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Public Statements

Afternoon Session of a House Financial Services Committee Hearing

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Date:
Location: Washington, DC

AFTERNOON SESSION OF A HOUSE FINANCIAL SERVICES COMMITTEE HEARING
SUBJECT: TARP ACCOUNTABILITY: USE OF FEDERAL ASSISTANCE BY THE FIRST TARP RECIPIENTS

CHAIRED BY: REP. BARNEY FRANK (D-MA)

WITNESSES: KEN LEWIS, CEO, BANK OF AMERICA; JAMIE DIMON, CEO, JPMORGAN CHASE & CO; VIKRAM PANDIT, CEO, CITI; RONALD LOGUE, CEO, STATE ST.; ROBERT KELLY, CEO, BANK OF NEW YORK; JOHN STUMPF, CEO, WELLS FARGO; JOHN MACK, CEO, MORGAN STANLEY; LLOYD BLANKFEIN, CEO, GOLDMAN SACHS

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REP. GREGORY MEEKS (D-NY): (Sounds gavel.) The committee will come to order.

The chair recognizes Mr. Garrett of New Jersey for five minutes.

REP. SCOTT GARRETT (R-NJ): I thank the chair.

And I think the fact that we're holding this hearing today -- although some may argue that we're holding it a day late and a dollar short; a number of us requested such a hearing back in December before we released the second round of 350 billion (dollars) of TARP, the idea being that before we authorize the expenditure of $350 billion for a second time, maybe we should know how we spent the first one. Unfortunately that's not the way we operate here in Congress.

Secondly, I'd just like to make the point to thank the chairman for advocation for the committee with regard to the cause of where we're here today. And he said, at his opening statement, that it was not deregulation but non-regulation or the absence of regulation that helped bring us to where we are today.

That is significant, because many times we have heard from the other side of the aisle that there was rampant deregulation occurring over the last decade or so, opening up the marketplace to allow all sorts of other activity to occur. I appreciate the chairman edifying us that it was, in fact, as many of us said, not deregulation but perhaps some gaps and lack of regulation.

Turning, then, to some questioning, Mr. Blankfein, I would ask, with regard to your company and your information that you can enlighten me on, the situation with AIG. Some people say that when the federal government stepped in and helped bail out AIG, what they really were doing was saving the counterparties or saving the banks in their relationship with AIG. I wonder if you could just sort of enlighten us as to what your relationship is or was with AIG and what your position as far as counterparty obligations, what the dollar amounts may have been at that point in time.

MR. BLANKFEIN: Sure. AIG was a very large, obviously very large company. It also was a very large player in the credit markets, ensuring credit. We and many people on Wall Street and many businesses would have had exposures, would have dealt with AIG.

In our dealings with AIG, we were always subject to a collateral arrangement, and so that, with respect to our dealings with AIG, we were always fully collateralized and had de minimis or no credit risk at any given moment because we exchanged collateral. So we had outstanding positions, as did most people, but we had no credit exposure because we had collateral from them, and in some case other kind of credit mitigants.

REP. GARRETT: I've heard rumors or stories in the paper, what have you, as far as a position dollar amount. Can you give us a ballpark figure of what --

MR. BLANKFEIN: Our total outstanding, if you look at the nominal amounts of positions, would have been $20 billion worth of nominal positions. That wasn't the exposure. The exposure was substantially less. And we exchanged collateral.

I do know where the source of the rumors were. There was a New York Times story that was partially retracted that made the statement that AIG was being saved for the benefit of the counterparties. Now, to some extent, AIG had obligations to a lot of people. Had they defaulted on their obligations, they would have gone bankrupt, and that would have triggered. But it happened that in a particular statement, it said Goldman Sachs had a huge obligation, which we immediately denied. Our CFO in our earnings call said to the world that we had no significant credit exposure to AIG. And I repeat that to you now.

REP. GARRETT: Okay. So if they were fully collateralized, then A, the point as far as the statements made by some that federal dollars actually went through AIG to you would not be a correct statement, correct, because they were already fully collateralized?

MR. BLANKFEIN: We were collateralized as --

REP. GARRETT: If you were collateralized, then -- if you were collateralized, then what was the necessity for the Fed to step in at that point to bail them out?

MR. BLANKFEIN: Well, AIG had a lot of exposures. It wasn't being driven in any way by its exposures to Goldman Sachs.

REP. GARRETT: Okay.

MR. BLANKFEIN: They had --

REP. GARRETT: Yeah, my time runs quick. Were you hedged on the way down as well for that?

MR. BLANKFEIN: We had a collateral -- yes. The answer is yes. We always had hedges. Sometimes the hedge -- I'm sorry. Sometimes the collateral would lag and we would also take out credit insurance against their exposure. So it was always our intention. We manage all our risks, including market credit risks.

REP. GARRETT: But does that mean -- help me understand this in 15 seconds. Does that mean that you can sort of win on the way up, and on the way down --

MR. BLANKFEIN: No, no, no, no, no. It just meant that we were insured against losing money because of their default.

REP. GARRETT: So you did not -- so you benefit on the fact they were collateralized --

MR. BLANKFEIN: We had transactions with them. And if they had gone the wrong way, they would have owed us money. We assumed they'd pay it, but if they defaulted, they wouldn't pay us. We insured against that default. We didn't win money from it. We wouldn't have made money. But it would have protected our down side.

REP. GARRETT: Okay, and I appreciate that. Time's out. Thank you.

REP. WATT: (Off mike.)

REP. BRAD SHERMAN (D-CA): Thank you.

Several of the witnesses have said that they have not used taxpayer money to pay bonuses and dividends. Gentlemen, money is fungible. Don't insult our intelligence. It is a rather silly claim to say, "Well, we just used the depositors' money or the investors' money to pay the dividends and the bonuses, and then we put the taxpayers' money in our vault pending the day when those depositors want to make a withdrawal."

The issue is, what dividends and bonuses did you pay or will you pay while you're holding taxpayer money? The chairman correctly states taxpayers want their money back ASAP, which is why it is outrageous that some of you have paid -- all of you have paid dividends or had stock repurchases. You had extra money. And instead of loaning it to the economy, instead of repaying it to the taxpayers, which is what you should have done, you sent it out as dividends to your shareholders. Eight out of eight of you have paid dividends since October 1st. Seven out of eight of you have paid dividends after you got the TARP money.

So I want you to provide a statement on your dividend policies for the record. But for now, I'd like you to just raise your hand unless you have adopted a policy that prevents future dividends and future stock repurchases until the taxpayers are repaid. Please raise your hand unless you have such a policy. So the rest -- I see only the first two witnesses, Blankfein and Dimon, have raised their hand. The rest of you have adopted such a policy? Mr. Kelly.

MR. KELLY: (Inaudible) -- no dividends.

REP. SHERMAN: You have a policy against paying dividends to your common shareholders while you're holding taxpayer money.

MR. LOGUE: Congressman, we have reduced our dividend to one cent.

REP. SHERMAN: I didn't -- okay. And you have a policy -- is that a policy? Does anybody else have -- I'll give you one cent a share. Does anybody other than Mr. Logue have a policy against paying dividends in excess of one cent a share for so long as you hold the taxpayers' money?

MR. LEWIS (?): That's where we are as well, Congressman.

REP. SHERMAN: Okay. So I see Mr. Lewis and the gentleman from Citicorp raising their hands. The rest of you ought to adopt such a policy.

Next is a question insisted upon by three new friends I have in Detroit. I'd like you to provide for the record a detailed statement about planes and perks. But for now I'd like you to raise your hand if your company currently owns or leases a private plane. Let the record show all the hands went up except for the gentleman from Goldman Sachs.

Gentlemen, we know that it is extremely expensive to operate these planes, that you could sell them and generate capital for your company, and that capital could be used to repay taxpayers immediately. The big show of not buying one particular new plane flies in the face of how you're really flying.

Third issue. The first $354 billion of TARP money was invested, and all parties announced that this was at par, that the Treasury was getting securities worth as much as the Treasury was investing. The Congressional Oversight Panel last Friday distributed this chart, which is behind me, which shows that the taxpayers were screwed to the tune of $78 billion, much of it by the firms represented here.

I'd like you to raise your hand if you plan to suggest to your board of directors that they issue additional preferred shares and warrants to the taxpayer to fully compensate for the shortfall demonstrated by the Congressional Oversight Panel. Let the record show no hands went up and that all the witnesses are content to leave a situation where the taxpayers have been undercompensated to the tune of $78 billion.

I'll ask the gentleman from Citibank particularly, you received $45 billion in cash. It's been demonstrated, I think, conclusively by the Congressional Oversight Panel that you only delivered securities, preferred stock and warrants with a value of 25 and a half billion dollars, shorting us to the tune of 19 and a half billion dollars. Are you content to just sit there and say, "Sorry we gave you too little securities; we're happy that we gave you so little and we're not going to give you more"?

Now, before you answer, don't tell me that the securities could go up in value and could be worth hundreds of billions of dollars. Trust me, you know, if I sold you General Motors stock today for $10 a share, you'd call that an unfair transaction because the market says today it's worth about $3. So why are you unwilling to issue additional securities to make the taxpayers fully compensated?

MR. PANDIT: Congressman, I haven't looked at this analysis. We'd like to look at the numbers, and I haven't done that. I don't know exactly where all these numbers come from. But I will tell you --

REP. SHERMAN: That comes from the Congressional Oversight Panel --

MR. PANDIT: I appreciate it.

REP. SHERMAN: -- from the hearings of last week.

MR. PANDIT: I appreciate it. I can also tell you -- what you asked me not to do, I am, because ultimately my goal is to make this an extremely profitable investment for the U.S. government. I plan to pay it back. In the meantime, we're paying $3.4 billion annually as dividends on this investment.

REP. MEEKS: Mr. Barrett of North -- of South Carolina for five minutes.

REP. J. GRESHAM BARRETT (R-SC): Thank you, Mr. Chairman. South, not North. Thank you, gentlemen. Thank you for being here today.

Gentlemen, I believe in the power of the free market. I believe in entrepreneurship. I believe in risk. I believe in innovation. But I want you to understand, and I know you do, that your decisions have real consequences.

And when we stray away from making good, commonsense business decisions and moral decisions that we put a lot of things in jeopardy.

And I know you know this, but we have people in America and people in this Congress that if you don't get it right they're going to take control and they're going to get it right. And that scares the fire out of me because I believe that our free market and our capitalistic society is at stake. And I'm not trying to be overdramatic, but it rests on you. So please get it right.

Mr. Pandit, thank you for your report today. I look forward to taking a look at that, and I applaud you for getting that. I hope that you get all 435 members that information. I keep hearing from a lot of people that stability and consistency, certainty is what we need. What can the federal government do right now, in your opinion, that can help the stability and the certainty of the market today? Or is there anything we can do?

MR. PANDIT: Congressman, we are amidst a once-in-many-generation economic event. And it really is about GDP and unemployment. We need to arrest that. And the plans that have been talked about so far, I think, are responsive. We have to stabilize housing. It started there, we need to fix it there, keep people in their homes, avoid foreclosures, try to get that to stabilize. We need to make sure we get credit flowing again. And that is clearly a very important part of what the federal government and what the Federal Reserve bank can do.

And we need to create jobs. I think those three are still the goals. We were pleased to see Treasury Secretary Geithner's report yesterday, but we're all awaiting a lot more details to see exactly how it's going to work.

REP. BARRETT: To your point, you know, the federal government has done some things. And there's talk about spending this next 350 (billion dollars) with Secretary Geithner. Do we need to take a wait- and-see approach, a little more measured approach now, Mr. Pandit, and say, let's let some of this stuff percolate before we commit anything else?

MR. PANDIT: Congressman, that's a very good question. And again, there are no easy answers to that. Let me tell you that we always deal with economics, but there is also an issue of confidence. And I don't have a formula as to how to fix confidence. We know what we can do economically. I think confidence is up to all of us here in this room, including the Treasury secretary and the president and everybody else.

And one thing we do know about confidence when broken, you get to fixing it really fast.

REP. BARRETT: Mr. Dimon, same question. Is there anything that you know we can do to bring some certainty into the market, the federal government?

MR. DIMON: It's a combination -- there's no one thing. But I think very well designed fiscal stimulation, I know it's something that got voted on in the conference today. I can't evaluate the effectiveness of all that because I'm not capable of doing that, but that's one piece.

I think the secretary of Treasury yesterday spoke about, if I'm recalling, four different types of things, to a great extent, the TALF, which I think will be helpful and important. Financing mortgages, making them both cheaper, more affordable. And we spoke earlier today about making mortgage modifications easier to do and quicker. The public-private bank and the stress testing and additional capital at banks. If these things are done, they're done quickly, coordinate, consistent, fairly, I think they will have a very good effect and start to turn this around.

REP. BARRETT: Thank you, sir.

Mr. Lewis, do you believe that this TARP program has permanently changed the face of the free-market system in the United States?

MR. LEWIS: Well, it's certainly the most unusual thing I think we've ever done, at least in my almost 40 years in this industry. But I don't think it has to. I think you could have a scenario where the economy does improve, that the banks within the three-year period do pay it back and that we get back to normal. So I'm not so skeptical to say that we've turned the corner on that point.

REP. BARRETT: Mr. Kelly, same question.

MR. KELLY: I would say the system is not permanently changed. I think there's a number of learnings in that we've had the worst economic downturn since the '30s. I think there's very good learnings from this that are complicated. There's a lot of things we've got to do. I do think we have a very good chance to be able to, as a group, as the industry, to repay the TARP money and for the taxpayers to ultimately make a lot of money on it.

REP. BARRETT: Yeah. Let's fix this thing so we can get out of this stuff.

Thank you, Mr. Chairman.

REP. MEEKS: I yield myself five minutes.

Chairman Frank initiated talking about we look back so that we make sure that we can go forward. Barack Obama is now the president of the United States because he said there should be change in Washington. And I think if there's one thing that we have in common, that is those in the financial services industry and those of us that sit in Congress, is that right now both of us, your industry and mine, have a credibility problem with the American people. There's enough blame, there's a lot of blame to go around, but we both have a credibility problem. And that is the kind of change that we're talking about.

And when I think about this crisis that we're currently engaged in, there are some things that I think surely that we should have done probably as members of Congress, and maybe we should say to the American people that we're looking to get it right this time and apologize to them for not getting it right the first time.

In regards to a lot of the investment that was made, clearly, there are some bad investments that were made. So my first question is, do you feel that the industry has anything to apologize to the American people for so that we can try to have some reconciliation to move forward and gain some credibility back? Does the industry have anything that we should apologize to the American people for because we didn't catch this and now we're in this terrible situation?

Anyone.

MR. MACK: That's a tough question, sir.

So let me just say, as an industry, clearly, we made mistakes whether it's leverage -- at least speaking of my company, at one point we had 32 times leverage -- whether it was in loans we made that we shouldn't have made, whether it was in some of the complex instruments.

