this is more of a comment than a question. when you get confirmed, perhaps you can mitigate or even get rid of the reason for this legislation by trying to put in case this kind of user-friendly, single website to highlight and real time indicate the status of all these t.a.r.p. programs and let the american public know where these funds have gone and what the status for either repayment or potential repayment would be. >> senator, thank you very much for your suggestion. i fully share your thoughts about that, as well as the secretary does i know. we are in the process of further enhancing the information on the websites about these programs. i have met with the people in the home ownership initiative area about that very subject. so, i'm confident that we'll be able to prepare more information. and we'd like to have a two-way dialogue about this and making sure we're satisfying your needs for information and those whom you represent. >> mr. allison, i hope that would be the case.

my only -- my only hesitancy, and it's one of the reasons we actually put forward legislation which i, again, would love to not have the need for, we have heard that response from every individual who's testified, from the secretary on down, that, yeah, that's a good idea, we want to get this information out, yet it's still pretty hard to find in a single source, in a user-friendly way. so, we look forward to that kind of conversation and that kind of result. >> thank you. >> thank you, mr. chairman. >> thank you. senator merkley? >> thank you. thank you, mr. chair. and i thank you for your testimony, mr. allison. i wanted to -- you know, you have both the wall street experience and the experience in the housing world. i wonder if you can give us some insights on the role that repayment penl alties and how w

ought to address those in the future? >> well, i think there's a need to re-examine the financing of home ownership in the country. it's obvious that some of these loan structures were totally inappropriate for the people to whom they were sold. and i think that needs to be looked at very carefully. i think it should be a simpler process for borrowing, the terms of the borrowing should be highly transparent. and i think that attention is going to be given to that as well as the government looks at re-regulation of the financial industry. you know, a home loan -- a home is the biggest investment most people ever make. and that should be taken into account. if we want to promote home ownership and promote wealth creation in the united states among the public, i think there have to be much more attention given to the structures of those loans. >> how did those practices contribute to systemic risk?

>> i think we've seen inappr inappropriate lending practices, not full transparency in some cases. i think there's plenty of evidence that many homeowners were convinced to take risks that they shouldn't have been taking. and that happened on a pretty large scale. and i think that led to a significant part of the housing crisis. >> thank you. i would just suggest that one has to track how the securitization and the subsequent splitting of the tranches and the creation of cdos and cdos squared really contributed to creating the toxic assets that contaminated the international banking world and one needs to make those in order to get your hands around the systemic risk part of this.

am i way off track here, or do you share that? >> i think we're seeing that secretary geithner is concerned about making sure that there is adequate disclosure, that there are mechanisms in the marketplace that will lead to better risk management. and this is a complex issue. there are many elements to having an appropriate risk management approach within the financial industry. i'm sure that's getting a lot of attention among those who are working on these proposals for re-regulation. >> to change topics here. my support for this second half of the t.a.r.p. was contingent upon a big chunk of it going to mortgage modification, assisting homeowners or perhaps in refinancing. the reports we got from the field in oregon remain very minimal, that is, people are as frustrated today in trying to reach someone they can talk to. those who service the loans are as un -- as unknowledgeable, if

you will, as unhelpful as they were months ago. we have one particular institution that folks repeatedly get told, well, our institution is not participating when their institution is participating. this institution was featured in an article yesterday in a different state with experiences that very much reflect what's happening in oregon and which a person who had lost their job and was doing everything they could to make their payments but clearly was going under, was simply told they would have to wait until they were behind three months, and then the effort was made to sell them a new loan at a higher interest rate with high servicing charges that would have put them further in the hole. kind of a repeat of the types of flipping practices that have been destructive. somehow we have to get over the hill here. we have to get into -- into the world where our institutions are really taking seriously the