So I think from Morgan Stanley's point of view, if you go back and play the clock over again, you definitely would do it differently. I think the entire industry shares some of that responsibility and for that, we are sorry for it.

I'm especially sorry for what's happened to shareholders and the knock-on effect of that has been what's happened to the American people.

But clearly, as an industry, we have accountability and we're responsible. It's much broader than just this group of people, but we all have responsibility. I'll take that responsibility for my firm.

REP. MEEKS: Thank you.

Let me move forward to try to get this question that I think was asked by Ms. Waters earlier, and yes, you were talking about, I believe the underwriter's fees. You heard that question before. I guess internally you'll pay the underwriters within your companies, et cetera.

Let me extend to say that -- to ask this. When you're talking about what the FDIC under TLGP program and the underwriting, is there any opportunities or have any of you utilized any small, minority or women-owned firms? I know that in listening to Mr. Mack earlier, you said most -- a lot of folks initiated from small firms, before they got to big firms.

But looking at the fee that was paid internally -- what appears to me -- I'm wondering whether or not anyone has given any money or utilized that to give it out to some -- underwritten by small or minority-owned firms or women-owned firms?

MR. BLANKFEIN: I might take that on. In our company -- I believe it's in many of the companies -- we have minority vendor programs. We're not only tier one, but tier two. So we put our products and services out for bid for whatever it might be.

REP. MEEKS: But I'm now specifically asking about the TARP and/or the FDIC Temporary Liquidity Guaranteed Program and the fees that would be utilized by underwriters therein. You know, I think that Mr. Pandit talked earlier about that. The money that's legal. You have to by law you have to have it underwritten.

My question is, you know, there's also opportunities there for it to be farmed out to others or contracted out to other minority firms or small firms. And I was wondering if anyone has done it with any of those fees specifically?

MR. STUMPF: And we've done that.

REP. MEEKS: Probably Dallas.

MR. STUMPF: Yes, we've done that.

MR. PANDIT: Congressman, I don't have the facts. I'm going to get you the facts. I believe we do that, but let us get you the information.

REP. MEEKS: Okay. And I'd like to get the information from everyone else.

Finally, let me ask Mr. Blankfein -- you know, I think that I caught the word in your testimony that you said you're a wholesaler and therefore, you don't get into the housing market.

However, it would seem to me that since housing is -- and foreclosing -- keeping people in their homes is most important. Is there anything as a wholesaler that you and your company can do to make sure that we're keeping people in their homes?

MR. BLANKFEIN: Sure. Thank you, Congressman.

We are not an originator of mortgage, because we don't deal with the consumer. However, we own a mortgage servicing company that is responsible for interacting on behalf of the owners of mortgages. And that is Litton Servicing, and that company has been very foresighted and innovative in the way it's approached its dealing in modifying mortgages.

They --

REP. MEEKS: (Off mike.)

MR. BLANKFEIN: Sure.

REP. MEEKS: (Off mike.)

REP. THADDEUS MCCOTTER (R-MI): Thank you, Mr. Chairman.

Coming from Michigan, the reports about the failure of the Wall Street bailout to date has caused a lot of concern. There's a lot of suffering going on in Michigan -- high unemployment, highest in the country; very difficult time finding credit.

It is so difficult for them to get credit, despite the Wall Street bailout that they were told would work, that they are beginning to think they are being redlined by banks. I simply bring this to your attention without my own comment on it.

The question that I do have regarding the auto industry is we are seeing the UAW, we are seeing the auto executives, we are seeing suppliers, car dealers, everyone coming together to make sure that the American-based auto industry survives.

I'd like to know what your view of the survival of the American auto industry is, and if as stakeholders in that process, you are willing to help ensure that the restructuring process is successful?

MR. DIMON: Well, Congressman, we have -- and clearly not just my firm -- we have relationships with the Big Three automakers. We have loans on our books to them. One of the things that hopefully we'll be able to do as markets open up for them -- as we've done in the past -- raise either debt money for them or preferred or find foreign investors who will put money in with them.

So from my perspective, we couldn't be any more focused and committed not only in spirit, but on our balance sheet.

MR. STUMPF: Congressman, we're at -- closer to the customer end of that situation. We finance and do business with many of the 20,000 different auto dealers there are in the nation. We are buying about $1.5 billion of consumer auto paper a month in our company. And we view that as good credit and it helps hardworking Americans buy cars.

MR. LEWIS: I would say that, number one, we're working with GM as we speak to convert their debt to equity. Secondly, that we like automobile loans and actually, in January they were up 7 percent over January of '07 -- '08.

REP. MOORE: Mr. Moore of Kansas for five minutes.

REP. DENNIS MOORE (D-KS): Thank you, Mr. Chairman.

I have a series of questions I'd like to ask and ask each of you to respond. And start, if we could, with Wells Fargo, Mr. Stumpf at the end, and just move this way if you would please.

How much taxpayer money did your company receive in the past five months? Number two is: How much salary did you receive in 2008 and how much if any bonus or other financial consideration did you receive? I'd like to go down the line with those two questions, please.

MR. STUMPF: We received $25 billion. My compensation in 2008 was -- I think it's 850 -- I can't remember the exact numbers -- let's say $850,000. And as far as bonus, our company -- our board of directors -- makes that decision in February regarding 2008, but there's no mystery there. Unless we reach at least a 15 percent return -- internal rate of return or 2.35 earnings per share, we don't qualify and we didn't make year -- (inaudible) -- so there will be no bonus.

REP. MOORE: Thank you, sir.

Mr. Pandit with Citigroup.

MR. PANDIT: Congressman, we received $45 billion off of TARP money. My compensation for the year 2008 was my salary, which is $1 million. I received no bonus. And as I stated earlier, I plan to take a $1 a year in salary and no bonus until we return to profitability.

REP. MOORE: Morgan Stanley -- Mr. Mack?

MR. MACK: Congressman, 10 billion (dollars) in TARP funds. My salary is $800,000 --

REP. MOORE: Microphone, please.

MR. MACK: Ten billion (dollars) in TARP funds; $800,000 in salary and zero bonus.

REP. MOORE: Thank you, sir.

Mr. Logue, State Street Corporation.

MR. LOGUE: Congressman, we received $2 billion in TARP funds. My salary is $1 million and my bonus is zero.

REP. MOORE: Thank you, sir.

Bank of America, Mr. Lewis.

MR. LEWIS: In 2008 $15 billion in TARP money; a 1.5 million (dollars) salary, no incentive.

REP. MOORE: Thank you, sir.

Mr. Kelly, Bank of New York Mellon.

MR. KELLY: Three billion (dollars) in TARP money, Congressman. And my salary is $1 million and zero bonus.

REP. MOORE: Thank you, sir.

And Mr. Dimon, JPMorgan.

MR. DIMON: Congressman, we got $25 billion in TARP money. My salary is $1 million and there was no bonus paid in 2008.

REP. MOORE: Thank you, sir.

And Mr. Blankfein, Goldman Sachs.

MR. BLANKFEIN: Ten billion (dollars) money; $600,000 in salary, no bonus.

REP. MOORE: Thank you, sir.

How much salary -- again, start this end this time and go back the other way. How much salary will you receive in 2009? Has that been determined? And what do you expect to receive, if any, in way of bonuses in 2009?

MR. BLANKFEIN: 2009 salary is still $600,000 and we're a long way from bonus time.

REP. MOORE: Okay.

Mr. Dimon.

MR. DIMON: My salary is still at $1 million and we're a long way from bonus time too.

REP. MOORE: Instead of going through all this, is there anybody whose salary will have changed from last year?

Yes, sir. Mr. Pandit.

MR. PANDIT: As I said earlier, Congressman, I told my board I will take a $1-a-year in salary.

REP. MOORE: Thank you, sir.

Anybody else?

Okay, well, I'd like to start now -- and to begin down here, if you would, please, with Goldman Sachs and ask, will you expect that your company will be able to pay back taxpayer funds by 2012?

MR. BLANKFEIN: It's my hope to do that well before that. The markets are uncertain.

REP. MOORE: Sure.

MR. BLANKFEIN: If it can be, we will.

REP. MOORE: Thank you, sir.

Mr. Dimon?

MR. DIMON: Yes.

REP. MOORE: Mr. Kelly?

MR. KELLY: Yes.

REP. MOORE: Mr. Lewis?

MR. LEWIS: Yes.

REP. MOORE: I'm having trouble seeing anyone -- farther on down there.

MR. LOGUE: Yes.

REP. MOORE: Yes, sir? Mr. --

(Cross talk.) --

MR. MACK: -- yes.

REP. MOORE: All right.

MR. PANDIT: Yes.

MR. STUMPF: And yes for Wells Fargo.

REP. MOORE: Very good.

Thank you, Madame Chairman.

REP. MALONEY: Thank you.

REP. MOORE: And thank you to gentlemen of the panel.

REP. MALONEY: The gentleman yields back.

Mr. Lance, from New Jersey, is recognized for five minutes.

REP. LEONARD LANCE (R-NJ): Thank you very much.

And, good afternoon to all of you gentlemen.

Mr. Stumpf, and the entire row, as a follow-up to the question that was just asked, how many of you would be able to pay back the TARP funding early, and not related to the three years, that perhaps early? And I know there may be legislation that's being written so that you don't have a penalty for paying back this money early, so how many of you could expect to pay it back early?

MR. STUMPF: In Wells Fargo's case, it would depend on the credit markets more than anything else.

REP. LANCE: Mr. Pandit?

MR. PANDIT: Congressman, it would all depend on the markets -- market conditions, as soon as possible.

MR. MACK: Given that I think the markets have improved, we think -- maybe not the entire amount by 2012, but some portion of it prior to that.

REP. LANCE: Thank you, Mr. Mack.

MR. LOGUE: Congressman, I would agree with my colleagues that it will depend on the markets. Hopefully, we will be able to give it back prior to 2012.

REP. LANCE: Thank you.

MR. LEWIS: I would agree -- markets and the economy. And we'd like nothing better than to pay it back early.

MR. KELLY: And I agree with my colleagues.

REP. LANCE: Mr. -- (inaudible)

MR. DIMON: We hope to pay it back earlier, and that would have to just be in consultation with our regulators and the secretary of Treasury.

REP. LANCE: Thank you.

MR. BLANKFEIN: Same. And the expectation -- present expectation is that it would be early.

REP. LANCE: Thank you.

And, following up on a line of questioning from Congresswoman Maloney earlier in the hearing -- and this is to you, Mr. Lewis. And I recognize you're Bank of America and not Merrill Lynch, and there was a great deal of pressure on Bank of America to merge with Merrill Lynch, but we are all disturbed about the level of bonuses from Merrill Lynch.

Was Bank of America aware of the contractual nature of those bonuses?

MR. LEWIS: Yes. As we got into our due diligence we saw the contracts -- yes.

REP. LANCE: And, are those contracts a matter of public record, or can they be made a matter of public record?

MR. LEWIS: I don't know the answer to that, but there were -- as I mentioned, there were two or three that were very, very large and were contractual obligations of Merrill Lynch.

REP. LANCE: I certainly would be interested, and I would imagine the committee would be interested in whatever information is available, as a matter of public record, regarding that.

I believe that TARP funding is, of course, fungible and that, from our perspective, those bonuses are really from TARP funds. Now, you state quite accurately in your testimony that, as a practical matter, "we cannot tell you whether the next loan we make is funded by TARP, or from preferred stock placed with other investors," et cetera, and I certainly respect that point, Mr. Lewis. But, from the perspective of those of us in Congress, we are deeply concerned about the level of bonuses of Merrill Lynch, and I would hope that, in your responsibilities, that you could impress upon your colleagues who would come to Bank of America from Merrill Lynch -- to an even greater extent than you have done already, that I think it is the consensus of Congress that this is precisely what the American people find objectionable with the first portion of TARP.

MR. LEWIS: Sir, we've owned Merrill now for 42 days --

REP. LANCE: Yes, sir.

MR. LEWIS: -- and things have changed. We're in charge now.

REP. LANCE: Thank you very much, Mr. Lewis.

I yield back the balance of my time.

REP. FRANK: I thank the gentleman.

And the gentleman from Massachusetts is recognized for five minutes.

REP. CAPUANO: Thank you, Mr. Chairman.

REP. FRANK: After the budget discussion, we just have five minutes or a little more.

REP. CAPUANO: (Laughs.)

REP. FRANK: He's on the committee of House Administration.

REP. CAPUANO: Thank you, Mr. Chairman.

REP. FRANK: (Inaudible).

REP. CAPUANO: (Laughs.)

Gentlemen, you've been asked a lot of questions and you've been -- aren't seemingly answering them honestly to me. I have a couple of more detailed questions.

Of all these, just by a show of hands, how many of your banks, either directly or indirectly -- and by "indirectly" I mean by loaning money to people that you knew would be using this money to invest in credit default swaps -- how many of you engaged in that?

None of you engaged?

MR. LEWIS: Well, we engaged in credit default swaps. But when you're asking the question, "are we lending money for them to do that," I'd have to come back and give you specifics. I cannot tell you --

REP. CAPUANO: All right. Fair enough.

How many of you directly engaged in purchasing or investing in credit default swaps? How many of you, directly or indirectly, engaged in credit -- in CDOs? How many of you have --

REP. FRANK: Excuse me. (Audio break) -- very good recorder, but recording raised hands doesn't work, so we'll need some oral --

REP. CAPUANO: We can fill that in later.

REP. FRANK: All right.

REP. CAPUANO: Yeah.

And how many of you -- how many of your banks had, or currently have, special investment vehicles, those off-the-books, somehow unregulated subsidiaries of the bank, or sister corporations?

MR. LEWIS: We have SPVs.

REP. CAPUANO: Okay. So, basically, all or most of you engaged in all, or at least some of the activities that actually created this crisis, in my opinion, because every one of those activities -- especially the SIV -- especially the SIVs, to me, I think they're illegal. I cannot believe no one's prosecuted you on this. But, then again we've had no prosecutorial action whatsoever of the last administration. And the new administration has a little time to figure this out. We'll find out whether anybody really cares.

How can possibly any regulated bank have something on its books that's totally unregulated, that, for all intents and purposes, does the same thing the bank does? That's for your lawyers to answer, and my hope is that you will be answering those questions in court someday. We'll find out later on.

But, basically, you come to us today on your bicycles, after buying Girl Scout cookies and helping out Mother Teresa, telling us, "We're sorry. We didn't mean it. We won't do it again. Trust us." Well, I have some people in my constituency that actually robbed some of your banks and they say the same things -- they're sorry, they didn't mean it; they won't do it again, just let them out.

Do you understand that this is a little difficult for most of my constituents to take, that you learned your lesson? And, it's all the same people doing this -- the same people who created SIVs, who created CDOs, who created credit default swaps that never existed a few years ago. You created them. You created the mess we're in -- and you're not the only ones, don't get me wrong, you just happen to be the ones here today. I can't wait to get the credit rating agencies here someday again.

And now you're saying, "sorry," "trust us," "and, by the way, we don't even want the money." Interesting. No one's ever come to me and say, "You must take billions of dollars." And, as I heard it earlier, you have an option. Basically, they said you have to capitalize better because we no longer trust your books. You can either take this money and do it, or you can do it on your own.

If you don't want the money, you can give it back, you just have to come up with the capital, as I understand it. And if you can't do it, I think many of us would be happy to change that law. You have to understand -- I don't really have a question but I was told that I can use the five minutes, because the questions I have, you've answered them, and you're going to continue to answer them, and that's all well and good.

The problem I have is that, honestly, none of us -- America doesn't trust you anymore. I, for one -- between myself, in my various campaigns, in my own personal business stuff, I get a lot of money to put in banks. I don't have one single penny in any of your banks -- not one -- not one, because I don't want my money put into CDOs and credit default swaps, and making humongous bonuses -- me, personally.

Until that changes, none of us really believe -- I won't say none of us, I don't believe anything will change until you change the people who brought you into SIVs. Who is the brilliant person who came and said, "Let's do credit default swaps?" Find him. Fire him. Tell me you fired them.

Get out of CDOs. Start loaning the money that we gave you. Get it on the street. And don't say, "Oh, well, we're not using that money for bonuses." Come on. Money is all of a sudden not fungible in your entity? It's fungible everywhere else, but not in your entities?

Get our money out on the street. And if you don't want to give it back, don't come here and tell me you can't. Yes, you can, as long as you live up to the requirements that are put onto you now -- in the new world that you created and we have to clean up.

With that, Mr. Chairman, I yield back the remainder of my time.

REP. FRANK: The gentleman from North Carolina, Mr. McHenry.

REP. PATRICK MCHENRY (R-NC): Thank you, Mr. Chairman, and thank you all for testifying today. As a taxpayer and I guess now a stockholder, we appreciate it. There's been a lot of discussion --

REP. FRANK: (Sounds gavel.) I apologize to the gentleman. Start the clock over. The gentleman is recognized.

REP. MCHENRY: Thank you, Mr. Chairman. There's been a lot of debate here in Congress about what the TARP funds went to. Was it consumer lending or was it safety and soundness? There's been a lot of debate, and part of the reason why is the former secretary of the Treasury did a great sales job and said if we obligate taxpayer dollars for your financial institutions, whether you liked it or your board liked it or your investors liked it or not, that it would increase consumer lending.

It was nothing more than a sales job as I think is pretty evident. But my question to you -- and then we could just go alphabetical order, just yes or no -- is your first obligation to your depositors, to your board, to your investors? Is your first obligation the safety and soundness of your institution? Mr. Blankfein?

MR. BLANKFEIN: I think so.

REP. MCHENRY: Yes. Mr. Dimon?

MR. DIMON: Yes.

MR. KELLY: Safety and soundness.

MR. LEWIS: Safety and soundness.

MR. LOGUE: Absolutely safety and soundness.

MR. MACK: Safety and soundness.

MR. PANDIT: Yes.

MR. STUMPF: Yes.

REP. MCHENRY: Thank you. I think we have completely resolved whether or not the TARP funds were for you to simply lend or for the safety and soundness of our financial system. Okay. I have a question. Mr. Blankfein, Secretary Geithner has outlined his TARP II proposal, and again, we just have a outline. What are your general thoughts on this proposal and will it work?

MR. BLANKFEIN: Again, I've just seen the outline and I probably haven't read it even as closely as you have given my -- given my traveling in these past couple of days.

REP. MCHENRY: Well, the train is a much more efficient way to travel, right?

MR. BLANKFEIN: Relaxing and you can read. The -- my feeling is that they're committed to trying a lot of things and they're taking a lot of initiative and I think here there's nothing ideological. There are a number of different things like insurance, like an aggregator bank, like extending credit for other institutions, and I think they're trying -- they're trying -- all of them in some way, shape, or form and I think that that's actually what the situation kind of calls for because we're not really sure what will work. But I think they'll be in a position to emphasize those that are getting traction.

REP. MCHENRY: Are you comfortable with more transparency and disclosure of where the funds go and how they're used?

MR. BLANKFEIN: Well, I -- I've heard the intent and, of course, we've seen the outline but certainly all signs now are that they're really committed to transparency.

REP. MCHENRY: Okay. Mr. Dimon, what are your thoughts on the new Geithner proposal?

MR. DIMON: I think -- I think the important part is that all of these things be done well. The devil is in the details and how they get executed. Some we know about. The fiscal stimulus plan got passed today. I'm not an expert in that.

REP. MCHENRY: It didn't get passed yet.

MR. DIMON: I mean -- I mean, the conferees agreed to it and I think the TALF plan will work and serve a purpose. I think guarantees will work and serve a purpose. I don't know yet the mortgage plans. It's important that that take place with modifications and, you know, make it cheaper for Americans, and I've got to see more detail on the stress test and capital injections. I do think if all these things are done well and properly it will have a very big beneficial effect on this country.

REP. MCHENRY: And in the -- opening up the CMBS do you all agree and if you could both touch on that. Is that healthy?

MR. DIMON: I think that helps, yes.

REP. MCHENRY: Is that necessary, Mr. Kelly?

MR. KELLY: There's no question that the real estate market is under a great -- commercial real estate market is under a great deal of stress and it's going to continue to be and will probably be worse a year from now than today. So I've heard -- certainly heard from a number of real estate executives that they need access to funds and I would think that this would be helpful.

REP. MCHENRY: Okay. Mr. Lewis, you know, I just live in the suburbs of Charlotte but your institution is vital to us as was -- is Wachovia, now Wells. The question I have to you is about transparency and disclosure. I think your institution has been hammered on the street because of a lack of transparency and disclosure as to what the government funds are for -- what is -- what is the reasoning the government has given you these extraordinary sums of money. Would you be comfortable with greater transparency and disclosure of the decision making of how government obligates funds?

MR. LEWIS: Yes. I don't know -- I don't know exactly what you're talking about in terms of what more needs to be done but, of course, as of use of the TARP money we've voluntarily said that each month we're going to show what we're doing with it, how we're using it. Each week I meet with my executives to talk about what more can we do. So we're very focused on lending money.

REP. MCHENRY: Well, no. The -- the disclosure of how government makes the decision on giving you funds. I'm asking from a government perspective should we disclose more there.

MR. LEWIS: Correct. I think I have but if you want more you certainly can have it.

REP. FRANK: The gentleman's time has expired and the gentleman from Missouri is recognized.

REP. WILLIAM LACY CLAY (D-MO): Thank you, Mr. Chairman. Gentlemen, since last October the taxpayers have injected more than $300 billion into the financial system to stabilize key institutions including yours. With the exception of Citibank, who has at least made an effort at honest disclosure, the rest of you haven't seen fit to follow suit. The American people are now your partners and your partners have a right to know where their money went. So on behalf of the taxpayers, who now own a portion of your institutions, what did you do with the money and I'll start with Mr. Stumpf. Oh, wait a minute. He's Citi. Mr. Stumpf?

MR. STUMPF: Thank you. Now, the question with respect to what we do with the money?

REP. CLAY: Yeah. What did you do with the money?

MR. STUMPF: Well, we have about $100 billion of capital in our company with (70 ?) $25 billion added to that and as I stated in my testimony we use those funds and the funds of our other investors to run our business on behalf of our communities, our team members, our customers, and our shareholders. Last year, we made a $3 billion profit doing that and we've had a long history of using all our capital to advance the kinds of businesses we do, and making loans is a big part of it. We make money when we --

REP. CLAY: Okay. Have you modified any mortgages?

MR. STUMPF: Sure. We've modified 706,000 mortgages in the last year and a half, 22 percent of all the mortgages that were reported by the industry in modifications.

REP. CLAY: Okay. One of the most frustrating aspects of this crisis that every time we think we understand how bad things are in the financial sector something that one of you failed to disclose comes to light and the situation gets worse. So I want all of you to look us in the eye, give it to us straight, and tell this committee how many more potential losses are out there. What do -- what do you see on the horizon? What are you forecasting?

MR. STUMPF: Well, it's -- to me it's all about jobs. I started out in this industry 35 years ago as a collector, and the same four things that affected our consumer delinquency are the same four today. It's through death, divorce, a unscheduled medical payment, and a job loss. Nothing has happened to the first three. Job loss is the key. So this is all of our jobs, and if -- if you can tell me what's going to happen to unemployment I probably can tell you what's going to happen in -- in credit. But I think we're still having a very challenging time and I commend you and the rest of Congress for working on ways to help get this economy going with jobs and we want to participate in that helping you with that.

REP. CLAY: Thank you for that response. Mr. Pandit, what do you see in the forecast?

MR. PANDIT: Congressman, I have to agree with the fact that when it comes to consumer banks and commercial banks, profits and losses are completely tied to GDP and unemployment. That's what determines where things are. One thing that's different about this cycle is that it's not tied in the same way as it was before, which means that it becomes difficult to forecast completely. Having said that, anything we can do to be on the plan to keep people employed and increase the amount of employment can only help us.

REP. CLAY: Do you envision credit being freed up? I mean, I just had a group of commercial developers come to my office and say they cannot build any new developments because they cannot -- they don't have access to credit. Now, when does that change?

MR. PANDIT: Everything you're doing -- the plan that secretary of Treasury talked about yesterday -- all of these are steps to help increase the flow of credit in the U.S. economy. We're doing everything we can, and as you pointed out clearly, we have made an extreme effort to account for every dollar of TARP money that we received, and we're tracking it and we're going to do our part.

REP. CLAY: Thank you for your response.

Mr. Mack, what do you see in the forecast for the next 12 months?

MR. MACK: Well, it's not unlike what my colleagues to the left have said. The only thing I would add to that -- if you go back into, right after the failure of Lehman Brothers in September and into December, we're finally beginning to see the capital markets open up where we can raise money for corporations to help them invest in their business. We're beginning to see investors come in where they will invest in businesses.

REP. CLAY: How about -- excuse me, how about extending credit?

MR. MACK: We're doing that but -- again, we're very small in the consumer business.

REP. CLAY: Okay. Thank you, Mr. Chairman.

REP. FRANK: Let me tell you I think we could probably get two more questions in before we need -- people to go to vote, it's the first vote, they give extra time. We will be coming back. There are three votes so gentlemen I appreciate this. I think this has been very important.

Gentleman from Minnesota, Mr. Paulsen for five minutes and we've got one more round this side.

REP. ERIC PAULSEN (R-MN): Thank you, Mr. Chairman.

With some of the retroactive rules for TARP recipients and also more pending stabilization now programs from the Treasury and the Fed that are yet to come and the uncertainty now about future regulatory reform, I'm just wondering how concerned are you or are you very concerned that those factors or these factors are going to potentially drastically discourage injection of private capital -- I mean real private capital into your institutions that really could help you shore up your balance sheets rather than that government providing that capital. I mean, how concerned are you about that?

MR. STUMPF: Which retroactive changes are you referring to?

REP. PAULSEN: Well I'm just saying, in terms of the retroactive rules that have gone forward, the pending stabilization programs coming forward, you know, uncertainty about new regulatory reforms. I mean, how concerned are you about those issues addressing private capital coming into your institutions right now as opposed to sitting back and waiting for these other things to take place?

MR. STUMPF: Well they've created -- they've certainly created some uncertainty that's not there and so that's a deterrence. On the other hand you have to balance it against the fact that there's some things that need to be fixed. And so any uncertainty is disliked by the market. On the other hand we know that we have to make changes. So, we're going to go ahead and have these changes.

REP. PAULSEN: And maybe I can just follow up, Mr. Chair, you know, some of you have already said you feel you have not been given a very clear directive, you know, from Congress or the government, how to use the money that has been provided that's come directly from the TARP funds. You know, aside from that directive, what other recommendations, you know, do you have for the government or for future disbursements now of those funds, either to your companies or to the other recipients that may get them in terms of just good advice to make sure it flows more smoothly?

MR. LEWIS: Well frankly I think the issue is more the economy and creating demand than any other single item. As I mentioned, lending money is at the core of what a commercial bank does and we don't optimize our profits unless we lend money. So we need to have more demand and the critical thing there is for the economy to turn around.

REP. PAULSEN: And maybe I can ask one other question. As we consider the regulations for the financial markets because we're going to be doing that now to sort of get rid of the crisis that we're in, prevent another one from happening, or deepening this crisis actually. What are the largest concerns about over regulating, going down the roads of Sarbanes-Oxley in terms of moving in that direction and stepping too far, you know, where we're intending to be helpful but actually it could be very harmful. Is there anything specific that you could draw out that we should be very cautious of?

MR. LEWIS: I think my main concern, around compensation for instance, is it's okay to do the things that are being talked about at the very top. But if you start to go too low in your organization you will run off key talent to foreign competitors.

REP. PAULSEN: Is that a shared view, I mean, among others?

MR. MACK: Yes, that's one of our greatest worries.

MR. STUMPF: Yes, there's many businesses that were in that are commission based, for example. And if we limit across the board or whatever we could lose some of the most productive people and some of the most important parts of our business.

MR. : (Inaudible)

REP. PAULSEN: Thank you, Mr. Chair. I yield back.

REP. FRANK: For the gentleman, let me take advantage because I'm going to ask you to submit in writing. I understand the argument you make about foreign competition. It has been my impression that people here have generally been better compensated than people in all these other countries. So I would ask you to submit to me some cross national comparisons. I'm, frankly, skeptical from what I've seen that they're paid so much more in other places, certainly not at your level. So I would be interested in those cross national comparisons. You're going to have to prove to me that you're really at risk there, if there's some (inaudible).

Gentleman from California.

REP. JOE BACA (D-CA): Thank you very much, Mr. Chairman, for holding this hearing. And I want to thank all of the CEOs for coming here.

One of the questions that I have, hearing the hearings a lot of you indicated you have a lot of responsibility to the stockholders. Well, I agree that you have the responsibility towards the stockholders. Well, we have the responsibility to the American people and that's why we're having this hearing right now, is the American people right now lack trust and confidence in the banking industry, especially with what's going on right now.

And I want to ask a couple of questions. One is, how do you feel about the bailout? Do you feel that the bailout was necessary? Any one of you.

MR. BLANKFEIN: I didn't necessarily think it was necessary at the time but I think that -- and this was said at the time -- they were looking ahead at an emerging recession that was going to get worse. And for prudential reasons it was necessary for the systemic and safety and soundness and as subsequence was then born out I think it has provided safety and soundness and taking some of the risk away from the system.

REP. BACA: Anyone else want to attempt to answer?

MR. LEWIS: I actually agree. I know at the time we did not feel like we needed the 15 billion (dollars). But I think in light of the severity of the recession and a lot of the speed in which the economy deteriorated, I think we have lent more money because we have the TARP funds and that level of capital.

REP. BACA: Well apparently the consumers out there feel that there hasn't been enough money that has been lent out, lend out. There's a lot of small businesses in my area and throughout a variety of different areas right now, they can't obtain loans right now, don't have access, even developers -- I know that my colleague just asked that question a while ago. But why is it they don't have access to credit right now and why isn't it available for small businesses and developers? Because we need to turn this economy around and if they can't employ and can't get the money and you're somehow reviewing and extending before you make any kind of decisions you're hurting us at the same time. Can any one of you answer why not?

MR. LEWIS: Well I would say that the single biggest factor both the small business and consumers, particularly the real estate, is the declining home values and loan to value issues with that. A small business -- usually most of the equity that a small business owner has is his home equity and as those values come down you have loan to value issues.

REP. BACA: Anyone else want to answer that?

Let me ask another question. A lot of you said earlier that part of the problem has been the credit line. Well a lot of the problems that came out in the credit lines that were offered and the credit cards that were given out, most of you are guilty of that. All of you that offered a lot of these credit cards to many individuals, students, student loans, others that went out in different areas. I know my child, you know, during that period of time, she's an adult now, got a little thing, you know, apply for a credit card. Now the credit cards have led to a lot of the problems because you're going to end up losing.

You're the ones that made the mistake in offering and giving those credit cards. You should be responsible. The American people and the taxpayers shouldn't be responsible for the mistakes you did in going out and trying to get so many consumers to tie in to credit cards.

How do we answer and how do we deal with your problems in trying to attract many individuals to get into the credit cards?

I know all of you want to make a profit. You do make a profit by going to individuals that are applying for these credit cards. These are students, these are -- a lot of our kids that are solicited by your industry to apply. And yet, you know, the interest rate goes up, it continues to go up on them. Some of them that started some of them can't even buy a car. Some of them later on end up wanting to buy a home. But it's the credit cards and you're the ones -- and we're the ones that are having to bail out because of what you've done in the losses there.

Anyone would like to attempt that?

Let me ask another question then. Some of you mentioned best practices. What do you mean by best practice statement and what needs to be done? Most of you say you follow best practices.

MR. MACK: Well, I'm not aware of exactly people have said. The best practices, from our point of view, is in every discipline we're in. So in risk management, as an example, to make sure that we have an independent risk management that reports to the CEO and chairman but not to some trading group. That would be an example of best practices. That is one, I think, if all these firms had had that established there's a possibility some of this wouldn't have been as bad as it ended up being.

REP. FRANK: Your time has expired and we have to vote. We're going to come back after the vote, it'll be about 20 minutes. I thank you for staying with us.

We are now in recess until there is -- this vote and two more five-minute votes.

(Recess.)

REP. FRANK: (Gavel sounds.) In the aisle and to my left, please sit down or leave.

We will now turn to the gentleman from North Carolina.

REP. WALTER B. JONES (R-NC): Mr. Chairman, thank you very much. And I want to thank you for holding this hearing. I agree with you, in your statement this morning, that this might be one of the most important hearings that we could hold to help the American people to know why this Congress passed the TARP bill, and how they -- meaning the taxpayers, how their life is going.

I want to start with Mr. Pandit. This might have been asked before, but I want to ask it in a different way. I'm looking at a New York Times article, November 15, 2008, "Despite Pledge Citigroup to Raise Credit Card Rates. Blaming a difficult environment Citigroup is reneging on a promise it made to tens of millions of credit card customers in good times."

In April of last year I joined Mrs. Maloney in her legislation to bring sunshine to the charges on credit cards. I wrote to Mr. Bernanke, and I received this on April 16, 2008. Bank card revenues in billions of dollars, in 2006, after tax, those banks that issued credit cards, or get fees in interest from credit cards, made, in 2006, $18.37 billion.

Now, since the taxpayer has done so much for you and your banks, is it even possible -- and I'll go back to Mr. Pandit, is it even possible, when the average penalty interest rate averages 24.51 percent -- I'm not saying that's Citigroup, I don't know. But isn't, when the taxpayer is hurting so badly, and he or she has helped you out for making bad decisions, couldn't there be a period of time that you would say to the American credit card holder, "No longer am I going to ask you to pay 24 percent so I can make billions of dollars -- what I'm going to do for the good of the American people is say 9 percent."? Why can't you do something like that?

This country is in a recession headed for a depression, and these poor taxpayers in my district -- the 3rd District of North Carolina, a family of three or four has an income of about $37,000 gross, and most, like myself, have a credit card. Why can't you do something for them? Can you reduce that rate for a year or two?

MR. PANDIT: Congressman, on the credit cards, we did not change our rates for two years. We changed our rates in response to keeping credit flowing because credit costs and funding costs have gone up dramatically. We also gave every one of the cardholders an option to opt out of that.

We've also, in addition to that, created forbearance programs. We talked to card members one on one. We talked to them about their rates. We figure out what's affordable, what's not. We keep doing that.

But the problem goes beyond that, Congressman, you know that. It's about not only cards, it's about -- it's about housing. We continue to help people with their housing too. We've taken mortgage rates down to 4 percent. We've extended maturity to 30, 40 years. We've forgiven principal, and we continue to go down the path. What you're asking for is right -- a lot of forbearance, and we're with you on that.

REP. JONES: Well, I want to commend you, and to say to each one of you -- and I have one more question that'll be for Mr. Lewis, Mr. Chairman -- but at this time, to help the image of the banking industry, show compassion -- show compassion for that American citizen that's out there losing their jobs, having a cut in pay, because, believe me, the majority of the people are not members of the country club. And I'm not saying you are, but the image of the banking industry is about as low as it has ever been.

And I think whether what I've suggested or not, you need to, nationally, speak to some of these things -- all of you, if you issue charge cards, and say that, yes, we're going to suck it up too, by the way, Mr. Taxpayer, and we're going to take less in interest so you can have a better quality of life and maybe meet some of your bills.

In the time I have left, Mr. Lewis, I'm going to read an e-mail.

REP. FRANK: The gentleman has 10 seconds left, so you may have to get this answer in writing.

REP. JONES: I talk so slow, I can't do it. Will there be another round, Mr. Speaker?

REP. FRANK: Possibly.

REP. JONES: Mr. Chairman, excuse me.

REP. FRANK: Possibly. But we may -- we will get it in writing if we can't get it otherwise.

REP. JONES: Can I just read --

REP. FRANK: Ask the question, sure.

REP. JONES: Okay.

This is the e-mail -- and I'm going to make it real quick, Mr. Chairman -- the original course of action to be taken by Congress is to save our economy, was to buy up toxic loans from financial institutions as a way to free up these banks to make loans.

Last point. The bank that I have been dealing with for 31 years basically told me that they were -- wanted my children to personally endorse all loans. They have decreased just about every loan-to-value ratio so that it would take more equity, raised by my internal rate, raise my fees.

Mr. Lewis, when you all leave here today for God's sakes do whatever you can -- (gavel sounds) -- to free credit to your people across this nation because they are suffering --

REP. FRANK: The gentleman's time has expired.

REP. JONES: -- (inaudible) -- I yield back. Thank you, Mr. Chairman.

REP. FRANK: The gentleman from Texas, Mr. Hinojosa.

REP. RUBEN HINOJOSA (D-TX): Thank you, Mr. Chairman.

I want to say thank you for having this hearing, and hope that many of my constituents down in deep South Texas are listening to this important and informative hearing.

Regarding bad mortgages that your institutions hold, I want to know if your personnel attempted to contact homeowners who have mortgages with your institutions to determine their financial status, and whether they will be able to hold onto their homes? In a nutshell, what type of outreach have all of you, and your companies, made to help homeowners on the verge of losing their homes?

Start with the first presenter.

MR. BLANKFEIN: We're not an originator, but we are a servicer of mortgages and our mortgage servicer, Litton, has been very aggressive at reaching out to homeowners to modify loans, to take the debt-to- income ratio to the lowest level of 31, and even to forgive principal where that would help the homeowner stay in his home.

MR. DIMON: We work extensively to contact anyone who is in default, and we also try to contact those that we think might have a problem based upon some analytics we do. We do it all the time, consistently, and we've been doing it for well over a year and a half.

MR. KELLY: Congressman, we're not in the mortgage business.

MR. LEWIS: Congressman, we do have an outreach program. We've had it for some time. As I mentioned, we've got 5,000 people working on loss mitigation. We take about 80,000 calls a day in our call centers. And so we're very focused on the outreach and getting to the issue before it becomes a critical issue.

MR. LOGUE: Congressman, we also are not in the mortgage business.

MR. MACK: Congressman, we're very small in the mortgage business, through Saxon Mortgage, and we do have an outreach program, and try to work with homeowners and keep (them) in their homes by reducing principal and lowering their rate.

REP. HINOJOSA: Thank you.

MR. PANDIT: Congressman, not only do we make mortgages, we service mortgages. We've been able to talk to mortgage servicers and we've got consent from 90 percent of them to help us -- to allow us to modify mortgages that they have given us.

In addition to that, we have something called the CHAPs Program. We're reaching out to half a million homeowners, not because they're delinquent or they can't make their payment, this is an early warning system. We're not waiting for fire alarms to go off, we've installed smoke detectors since we need to know that they might get into trouble. We're doing all of that, and in addition to that, we've kept 440,000 people in their homes who would otherwise be distressed borrowers. And that's -- last year that was four out of five people, that we've talked to, we've kept in their homes.

MR. STUMPF: Congressman, we service one in seven mortgages in America, and we have doubled our staff to 6,000 people who spend -- make thousands and thousands of calls a day contacting people who are either past due or potentially would become past due. And we've learned that when you talk to them early it's much better than not talking at all.

We talk with 94 of every 100 customers who are 60 days past due or more. And when we do talk with them -- as I said in my testimony, seven out of 10 we find a solution. We've done 706,000 solutions in the last year and a half.

REP. HINOJOSA: Listening to the responses, two out of three are servicing home mortgages. And I would -- I would ordinarily believe that actually the home mortgages have reduced, but instead it's actually increasing. And that means that there's a lot more people losing their jobs, and consequently lots more home foreclosures.

Citi was probably one of the first who agreed to the possibility that bankruptcy judges might be able to make some changes on the terms of the loans, and then others, even in my district, agreed to that. Is that something that is already in place, that allows the bankruptcy judges to change and alter those terms?

Is that something -- I'm going to ask Citi to answer that question.

MR. PANDIT: Congressman, that legislation has not yet been passed.

REP. HINOJOSA: It has not been passed. That's what I thought.

Do those of you who answered that you do have home mortgages believe that that would possibly stop the numbers that are falling off the cliff and falling into foreclosure? Because, listening to Chairman Bernanke yesterday things are going to get worse before they get better, and I think that we really need to hear some answers on how we can stop this. (Gavel sounds.)

REP. FRANK: Let me say -- (inaudible) -- not every member can be here at all times, I'm -- (inaudible) -- absent myself. The panel was polled by one of our -- one of our questions as to where they stood on the bankruptcy issue. So, we did -- we do have it in the record their views on whether or not we should do the bankruptcy bill.

REP. HINOJOSA: Thank you, Mr. Chairman.

REP. FRANK: It was "behind" in the early returns. (Laughter.) The gentleman from Massachusetts.

REP. LYNCH: Thank you, Mr. Chairman and the ranking member.

There's been a lot of criticism here today, and probably well deserving, but I do want to point out, Mr. Logue, I read your testimony regarding State Street, and I'm pleased that you were straightforward. You took the $2 billion in the top. You lent that out directly, which was the purpose of the program. And also I noticed that in capping executive compensation you went right down the line all the way down to your -- except for your most junior employees, and I think that was commendable.

A number of the witnesses today have talked about support for a new regulatory framework to help us get out of this situation. And I do want to point out that the last major dislocation we had in the markets like this was back in 1929, the crash. And I asked this question yesterday of Chairman Bernanke. Back then, the leaders of Wall Street of the major banks and investment houses got together with members of Congress, and in order to pay for the new regulation that had to be put in place to stabilize the markets, they came up with an idea called transaction fees. And what they did, the leaders of the financial services industry back then and members of Congress, is they imposed a transaction fee of one-three-hundredth of 1 percent of every share traded on the major exchanges in the United States at the time. At that point, back in '29 and '30, there were only about 5 million shares a day being traded. Today there are 5 billion shares, on a good day, although we haven't had a good day in a while.

I want to ask you -- you know, we've had this money going out the door left and right here -- trillions -- and no one has come forward with a way to pay some of this back. I have about 40 percent of my district that doesn't have money in the stock market. They don't have 401(k)s, they don't have any investment at all in the market, yet they are being asked to bail the banks out -- you folks out -- and they have no hope of return. And what I'm asking you, each of you, do you support the idea of a small -- and I mean -- look, this could be a microscopic -- given the volume of trades every day -- and I would not leave out the bond market either; they would have to be assessed at some point -- but is there any appetite out there to look at transaction fees as a way to pay some of this back rather than putting the entire weight of all this support, all these bailouts on the backs of the American taxpayer?

MR. LOGUE: Congressman, I think it's something that definitely is going to be discussed with the exchanges. It's an idea that I haven't heard yet, but I think it's something that could be explored.

REP. LYNCH: Mr. Pandit?

MR. PANDIT: Congressman, I have not looked at that in a long time. Different countries have done that in different time periods. This is an unusual time period. We should look at it. And if you don't mind, let me think about it a little bit more. If you'd like we can come back to you.

REP. LYNCH: Mr. Dimon?

MR. DIMON: We would have no problem paying some fees to help bear the costs of -- I think you mentioned regulation or something like that.

REP. LYNCH: Well, right now we have a continuing process of doing that. I believe the money comes directly to Congress, but we use it to fund the SEC.

Mr. Lewis?

MR. LEWIS: I had assumed that the banking industry was going to pay for it one way or another; I just hadn't thought about the way, but of course.

REP. LYNCH: All right. Mr. Mack?

MR. MACK: I think we should consider it, but at the same time I think we need to be careful. Exchanges have become global, and we need to make sure that we do not drive volume out of the United States into other countries. Other than looking at that, I think it makes sense to consider it.

REP. LYNCH: All right. Mr. Chairman, I yield back my time.

REP. FRANK: Let me take the gentleman's left time because he's on to something. Let me remind people: In the TARP bill which we passed, we adopted an amendment, sponsored by our colleague on the Ways and Means Committee from Tennessee, Mr. Tanner, which says that at the end of five years -- five years from October -- the president then in power -- that's after the next presidential election -- is mandated to send the Congress a proposal. He is to get from CBO the net cost of the TARP, of the 700 billion (dollars) -- whatever the net cost is to the federal government -- and send to the Congress a piece of legislation that would pay for that by some combination of fees and taxes on the financial industry.

So that is in fact in the law as being sent to us. And people can say, well, he's going to send it to us; I will tell you, four years from now I don't think it's going to be any different. I don't think members of Congress are going to say, oh, no, no, no, no, we don't want to do that to our good friends in the financial industry; let's do it somewhere else. So, something like that is mandated for a president to send us four and a half years from now.

REP. LYNCH: Mr. Chairman, I'm just fearful that the urgency that we have around this issue right now, if things start to get better --

REP. FRANK: Well, I appreciate that -- if the gentleman will yield, I think that's a good point, and frankly I think one of -- I should have phrased it more explicitly. I think on the side of that argument is to say to the financial community, look, you're going to have to do this some years from now; why not start doing it now, because in fact if you begin to phase it in, then it's less likely to be a big bump at any one time.

REP. LYNCH: Thank you, Mr. Chairman. I yield back.

REP. FRANK: The gentleman from Georgia -- or the gentleman from North Carolina. Do you want to wait? We can go to David. The gentleman from Georgia. Let me just say this --

REP. DAVID SCOTT (D-GA): Thank you, Mr. --

REP. FRANK: I'm looking at the members here. We can finish this in -- oh, I'm sorry; Mr. Posey is back and we'll get to him after the gentleman from Georgia. We can probably finish this in a little over an hour if we have their indulgence. And I'm going to ask our colleague, the gentlewoman from Ohio whose have to leave at 4:00 to go preside over special orders, so I would hope the members would not object if I took her out of order. We will be able to reach everybody. And anybody that has to sit and listen to special orders deserves a certain consideration. (Laughter.)

The gentleman from Georgia, then the gentleman from Florida, then the gentleman from North Carolina.

REP. SCOTT: Thank you very much, Mr. Chairman. I certainly appreciate you all being here, and it's a very, very important hearing, but I believe we have a unique chance today to do something very special for the American people. You all have come under great attack for selfishness, for greed -- not you collectively but the banking industry -- and I want to ask you to do something that Abraham Lincoln suggested we do that worked very good back then when he said, at certain times in our history we need to allow the better angels of our nature to shine through, and we have such a time that you could do this with millions of Americans watching this on television across this country. We're losing 7,200 homes to foreclosure every day -- nothing more draining.

Yesterday, Secretary Geithner came up with his plan -- so-called plan. Many people have questioned that. But I think he did a wise thing, especially when it comes to the home foreclosures. I am asking you at this time to commit to this committee and to the people across America that you will do something here that will manifest your better angels of our nature, and that is to commit to having a moratorium on all foreclosures that each of your banks and affiliates deal with until the Treasury secretary can put together this package.

Now, mind you that this committee and the TARP bill has put forward up to $100 billion so far. The Obama administration said they're willing to look at it with $50 billion -- that's a lot of money -- and that he would only require that -- a need of doing this in about the next three weeks. But I think that would be a tremendous gesture to say, you will not foreclose on any American's home until we put the plan in place. That's the fair thing to do. Will you do that? Could I get a yes, yes here because the record needs the yes? Mr. Lewis?

MR. LEWIS: Actually, if we could put a timeframe on it and not just leave it open-ended and say it's two weeks or three weeks, we would do that.

REP. SCOTT: Okay. Three weeks. That is good news.

Mr. Pandit, you have mortgages. Could you concur with that, for three weeks?

MR. PANDIT: There are two types of home owners. There is the investor and there is the person living in the home. We will commit to making sure that people stay in their houses, as a moratorium.

REP. SCOTT: Thank you.

I think, Mr. Stumpf, you were -- can you concur with the three weeks?

MR. STUMPF: Yes, we have already put a moratorium in on those homes where we are the investor through the Wachovia -- especially their Pick-A-Pay portfolio. We have contractual arrangements with our investors because most of what we service is for someone else. And I can't commit to you; I'd have to look at what that language looks like.

REP. FRANK: If the gentleman will yield --

REP. SCOTT: Yeah.

REP. FRANK: If the gentleman will yield for one minute just to say -- and I'll get back to your time -- I hope fairly soon to have legislation passed on a bipartisan basis that will give you some protection against those lawsuits, assuming you are doing it in their economic interest.

MR. STUMPF: Correct.

REP. FRANK: So help is on the way in that regard.

MR. STUMPF: Correct.

REP. SCOTT: Well, thank you all for that commitment to forgo the foreclosures, and I thank you on the parts of all Americans who need this help, just trying to get some confidence.

Now, very quickly, there is an issue that's going to be coming before Treasury regarding FAS 157. And I think you all know what that is in terms of the instrument that's used to assess the value and the fair market value of your liabilities and assets. But there is an unequal application of that because there's a FAS 114 that's more applicable and causes a more severe situation to your smaller banks, your community banks.

Would not you agree that if the Treasury is going to change FAS 157 that affects your larger banks like yourselves, wouldn't you think that that same application should be true for the change to FAS 114?

MR. DIMON: I don't think everyone is familiar with FAS 114.

REP. SCOTT: Right. Well, what FAS 114 does, it requires that the value of the loan be set at the fair market value of the collateral or market to market. So, in other words, there really is no difference except that it makes it much more difficult say when you're dealing with a home foreclosure where most of these assessments are made basically on a case of what we would call a willing buyer to a willing seller. But in foreclosure neither part is willing; they're forced. So when they accumulate the value of their assets, I mean, it's a false way of doing it.

So, but at any rate, there will be this change coming forward. The community banks, the smaller banks, are very much aware of it, and all I'm simply saying is that the smaller banks should be fed out of the same spoon as the larger banks when it comes to assessing their assets.

But thank you very much for the commitment on holding forth on the foreclosures.

REP. FRANK: Before I go to the gentleman from Florida, I'd ask to put into the record -- I know that she had to leave, but I thought I would announce this -- the Office of Thrift Supervision, dated today, urged OTS-regulated institutions to suspend foreclosures on owner-occupied homes, as Mr. Pandit entered -- until the financial stability plan's home loan modification program is finalized in the next few weeks. So the Office of Thrift Supervision has now joined in a call for a moratorium until we see the plan from Mr. Geithner on owner-occupied homes. And this will be in the record.

The gentleman from Florida.

REP. BILL POSEY (R-FL): Thank you very much, Mr. Chairman. I don't want to beat a dead horse, and my dad always told me that you should never ask somebody how much they made, but since somebody already asked that and the door is already open, one question that kind of begs for an answer is the question of what your compensation was before the train wreck -- not necessarily for the last year, but what it was the year before. If we could just start at one end just real quick -- salary and bonuses for 2007?

MR. STUMPF: Six-hundred-thousand dollars -- in '07, $600,000 of salary and something like $67 million worth of shares, and some cash --

REP. POSEY: Okay.

MR. STUMPF: -- at the values that pertained in 2007, which wouldn't look familiar to you now.

MR. DIMON: For the year '07, $1 million salary and $29 million of cash and stock. Again, the stock is not worth what it was then.

REP. POSEY: Okay.

MR. MACK: Congressman, in 2007 it would have been $1 million salary, and with all the long-term option-type compensation, in total it was around $20 million.

REP. POSEY: And you said 2007?

MR. MACK: Yes.

REP. LEWIS: Two-thousand-seven would have been about $14 million, all inclusive, including stock and cash.

MR. LOGUE: Congressman, I believe it was a million dollars in salary and total compensation of about 20 million, $500,000, if my memory serves me well.

MR. MACK: Compensation was $800,000 and zero bonus.

MR. PANDIT: Two-hundred-fifteen-thousand dollars in salary and $2.5 million in stock.

MR. BLANKFEIN: I had $800,000 in salary, 4.2 million (dollars) in cash bonus, and 3.2 million (dollars) in option value, which today of course is worthless.

REP. POSEY: I think that might help give us a little bit more insight into the train wreck.

Mr. Dimon, there's some arguments on both sides about this cram down. Can you tell me the effect the cram down would have on your institution?

MR. DIMON: Let me just start by saying we are deeply in favor of having solutions for modifications. We've done 300,000 already. We expect to do 650,000.

REP. POSEY: That's the next question, but right now, if there was an arbitrary cram down, if a judge could reduce the amount --

MR. DIMON: We believe an arbitrary cram down would greatly increase the cost of mortgage losses and that it would also increase the costs of all unsecured credit as you gave an incentive for people to declare bankruptcy.

REP. POSEY: Okay, does anyone beside Mr. Pandit disagree with that? I mean, it's logical; it makes sense to me.

The next thing is, I gave an example when we were talking to the Treasury about some constituents. They have about a $400,000 loan on a house that's now worth about 250 (thousand dollars). They lost their jobs, couldn't make a couple payments, got behind, started a little business, were able to catch up, and their company -- at the time I didn't want to mention it because it would be indiscreet, but, you know, it's Countrywide -- refused to accept any payments unless they got caught up in full. So, you know, their CPA advised them, give the doggone house back and go buy a short-sell down the street. You'll be $150,000 better off.

I understand that perhaps whoever is servicing the Countrywide paper may be concerned about come liability, and that's the only possible excuse for not using the good judgment of trying to mitigate such a stupid, horrendous, upside-down loss. Would the ability to -- or to have servicers modify mortgages without liability be appealing, and do you think that would lead us toward a solution to this foreclosure crisis? And we can start at the end with Mr. Blankfein.

MR. BLANKFEIN: I think doing something about the liability would be helpful. We are modifying these mortgages without that protection now, and so we would welcome the protection.

REP. POSEY: Is it your own loans or loans that you might service?

MR. BLANKFEIN: If it was our own loans, we wouldn't be worried about it at all. It's other people's loans that we're servicing.

REP. POSEY: And you are modifying loans that you service now, then?

MR. BLANKFEIN: Yes, we are, and reducing principal because we think that's the best way of recovering value, that people tend to stay in houses and support their payments when they have equity. And so we believe we're carrying out our duty to our investors if we in fact cut principal down and keep people in their homes and let them have positive equity in their homes.

REP. POSEY: Mr. Lewis, are you -- let's see, one two three, you're Mr. Countrywide -- Mr. Bank of America? No, you are --

MR. LEWIS: No, I'm not Mr. Countrywide. (Laughter.) We're being very aggressive in doing modifications with loans that we service. Now, we have changed the policies at Countrywide, but it would help if we got some help on that issue.

REP. POSEY: But you have already changed the policies, like these people should be getting some kind of response rather than walk away or --

MR. LEWIS: I can't imagine we would do that under our policies, because that would be a perfect loan modification situation.

REP. POSEY: It's a no-brainer. Maybe I can get my staff to get one of your cards or something and they can contact you directly and they can get this taken care of?

MR. LEWIS: (Off mike.)

REP. POSEY: Mr. Dimon? Out of time?

(Cross talk.)

REP. MALONEY: -- expired.

REP. POSEY: Thank you very much for your indulgence, gentlemen.

REP. MALONEY: Mr. Miller?

REP. GARY MILLER (R-CA): Thank you. I'm against arbitrary cram down too. However, judicial modifications, based on the very clear, well-established legal standards, based upon a wealth of case losses -- bankruptcy courts can modify every other kind of secured debt -- I think would be a great advantage in modifying mortgages.

In the Washington Post article this morning on the Geithner plan, buried two-thirds of the way into the story on the inside, after the jump from the front page, there are these two sentences: "Many financial analysts have concluded that the current values banks have assigned to these assets are much higher than they are worth, but if banks wrote them down to their actual value, many of the firms would collapse." There are two versions of what is wrong with the banks now. One is that there is a liquidity problem, that you have assets that are hard to value for which there is no active market, and the uncertainty about how much your assets are really worth is a financial constraint.

The other is that there is a solvency problem, that the assets aren't worth much, and if they were placed on a market -- the reason there isn't an active market is that no one who owns them is selling them, and they really aren't worth much, and a great many financial institutions are in fact insolvent. Now, all of you have said that you all don't have a problem, that you're safe and sound, but a lot of analysts think that some others in the industry apparently might have a big problem. Probably most credulous of financial institutions' valuations of their assets is IMF. They estimate that assets are overvalued by about 500 billion (dollars). The least credulous, the most skeptical -- not surprisingly -- Nouriel Roubini. "Dr. Doom" estimates they're overstated by $3.6 trillion. Mr. Blankfein, your economists are in between. They estimate they're overvalued by 1.1 trillion (dollars) -- total loss of 2.1 (trillion dollars). About 1 trillion (dollars) of that has been written down at this point, and I've heard that described as the consensus estimate.

So there appears to be a problem out there. If there are banks that are in fact insolvent, can you think of any reason, based upon economics or ethics, that that loss should be borne by taxpayers instead of by shareholders and unsecured creditors, as is usually the case when a corporation becomes insolvent. Mr. Blankfein?

MR. BLANKFEIN: Well, I think the only -- the point here is that when you talk about a whole or solvency issue, you're talking about marking them to what level. If you don't --

REP. MILLER: My question is, who should bear the loss? If they are insolvent, who should bear that loss?

Is there any reason, based on ethics or economics or any other rationale, that loss should be borne by taxpayers, not by shareholders and unsecured creditors?

MR. BLANKFEIN: Again, it's a political decision but I just want to, on definition -- and, again, we're a mark-to-market firm.

REP. MILLER: That's not my question there, Mr. Blankfein.

MR. BLANKFEIN: I think that people would quibble about what the real marks of that should be. In other words, if they stayed on the balance sheet, those marks might not ever be taken.

REP. MILLER: Okay. Mr. Dimon, do you have an answer to the question I asked?

MR. DIMON: The shareholders should pay for the losses if possible.

REP. MILLER: Mr. Kelly?

MR. KELLY: Shareholders, taxpayers -- shareholders and unsecured creditors or taxpayers.

MR. : Shareholders.

REP. MILLER: Mr. Lewis?

MR. LEWIS: Shareholders.

REP. MILLER: Mr. Logue?

MR. LOGUE: Shareholders.

REP. MILLER: Mr. Mack?

MR. MACK: It should be shareholders and unsecured creditors but I also think you need to look at is there a chain reaction? If there's no chain reaction and no dangers to the system, shareholders should be wiped out along with unsecured creditors.

REP. MILLER: Mr. Pandit?

MR. PANDIT: I would want to make sure that we seriously look at whether their insolvency is a result of credit or whether liquidity -- these are fundamental issues. If it is on the basis of credit, I think the answer is what Mr. Mack just talked about. You should let the shareholders take it unless there is a systemic issue.

REP. MILLER: Mr. Stumpf?

MR. STUMPF: I agree with my colleagues.

REP. MILLER: Now obviously everyone has spoken of a problem with confidence in the industry. Chairman Bernanke yesterday compared the proposal for a stress test to the bank holiday in 1933 in The New Deal -- a comparison that occurred to me as well. Do your current safety and soundness regulators have the capacity, the sophistication, the expertise to do a credible stress test? What do we need to do to make sure that any stress test is credible and we know that any bank that gets a clean bill of health is, in fact, safe and sound?

MR. : I believe they're capable. I've only had a three- month relationship with my new regulator.

REP. FRANK: We'll have to take the rest of those answers in writing. The gentleman from Texas.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman.

And I thank the witnesses for appearing today.

REP. FRANK: Believe it or not you are at this point, I think, the only Texan in the room.

REP. GREEN: A rare occasion when I'm the only Texan in the room but it's an honor to be with you.

REP. FRANK: I take that back, Mr. Hinojosa is here.

REP. GREEN: Thank you. The American people are exceedingly angry. I have the opportunity of hearing and visiting with many of these angry people. If they are angry about one thing it is a lack of intelligence as to what happened to the money; they really want to know what happened to the money. I'm not sure that after today they will have any less anger. My suspicion is that when I visit with my constituents, they will still tell me they are concerned and they have great consternation about what happened to the money. To this end, I'd like to know from you, first, is it possible to ascertain the amount of increase in new lending attributable to TARP? Is it possible to ascertain the amount of new lending attributable to TARP?

If you think that it is -- we'll do this en masse -- would you kindly raise your hand? Can your accountants, the people that you paid large sums of money, ascertain the amount of new lending attributable to TARP? If so, kindly raise your hand? New money? All right, I will show that all of the hands have been raised, saving Mr. Blankfein.

REP. FRANK: They're not in the lending business. Mr. Mack and Mr. Blankfein are not in the lending business.

REP. GREEN: If you are not in the lending business, raise your hand please?

MR. BLANKFEIN: We're not in the consumer lending business.

REP. GREEN: I borrowed your language.

REP. : This is going to be a good "Saturday Night Live" sketch.

REP. GREEN: Bad question, good answers, how about that? So here's where we are. If you are lending money to consumers, can you ascertain the amount of consumer lending, new consumer lending, attributable to TARP? If so, raise your hand -- any of you lending money to consumers. All right, now if you're lending money to consumers and you cannot, would you kindly raise your hands? Anybody? Can you tell me why you cannot, sir?

MR. PANDIT: Yes, we're lending -- our consumer loans are up. In fact, we were lending through this whole crisis --

REP. GREEN: Without telling me that they're up, can you tell me why you can't ascertain--?

MR. PANDIT: Because it's all part of the same capital pool. I don't segregate certain amount of capital against one loan; so when we finance $1.5 billion of auto loans in the month of December, I can't tell you where that --

REP. GREEN: To you specifically, let me ask this: can you ascertain the total amount of increase in new lending?

MR. PANDIT: Yes we can do that.

REP. GREEN: You can do that?

MR. PANDIT: Yes, absolutely.

REP. GREEN: So all of you who are in the business of lending to consumers, you can do one of two things: you can either tell us the amount of lending attributable to TARP at new lending or you can tell me the amount of new lending that you have?

MR. PANDIT: Absolutely.

REP. GREEN: Good. Mr. Chairman, I beg that I be allowed to pass the document that was entered into the record earlier -- the bill that I have introduced along with -- in fact, I should say along with; the bill was actually introduced by Congressman LaTourette and I'm a proud co-sponsor; that is H.R. 387, thank you, Mr. Chairman.

The reason I'd like for you to have this is because this piece of legislation would mandate exactly what I just talked to you about. Either you would tell us in your quarterly reports the amount of new lending attributable to TARP or the amount, the increase in your new lending. Is there anyone who can find reason why we should not have you , as lenders, do this -- anyone? Let the record reflect that there are no hands up so let me reverse the question quickly. Yes sir?

MR. : Congressman, we do that to the Federal Reserve in our TARP filings; it shows all categories.

REP. GREEN: So it's not a problem for you is what you're saying?

MR. : It's not a problem at all, I think it's being done.

REP. GREEN: If you can do this and you see no problem with it, kindly raise your hands, I want the record to be clear. Raise your hands please. For the record: all can and I thank you and, Mr. Chairman, I would yield the time.

REP. : Could I ask a question just--?

REP. FRANK: Quickly.

REP. : Do you factor in the deterioration in the economy and the drop in demand for credit? I don't know how you factor in all the --

REP. FRANK: That's a reasonable question for us to ask each other and we can do it. I do want to clarify one point: when we talk about consumer loans; that's included into your businesses, right? That's not -- we're talking about retail loans. Just to be clear, we're not talking about credit cards or automobiles? If it's for the inventory for a business, that's also covered -- I just want to be clear that's where we are. The gentleman from Missouri.

REP. EMANUEL CLEAVER (D-MO): Thank you, Mr. Chairman.

I have about seven pages of questions that were sent to me from my district -- I represent Kansas City, Missouri and Independence. How dare you -- Judy from Kansas City. Why are you squeezing us dry with fees and increasing credit card rates but lining your own pockets? Alice from Raymore: Since you are the experts with the big pay, why did you screw up? Ben: How big is your yacht? Michelle: Do you really believe that you're that smart?

I read those only because I think everybody's already conveyed to you that people are angry. I don't think I need to reinforce it but I do think I need to reinforce it. What I want to talk to you about is not that. I want to talk to you, Mr. Blankfein, first of all do you believe that warehouse lending is safe and profitable?

MR. BLANKFEIN: I'm sorry, warehouse lending?

REP. CLEAVER: Lending, warehouse lending.

MR. BLANKFEIN: Against a physical warehouse?

REP. CLEAVER: No, no, no --

MR. BLANKFEIN: I'm sorry, we're not in that business --

REP. FRANK: I think one of the people -- (Cross talk.) REP. FRANK: -- ask one of the people in the retail bank business, do they know what we mean by warehouse lending? You probably ought to take that.

REP. CLEAVER: Well some Wall Street banks are involved in warehouse lending. Warehouse lending is when you issue a line of credit to an originator -- usually it's about 30 days -- and then they of course sell the mortgage somewhere else.

MR. STUMPF: We're familiar with the business. We do very little of it, if any of it, anymore primarily because we'd rather make loans, our home loans, ourselves. We have a set of auditors, we have a set of principles, values; so we make sure that the mortgage is in for the benefit of the customer -- they understand the terms, the conditions, it helps them and so forth. It's hard to control when you're your own warehouse lender.

REP. CLEAVER: So most of you don't do warehouse lending?

MR LEWIS: Very little.

MR. PANDIT: Very little.

MR. : Very little.

REP. CLEAVER: Which is one of the problems; that's one of the problems. If a mortgage company in my district is making loans or trying to make loans and the liquidity is not available -- and it's been constrained a great deal recently -- it's difficult for them to originate the loans because they don't have access to the capital. And with more and more people avoiding warehouse lending, it's hurting local mortgage companies -- wouldn't you agree?

MR. STUMPF: We've been out of the warehouse lending business for five, six, or seven years. The reason we got out is because we saw them doing crazy things that we wouldn't do ourselves -- so why do we want to be a part of that? It was too risky for us.

REP. FRANK: Will the gentleman yield? I'll give him some extra time -- because he's on to a central issue that I've heard a lot of complaints from my colleagues about. One of the is, it's one thing to say we're not going to take on any new warehouse lending but we have been told that there are people who had accumulated an inventory based on their ability to do warehouse lending -- and they were cut off in the middle.

So there's a considerable degree of -- and we've heard this from several members that there were people who had a warehouse lending relationship and had made certain commitments on the assumption that they would have that capacity and it was cut off before they could sort of wind down the business in a reasonable way. I wonder if there's anybody familiar with that issue because that is a particular form of it that I've heard a lot of complaints about.

MR. STUMPF: Okay. Well, there are two kinds --

REP. FRANK: From builders.

MR. STUMPF: -- I'm not an expert in mortgage lending, but there is two kinds. One we actually finance and give them a line of credit; another one is where they do their own mortgages and you buy them and then you process them or --

REP. FRANK: The one where I think we've had the problem is where --

MR. STUMPF: I don't know which one it is.

REP. FRANK: -- there were developers, people who had accumulated property, and then they were counting on the warehouse -- the line of credit to be able to finance these purchases and were shut down in the middle. That's the specific complaint that I've heard. I don't know about the gentleman from Missouri.

REP. CLEAVER: Yes. That's precisely it. And one Wall Street investment bank at one point not long ago had a $250 million line of credit just for one originator. And so all that's dried up. We're -- I mean, and how in the world are we going to deal with the housing crisis -- the homebuilders and the Realtors if we are -- if warehouse lending is being evaporated. None of you are -- I mean, you're the only one who participated in it and yours is at a minimum.

I want you to just -- I needed to just say that because it's a problem in every community, and my community is no less being hit.

The final issue I want to raise is that I am woefully unimpressed with the diversity of this panel -- not only the panel but the folks who sit behind you. I don't know how many rows deep we would have to go to have some diversity.

Thank you, Mr. Chairman.

REP. FRANK: Let me say -- and I appreciate the gentleman raising that. I would ask that you give us in writing a response -- of course the gentleman raised a very important question. I will tell you, we hear a lot of this from our colleagues.

It is the coming off of a warehouse lending relationship in the middle of the movie when there is inventory of some kind that was going to be financed by the warehouse lending and is cut off. And I would ask you to talk to your people and give us answers in writing. And I would hope the answer would be, well, yeah, that that is a problem and we won't -- even if we don't want to take on any new commitments, we will allow for the orderly unwinding of the existing commitments. I think that's the focal point that we've heard.

The gentleman from -- well, before we get to -- the gentleman from Ohio is going to do special orders. We will be able to finish everybody because I -- we will stay until 5 (p.m.), but I'll take the gentleman -- would anybody object if I took the gentleman from Ohio for five minutes?

Ms. Kilroy.

REP. MARY JO KILROY (D-OH): Thank you, Chairman Frank.

Mr. Lewis, you went on record recently with CNBC's Maria Bartiromo stating very publicly that the Bank of America will fully refund the taxpayers and that you expect, and I quote, "that this company is going to be a thing of beauty as we get to the other side of this, and it will be the envy of the financial services industry in terms of market share." Do you stand by that statement?

MR. LEWIS: I do.

REP. KILROY: And so we can fully expect that the $45 billion in TARP funds will be repaid.

MR. LEWIS: Plus $3.8 billion in interest a year.

REP. KILROY: And as well, you stated that categorically, Bank of America will not need additional government funding.

MR. LEWIS: Right.

REP. KILROY: That's correct?

MR. LEWIS: (Off mike.)

REP. KILROY: So that means no further TARP funds?

MR. LEWIS: Correct.

REP. KILROY: And that means no loan guarantees?

MR. LEWIS: Correct.

REP. KILROY: That also means no purchase of bad loans or toxic assets by an aggregator bank?

MR. LEWIS: Well, I don't know. I haven't seen the program, but that would be something that would be at a market or -- it would be available to everyone, I would presume.

REP. KILROY: Well, these other funds may be available to everyone as well. But purchase of a toxic asset at less than a fair value -- that would be government funding to the bank, would it not?

MR. LEWIS: If it were less than fair value, and that's the issue that people are dealing with, and that's why it's so complicated.

REP. KILROY: Yes. I'm pleased to see that you have this commitment to repaying the very angry and worried taxpayers that you've heard about. You certainly have set a standard here for your colleagues today, and setting the bar.

So I would like to ask each of you to go on record before this committee and before the public to answer the question. Can each of you assure me that you will also be fully paying back the government funds, the taxpayer funds, and that you will not be back to the government again asking for money that many of us and many of our anxious and worried and angry Americans feel is corporate welfare? Or do you expect your institutions to also be things of beauty when all is said and done?

MR. BLANKFEIN: That is my expectation.

REP. KILROY: That you'll be able to pay us back?

MR. BLANKFEIN: It is absolutely my expectation.

REP. FRANK: You're not under oath, guys, so -- (laughter).

MR. BLANKFEIN: Yeah.

REP. KILROY: And is it your expectation also that you will not need any additional infusions of government funding?

MR. BLANKFEIN: We are a user of the FDIC program, but it's not our expectation to have to sell assets at a higher-than-market value.

REP. KILROY: Mr. --

MR. DIMON: We categorically expect to pay back the TARP funds.

REP. KILROY: And do you anticipate a request for additional TARP funds before we get to the end of this, to the thing of beauty stage?

MR. DIMON: If it is, it won't be me. (Laughs.)

REP. KILROY: Mr. Kelly?

MR. KELLY: We also expect to be able to pay back the TARP funds, hopefully within three years and hopefully again even sooner than that. And we won't need additional funding. That is not our expectation.

REP. KILROY: You will not need additional funding. Thank you.

Mr. Lewis? Excuse me, Mr. Logue.

MR. LOGUE: We expect to pay back the TARP funding as well, and we would expect that we would not need any other funding.

MR. LEWIS: We'll pay back the TARP funds, but we do use the FDIC guarantee in raising debt.

MR. PANDIT: We will pay back the government -- the TARP funds. I don't know what the rest of the program is going to be used for. If you come to us and say, "Do it this way," and by the way, that increases loans that are made and it's also good for our shareholders, how are we going to turn that down?

MR. STUMPF: We will pay back the funds at the stated interest rate, and we say that we will not -- as we are positioned today -- not need any more TARP funds. But I also agree with Mr. Pandit -- I don't know what plans will be for the future. I don't know what is in store, but the way we see today, we can pay it back and we need no more funds.

REP. KILROY: So you may anticipate the government purchase of dead loans or --

MR. STUMPF: I don't know what the Geithner plan is going to look like. I don't know what's coming down, and -- but our plan is -- what we see today, what we know today, we need no more funds.

REP. KILROY: Thank you.

Thank you, Mr. Chairman. I yield back.

REP. FRANK: The gentleman from Minnesota.

REP. KEITH ELLISON (D-MN): I'd like to ask a question of the gentleman from Bank of America. Have any of the TARP funds you've been given so far been used to lobby?

MR. LEWIS: No.

REP. ELLISON: Are you familiar with a posting that was in the Huffington Post which seemed to indicate that there was a financial roundtable conversation in which someone from your office indicated that the Employee Free Choice Act should be rabidly opposed by the members of the financial roundtable?

MR. LEWIS: I don't go to the Financial Services Roundtable, so I would not know.

REP. ELLISON: Do you agree with me in principle that any company that gets TARP funds, those funds should be used to either recapitalize the bank or to otherwise promote solvency within the bank and promote lending and not to try to impact or try to defeat any measures in Congress to promote union organizing?

MR. LEWIS: For use of the TARP funds, yes.

REP. ELLISON: Okay. And so I can -- can I have your assurance that no TARP funds have been devoted to lobbying?

MR. LEWIS: Correct.

REP. ELLISON: Do you think it's appropriate to, while in receipt of TARP funds, to be trying to defeat measures such as the Employee Free Choice Act?

MR. LEWIS: I think it's -- doing what's in the best interest of your company is always the best thing to do. So I wouldn't point to any one thing and say just because you have TARP funds you can't do something.

REP. ELLISON: Yeah, but as has been pointed out already, money is fungible. What you don't use one place you can switch and use other monies for that. While you're using TARP funds, wouldn't you agree that your company needs to be using those funds for their intended purpose?

MR. LEWIS: Yes.

REP. ELLISON: And not trying to defeat union organizers?

MR. LEWIS: And 45 billion (dollars) is in the context of 230 billion (dollars) in equity.

REP. ELLISON: Okay.

MR. LEWIS: So you've got to think of it in the context of a much larger number.

REP. ELLISON: Right. Well, I just wanted to put into the record -- have unanimous consent to have entered into the record this letter from Change to Win to Mr. Steve Bartlett who was with the Financial Services Roundtable, and in it he describes a conversation in which several companies which received TARP funds were having some fairly frank conversations about defeating -- about lobbying. And I find it pretty disturbing, and I'd like you to respond to this letter if you would, sir, because it specifically mentions your company.

REP. FRANK: (Inaudible) -- so it will be part of the record.

REP. ELLISON: I'd also like to give voice to the people of my district who sent me a number of questions to ask all of you. I'll just give you a sense of how these questions go. One is, "Aren't bonuses to reward productivity, not failure?" That's Ann J. (sp) from Minneapolis. "Whatever happened to banks being risk averse?" That's Pat V. from Minneapolis. And it goes on and on and on.

And I just wanted to give voice to it because it is true that it's -- there's a general concern about the state of our financial services industry and to the degree that we give you a benefit that our constituents think you shouldn't have, we run afoul of them. So I hope you bear that in mind as you go about the use of your TARP funds.

I also want to have this put into the record -- and I do recognize it's general -- (inaudible) -- to have things put into the record --

REP. FRANK: (Off mike.)

REP. ELLISON: -- and that is a article written by Adam Levitin, who talks about how securitization of credit card debt has contributed to the financial malaise that we find ourselves in. So I'll have that in there as well.

Mr. Pandit, I'd like to ask you a question about solvency at Citi, and I'd like to note -- have these -- actually both of the gentlemen from Bank of America and Citi -- both these questions might apply to you. Could you share with me what you feel the solvency of your firm is at this time?

How about you, sir?

MR. PANDIT: Me?

REP. ELLISON: Yeah.

MR. PANDIT: Congressman, our Tier 1 capital ratio is 12 percent. That's an enormously high capital ratio, well above whatever the regulators consider to be well capitalized banks. And that's the risk capital that supports all our depositors, all our creditors, all our bondholders. That's a very, very strong ratio. We feel well capitalized as a company.

REP. BACHUS: Will the gentleman yield just for one --

REP. ELLISON: Yes, I will yield.

REP. BACHUS: In the questioning before that, I think -- and I know the gentleman's thoughtful -- we very much as a body respect the freedom of association and the freedom of speech. And I know the gentleman --

REP. ELLISON: Wait a minute. Let me reclaim my time. Let me reclaim my time. If the gentleman wants to --

REP. FRANK: That's really a debate on the gentleman's issue.

REP. ELLISON: -- wants to debate the issue, he can get his own time for that.

REP. BACHUS: No, and I apologize. But I'm just saying, I didn't want them to get the wrong -- and I know you didn't mean --

REP. FRANK: Let's --

REP. ELLISON: I hope that doesn't come out of my time.

REP. FRANK: No, it does not.

REP. ELLISON: And Bank of America, what is your Tier 1 capital ratio?

MR. LEWIS: It's about 10.6 (percent).

REP. ELLISON: Now --

MR. LEWIS: And remember, we made money in 2007. We made money in 2008 -- about -- in the total of those two years, $19 billion. We did not lose money like some banks across the world did. And so to ask me that question is amazing.

REP. ELLISON: Well, I mean, I'm -- I've asked the question; you've answered it. Tell me, how is Merrill Lynch -- the acquisition of Merrill impacted your capital -- your Tier 1 capital ratio?

MR. LEWIS: The -- that was the reason that we took the injection to do the deal. And so it actually helped it because we filled the hole that was filled by the loss.

REP. ELLISON: And what about Countrywide? How does that impact your --

MR. LEWIS: Countrywide's not big enough to affect us in any big way.

REP. FRANK: Can I just say -- when you said the injection, that's the second TARP funding.

MR. LEWIS: The second piece.

REP. FRANK: Not the first but the second injection.

Go ahead, Mr. --

REP. ELLISON: Now, there has been wide speculation that some of our larger banks around the nation may end up being nationalized. Do you feel that your bank should be considered one of those banks at risk?

MR. LEWIS: Are you talking to me?

REP. ELLISON: Yeah. (Laughter.)

MR. LEWIS: Absolutely not. I don't know why you would ask the question.

REP. ELLISON: And I'm curious about Citi as well. Is there any worry that -- will we be here in a few months talking about the demise of Citigroup?

REP. FRANK: This answer will end the time. The gentleman got extra time.

MR. PANDIT: Congressman, I intend to make sure that's not the case.

REP. ELLISON: Thank you.

REP. FRANK: The gentleman from Ohio.

REP. CHARLIE WILSON (D-OH): Thank you, Mr. Chairman.

Gentlemen, I have a question -- I have several questions, but I have question for all of you. If I came to you as a -- the owner of a failing business and I asked for a loan to take my staff to -- on a spa trip to Las Vegas, would any of you grant that loan?

MR. BLANKFEIN: Down the line?

REP. WILSON: Sure.

MR. BLANKFEIN: No.

REP. WILSON: Okay.

MR. DIMON: No.

MR. KELLY: No.

MR. LEWIS: No.

MR. LOGUE: No.

MR. MACK: No.

MR. PANDIT: No.

MR. STUMPF: No.

REP. WILSON: Thank you. I didn't think so, but help me explain to the people back home what has happened with their tax money that went out in the first part of this TARP, which -- my understanding is, all of you are recipients of it.

I'm sorry --

REP. FRANK: I would just say, members, this is not a day on which you're going to get a lot of volunteers, so if you want to get an answer, you probably want to pick somebody. (Laughter.)

REP. WILSON: Okay. Maybe I can rephrase my question, Mr. Chairman.

There are a lot of people in Ohio that are really upset about the way things have been handled -- the arrogance, the way things have been done, what has happened, the PNC purchase of National City with TARP funds -- on down the line. I mean, I could go on and on. But what have we done to restore the confidence in the financial community that's going to help small businesses like I represent in Ohio to be able to get their line of credit to be able to buy goods for the spring and for the summer selling season? What has been done with the TARP money? Mr. Dimon, could I address that question to you?

MR. DIMON: I think we put in the record a lot of what was done with the TARP money. We have lent in the last 90 days -- I believe it was $250 billion -- 90 billion (dollars) to corporations; 50 billion (dollars) to consumers -- net and increased credit lines; 50 billion (dollars) in interbank markets; 60 billion (dollars) of the purchase of NBS or asset-backed securities. I do believe -- and it's an estimate -- I do believe that probably 75 billion (dollars) of that would not have happened without the TARP money. Also a very large small business lender in Ohio -- and I don't remember exactly the number, but I believe year over year, small business loans are up in the nation. I don't have Ohio's numbers. Government not-for-profit, hospitals, universities -- lending is up year over year. And we'd be happy to make all that part of the record. We are still lending in Ohio and other parts of the country. And trying to do exactly what you want us to do with the TARP money, which is to fill our obligations as part of this country and the community, which is to help this country in every single way possible.

REP. WILSON: A follow-up question on that, Mr. Chairman. Is -- do you think the TARP money is starting to work as it's intended?

MR. DIMON: I think the question that I nor anyone will ever be able to answer is what would have happened had that not been injected when and how it was injected. We will never know; we'll debate it the rest of our lives. I personally don't spend much time guessing about things like that. It could have gotten much worse, so it may very well have created a situation where it stabilized things so that we can move forward as opposed to having a lot more problems. And I just don't know.

REP. WILSON: Yeah. Thank you. Thank you, Mr. Dimon.

Another question I have -- and I'll address it to Mr. Lewis, if I may -- banks versus -- banks who took TARP versus banks who did not: Why do some banks turn their back and say, "I don't want any more TARP funds; I don't want to" -- "I don't want any TARP funds; I don't want to live with the problems of government money, of taxpayers' money"? What is the rationale there? Could you help me with that?

MR. LEWIS: Yes. (Laughter.) The reason is that they don't want the government involved in their business. Simple as that.

REP. WILSON: Well, thank you. I'm glad it was a simple answer -- simple question.

Thank you, Mr. Chairman.

(Cross talk.)

REP. FRANK: I thank the gentleman -- he has a minute left. Let me just say -- I do have to say Mr. Dimon saying we'll never know did remind me, and it's -- I think we all ought to keep this in mind when we're trying to be absolute about past judgments. In the Knickerbocker history, Washington Irving says -- he describes a boat crash and he says, "The boat went around the bend and a wind came up and blew it on the rocks, and we will never know what happened because there were too many survivors." (Laughter.) And I think that's part of our problem.

The gentleman from Colorado.

REP. ED PERLMUTTER (D-CO): Thanks, Mr. Chair.

Just a couple questions. And thank you all for your testimony today. And we've been dealing with a lot of sort of dire circumstances, and I -- we've had a chance to have Mr. Bernanke come and testify -- September, when things were really on the precipice; again in November, and then yesterday. And I'm hoping that we've turned the corner on stabilizing the financial markets. We've still got to restore confidence in the markets and rejuvenate the economy to avoid the job losses that Mr. Stumpf was talking about. And I think we're on track to do those things.

But I want to come back to how we got here. And you know, I look back to sort of bankers that I can sort of reach back to -- Dick Van Dyke and Mary Poppins. No offense, but you know, a staid old guy who had certain things -- Jimmy Stewart, and then whoever Mr. Potter was -- I don't know if that was a Barrymore or somebody.

But what I'm concerned about -- and Mr. Dimon heard me say this one time -- is the size and the scope of your institutions is so far- reaching -- globally and just in terms of the products that you handle. And I just -- I'm concerned about the effect on the system that in some instances your institutions are bigger than the FDIC insurance we have in place. Or the Federal Reserve had $800 billion at some point last year to assist the market. I mean, is there a point where you're too big and that the system itself is in jeopardy? And I'd start -- Mr. Mack, do you have any opinions on that?

MR. MACK: I can only speak to our firm. We're not too big, and we still plan to grow. So we don't find that as an issue for ourselves. Also, as I sat here and listened, two years ago we added on the credit card business. We didn't think it was one of our core competencies, and we spun that off. So we've grown, but at the same time we've gotten rid of businesses that do not fit.

REP. PERLMUTTER: All right. Well, let me switch it a little bit. Do you think that you can get too far-flung in the types of businesses under your umbrella, whether they might be insurance or -- you know, own real estate? I don't know.

I mean --

MR. MACK: Yes. And I think that's an issue, especially as we grow our businesses -- not only here in the U.S., and develop new products, or globally, that is an issue and it's something we look at. We look at it through our audit committee, we look at it through our chief risk officer, we look at it through our strategy and planning. That is an issue.

REP. PERLMUTTER: Do you think the regulators in this arena have been focused enough on the breadth of business that you might have -- or, Mr. Dimon, if you have an opinion, or Mr. Stumpf, but, Mr. Dimon, if you would.

MR. DIMON: I think if I was in your seat I would want large, successful American corporations that do business around the world, some of which, by their nature, have to be big, because they're large they're -- they've got huge data centers, systems, diversified credit, exposure, et cetera.

And I have never seen, in my experience, that large itself is the bad thing. I've seen bad large companies and bad small companies. I've seen good large companies and good small companies. And, you know, the United States military, which is a magnificent organization, isn't bad because it's large. You want it to be large and use the benefit of its size for the state of the government.

So, I always separate "Is it good or bad," and do you have the systems and people to handle the size and/or the complexity?

REP. PERLMUTTER: But, let me narrow it just a little bit. Back in September when the Treasury secretary and the chairman of Federal Reserve came to us -- I mean, really in an urgent emergent fashion, and they said, "This is the banking system, it's different than everything else. You have to help. If you don't, we got trouble in everything else."

Is the banking system different than just a corporation, in your opinion?

MR. DIMON: Are you asking me, or --?

REP. PERLMUTTER: Yes.

MR. DIMON: Well, yeah, I think you have special obligations, and you take -- you know, you do have risks, you have to serve the countries and the communities you operate in. So, I think it's special to that extent. I think it's special to the extent that -- not uniquely, there are probably other ones which I have not thought about, but uniquely could cause systematic risk. And that should be eliminated. You don't want that to be the case. There are ways to handle that.

REP. PERLMUTTER: Thank you.

REP. FRANK: The gentlewoman from Illinois.

REP. BIGGERT: Thank you, Mr. Chairman.

Based on all of your testimony today it sounds like your institutions are doing okay. So, why are we here? And I think one of the things that we need help in how can you help restore investor and consumer confidence?

I don't know who wants to address that. Any volunteers? How can you help to restore investor and consumer confidence?

Mr. Dimon, how about you?

MR. DIMON: You're being unfair now.

REP. BIGGERT: (Laughs.) You have the name I know.

MR. DIMON: I think that every person at this table is doing everything they can, with all their brains and might, to fix this situation. I also think the Congress is doing that, the secretary of Treasury, the administration. And I think, you know, all of us, working real hard, we will beat this thing.

And, you know, we're not saying -- you know, we're still, I'd say, bruised and battered, but still standing and fighting. We have a ways to go, but if we do it right, this country will do what it's always done -- it'll learn, it'll reform, it'll move on. And I'm completely comfortable that will be the case this time too.

REP. BIGGERT: Mr. Stumpf?

MR. STUMPF: I would add, there's a couple of things that -- to that. We've talked about mark-to-market accounting before, which has really destroyed capital in this industry. We think things have intrinsic value that are very different from the market clearing value, and we have to write those things down.

Also, the way we do reserves for loans in our industry. We reserve at the time when we're least able to afford to do it. It's pro-cyclical. That's not particularly helpful.

One thing that the chairman is actually helping on is the FHA foreclosure issue. We have a very difficult time -- 10 percent of all of the loans we service are FHA and VA loans. They're almost impossible to restructure. And, again, it's called the "601 Program."

So we've got a number of things like that that will be helpful. But I think, at the end of the day, serving more customers, helping them, and partnering with you in Congress to create jobs in the public sector and private sector. We can't -- neither of us can do this alone, is the real key.

REP. BIGGERT: Well, if you were in my shoes and you were sitting up here, and your customers were as angry as some of my constituents, what would you tell them? What would you do if you were here? What would you do to help them restore their confidence?

And, you know, we want to do the right thing, and so far we've tried so many things and it really -- you know, it hasn't worked. Is there -- are we doing too much? Should it be more of the free market? Are we doing too little? If you have just one or two things that you think that the Congress should add to our repertoire to see if we can solve this problem.

I know you've been here a long time, so -- but.

MR. LEWIS: Well, I'll begin. I don't know if I know all the answers -- obviously, I don't. But we've passed -- you're soon to pass the stimulus package. There is some quick hits which will help immensely. The modificational mortgages is incredibly important to get that in the TARP packet -- TARP package. And then thirdly, we've got to keep mortgage rates down so that we can continue to have refis which are, in essence, a kind of a tax break.

I think, over time, those three things are going -- you're going to have an impact on the economy.

REP. BIGGERT: How many of you think we should do a -- you know, not -- do away with the mark-to-market, right away? Anybody else?

Just one? That's interesting. We have --

MR. STUMPF: I'd just say, I don't -- do away with it --

(Cross talk.)

MR. STUMPF: When markets are not functioning, it's no longer mark-to-market, it's mark to -- you know, craziness. We ought to look to a different mark-to-cashflow then when there's -- markets are not functioning. There's nothing wrong with the mark-to-market, per se.

MR. LEWIS: I would agree. In extraordinary times like this there should be another alternative.

REP. BIGGERT: You know, I hear from so many of the customers of yours that they can't get to the lender, or if they do they talk to somebody, and then get somebody else, and it goes around in a circle. I would hope that you would make sure that these people really, you know, get answers to their questions and see what they can -- what you can do to help them.

But, it sounds like -- things improving? Do you see any ray of sunshine that we're going to solve this?

MR. PANDIT: The credit markets have been improving steadily.

REP. FRANK: -- (inaudible) -- Let me -- (inaudible) -- time has expired, but if I can get the indulgence, I was distracted, I distracted myself, it's nobody's fault.

Mr. Stumpf, you were talking about the FHA/VA issue, would you give me that one again?

MR. STUMPF: Yes. About 10 percent of loans that we service are FHA and VA, and these are sometimes for the -- for, you know, new home buyers, and so forth. The way the loan works -- we make the loan, the government guarantees it, get a guarantee fee; and the asset goes into a Ginnie Mae pool.

And whatever the customer pays us a month is indifferent. We have to pay the pool for the full amount of the mortgage. And we can't restructure --

REP. FRANK: All right, well I would ask you to, afterwards work with --

MR. STUMPF: And you've been very helpful, and --

REP. FRANK: Yeah, and we -- I will say this, with regard to the bankruptcy, which I know many of you don't like, but we did do a separate piece to that so that in case there's an FHA or VA, the government would take the hit and not --

MR. STUMPF: I understand.

REP. FRANK: -- the owner. But, we should be able to work it out short of that. So let's please be in touch with our staff. And we obviously want to be helpful. We've --

MR. STUMPF: You've been wonderful --

(Cross talk.)

REP. FRANK: -- (inaudible) -- unravel all that.

MR. STUMPF: Yeah.

REP. FRANK: Thank you.

The gentleman from Indiana.

REP. JOE DONNELLY (D-IN): Thank you, Mr. Chairman.

I have the privilege of representing Elkhart, Indiana, which is where President Obama went about two days ago. And what has happened there is that the credit has completely disappeared, so they can't do floor-plan financing, and that consumers can't buy the recreational vehicles that are made. And, consequently, unemployment has gone up to 15.3 percent.

And, I know -- I heard Mr. Lewis -- you know, I know you don't want us in the banking business, and, believe me, we don't want to be in the banking business, but until we get to the other side -- when the folks in Elkhart, and the rest of my district come back home from work and they not sure if the place is going to be open the next week at the factory they're working, and some of their money comes out of their paycheck for TARP, they just want to know that there's going to be good judgments made with it.

And I know some of this stuff you want to tear your hair out when you read it as much as we do, but what we need you to do -- and I know that you want to achieve this as well, is that our great generals, like Omar Bradley, and them, they always made sure that the troops were bedded down and that everybody was fed, before they were fed.

And it was -- Mr. Stumpf was the one who talked about a culture of values and leadership, and we really need you guys -- and I know, I know that's your goal too, to do the same thing. So that, when you see some of this crazy stuff -- I mean, look at it from my perspective, back home in Indiana. If you look at it from that instead of Wall Street, and you look at something and you go, this would be crazy to the folks back home in Indiana, please don't do it, because when that happens it makes it much tougher to try to get them to understand why the second part of TARP is needed.

So, you know, you are absolutely critical to the success of this country. If things don't work with your banks, it's going to be awful tough. So we're in this together and we're counting on your good judgment as we move forward. And I hope I'm looking at three, six, eight Omar Bradleys over on the other side of the table.

The other thing I wanted to ask you is this. And Mr. Stumpf, again, you said, "We want to work with companies if we possibly can." And I have small businesses back home. That's the heart and soul of my district. And they have lines of credit, and they're based on hitting certain profit numbers, inventory numbers, all of those things. And it's tough right now. And some of those numbers may be a little bit off. And they've come to me and said, "Hey, Joe, my number is off; they're going to call the line." They've made every payment, but their ratios are off now.

Does it make sense to try to work with those companies? I mean, that's one of the toughest things we have back home, is good companies, still profitable, but their ratios are off a little. Can't we work with them?

MR. STUMPF: I think the answer is absolutely yes. And I think in -- I believe in our company's case, we have stuck by our customers during the difficult times. Every situation is different. Not every customer's created the same. Not everyone has the same possibilities and opportunities and so forth. But to the extent that we can, and balance it off with safety and soundness, for all of our customers and for our stockholders, that's where the secret sauce is.

REP. DONNELLY: Right. We heard Mr. Hensarling. We don't want to make loans --

MR. STUMPF: Correct.

REP. DONNELLY: -- to people who can't pay them. But to people who can and are going through a tough time now, just like your banks have, really, they want to come out the other side just as well. I mean, they'll sell their car to make the payment to the bank. And so I would encourage all of you to stick with them and to try to work with them.

The other thing that we've found back home is what you talked about, that some of the companies, non-bank, that used to be there are no longer there. Financing for RVs was primarily done by GE Financial and Textron and Key Bank. All three are gone. I mean, not gone, technically gone, but they've pulled out of the market. And so you have companies that have worked nonstop, and they look up and all the companies they've worked with have said, "We're not into this anymore; that, you know, this doesn't interest us." That makes it extraordinarily difficult to conduct your business.

So I just wonder if you have any ideas how to fill that hole for those financial companies who are not around anymore.

Mr. Lewis? You know, we'll ask you first.

MR. LEWIS: I don't know a lot about the RV business, but we are looking for opportunities, and if they're good ones, then our point is, make every good loan we can make.

REP. DONNELLY: So there is money out there to be loaned, then.

MR. LEWIS: This is not an issue of liquidity. Most -- at least our company has never been this liquid in our history. This is about an issue of demand and the economy.

REP. DONNELLY: Well, I'll bring you the demand, sir. Thank you.

REP. FRANK: Let me make just one -- (inaudible) -- only partially because -- (inaudible) -- at the initiative that you brought to us, we have language in the bill that we wrote out last Wednesday of this committee, which we hope to get passed at some point, which deals with that FHA-VA problem.

So we do think, thanks you to your good staffs and mine here, we were able, working together -- and there was bipartisan agreement on that piece of it. There may be some objection over here with -- but as we came out of here, that's in our whole servicer piece. And that's been done.

REP. DONNELLY: Thank you. You've been very helpful. Appreciate it.

REP. FRANK: The gentleman from Illinois.

REP. BILL FOSTER (D-IL): Hi. Let's see. I have a couple of questions. The first ones have to do with sort of stress testing going forward and the conditions under which you may or may not stay solvent and may or may not continue to exist.

You know, if you take slightly -- hopefully significantly pessimistic but realistic assumptions of maybe 11 percent unemployment, a 25 percent further decline in real estate prices and comparable problems in the commercial real estate, which a lot of people tell me are not that unrealistic, without being specific, could one of you give an estimate of how many of the eight of you would still survive without a federal cash infusion under those sort of pessimistic but realistic conditions?

MR. MACK: We'd survive. I mean, we have a very high tier 1 ratio. We've reduced our balance sheet dramatically from 1.1 trillion (dollars) to a little less than 600 billion (dollars). We've taken our leverage from 32 times down to about 12-1/2 times. It would be very painful and very upsetting if those numbers come true, as you're saying, but we would make it.

REP. FOSTER: Do you regard those as unrealistic numbers, things that couldn't -- are very unlikely to happen or not?

MR. MACK: Well, I think some of those things can happen, especially in the commercial market, as you were talking about. I think we've not seen how difficult that can be. And it's just beginning. I do not think it will be at the same level or intensity of a downslide that we saw in residential. But there is a lot of pain to come in the commercial market.

REP. FOSTER: And then maybe I'll try putting you on the spot. And if you would give an estimate for how many of the eight would survive, without pointing -- don't look or point but just make a guess.

MR. MACK: I would -- I'm not going to guess, Congressman.

REP. FOSTER: Is there anyone feeling more brave? No, you're shaking your heads. You won't do it.

MR. BLANKFEIN: (Off mike) -- the nature of uncertainty, and given enough time and the unpredictability of markets -- look where we are, and look how we wouldn't have foreseen it. And so you have to prepare that anything can happen, even things worse than that. And then we have to build in expectations. And that's the world we're in.

On the other hand, at this point, given expectations are so low, it's worth pointing out, the same way we have been in a bubble that's in -- that's for the upside, we could very easily be in a downward bubble. You know, at this point, there's a hundred percent of the world that is hundred percent pessimistic. And that may not turn out to be the case, either.

REP. FOSTER: Yeah. Well, do you routinely game out situations like I described to say what is our survival strategy under these things?

MR. BLANKFEIN: Yes.

REP. FOSTER: And that's -- everyone is nodding.

MR. : What's your -- what's your numbers again?

REP. FOSTER: Oh, I -- 11 percent unemployment, 25 percent further decline in real estate and comparable problems in commercial real estate.

MR. BLANKFEIN: That and beyond.

REP. FOSTER: Beyond. Okay. So you actually think about downside things.

MR. BLANKFEIN: We do the math and our regulators observe us doing the math.

REP. FOSTER: Right. And had you, in the past, gamed out a 25 percent drop in real estate prices, or was that just off your planning horizons?

MR. BLANKFEIN: You know, I'm just not that (conscious ?) of it, but our plan, for example, in equity assumed 50 percent drop in the equity market. So that would be --

REP. FOSTER: As of a year ago, you were thinking in those terms?

MR. BLANKFEIN: Absolutely. We look in terms of standard deviations and percentage moves and, yes, very -- they would be very extreme.

REP. FOSTER: Okay, and would --

MR. LEWIS: We had 30 percent decline in real estate prices about a year ago, so --

REP. FOSTER: Okay. So there was -- so you saw this thing coming, and were relatively quiet about it for quite a while.

MR. LEWIS: No, no, I --

REP. FOSTER: Or you gamed out a survival strategy.

MR. LEWIS: Right.

REP. FOSTER: That's different than -- all right. The other questions I had had to do with alignment of incentives. And my attitude on that is, you know, I was a small businessman for many years. And it's now rather successful, but for, geez, about 20 years I carried an unlimited personal guaranty, in order to get the operating loan. And so that means if our company went under, I lost my house and everything else.

And you know, you gentlemen are not in that situation. And I was wondering, first off, do you -- have you ever heard of a compensation scheme that you think couldn't be circumvented, is one question. You know, when these things get suggested, you know, I think the immediate thing -- I know that, you know, I certainly say, hey, you know, you could game it this way or that way or the other way. And are you personally optimistic that if we chose to somehow limit compensation schemes, that a way wouldn't immediately be found around it?

MR. BLANKFEIN: Well, our goal isn't -- the goal is -- we are the leaders of our firm. Our legacy is how well our firms do. We want to keep the alignment of our people with the fortunes of the firm. And you know, we have -- you know, there are suggestions for how to do this, especially as you climb up the letterhead and get to the more senior people: paying people in relationship to how the whole company does, and they can then keep that, that payment, the bulk in stock, so that work --

REP. FOSTER: But do you believe that's been done so far in the industry? I mean, I think this seems to be almost a consensus that there is a misalignment of incentives issue that is largely -- okay.

I'll just give you follow-up written questions, actually.

REP. FRANK: Could the gentleman do written questions? I -- because I was very pleased with the gentleman's questioning about survival, and your answers, but I am afraid that some time later in the evening I'm going to be seized with the image of the eight of you standing up, singing, "I Will Survive." (Laughter.) I hope that I don't.

The gentleman from Indiana.

REP. ANDRE CARSON (D-IN): To add on to my colleague's point, as you know, this committee will address the issue of moral hazard and regulatory reform in the coming months. Some of the reform provisions mentioned by Chairman Frank for this legislation are critically important, in my view, because of the incentivized high-risk behavior within this particular industry that helped fuel the market downturn, as we know.

While we look for your companies to exhibit tremendous leadership in this crisis, to Congressman Donnelly's point, we heard reports of bonuses and acquisitions and sponsorships and so forth. As you all know, the public, to Donnelly's point -- I'm from Indiana, as well -- the public doesn't believe that you guys have learned from your errors.

And before you answer, keep in mind that over 100,000 of Hoosiers lost their jobs last year, and much of the TARP assistance will be paid for in part by my constituents.

Now, the question for me becomes, I want to know how -- what specifically will your companies do to better monitor internal risk assessments and reform your compensation policies?

MR. MACK: Well, Congressman, in our case, on the risk assessment, we have just completed a risk assessment with a(n) outside consultant working with our audit committee. We have enhanced our credit risk controls and market risk controls. I think we've added additional 67 people since about six months ago. So we're very focused in looking at risk, how we manage risk, how do we learn from the mistakes we made.

On compensation, the thing that we have introduced is a clawback. One of the things that has frustrated me is that oftentimes you come to year end, you pay someone on record revenues for their area, only to find out three months later or six months later that position ends up losing money. So we have a three-year clawback.

And I think as we look at our business, all of us are going to try to figure out how do you continue to tie performance compensation to the overall firm and making sure that people are vested in the firm on a long-term basis, not year to year. And I think that's the goal of all of us to do that.

REP. CARSON: Thank you, sir.

REP. FRANK: The gentlewoman from California.

REP. JACKIE SPEIER (D-CA): Thank you, Mr. Chairman. Thank you, gentlemen, for your testimony today.

Mr. Blankfein, there's a question I've wanted to ask you for months. In September, when Secretary Paulson and Chairman Bernanke met that weekend and made the decision to save AIG and to allow Lehman Brothers to fail -- and I think Bank of America picked up Merrill at that point -- there was reference made to the fact that you were there and that there were subsequent discussions as to whether or not Goldman Sachs was a counterparty. And if so, I would like to know how much money you received back from AIG for credit swaps.

MR. BLANKFEIN: AIG was a big counterparty. Many firms were a counterparty. I said -- in response to another question, I pointed out that we had no credit exposure to AIG because we had a collateral arrangements and credit mitigants on. So we had no -- we had no exposure to AIG --

REP. FRANK: Move the mike when you turn your head more. That's all.

MR. BLANKFEIN: -- to AIG.

As far as participating in meetings at the Fed, we are a -- we're a very big advisory firm. We have particular expertise in financial institutions. And we were called by the New York Fed to lend assistance, to try to look for a private-market solution for AIG.

This is following the Lehman Brothers (week/weakening ?).

REP. SPEIER: All right. Thank you.

The Congressional Oversight Panel has put out a chart that suggests that for most of you, the taxpayers are now subsidizing you; that the value of the contract that was let is one now that is underwater -- in fact, $78 billion worth of a subsidy.

And the question I have, and I think the question a lot of my constituents have -- in fact, I've gotten plenty of questions to ask you today, much like many of my colleagues -- is, if I am subsidizing you -- I, the taxpayer, am subsidizing you to the tune of $78 billion -- because what we've loaned you is now not valued at the same amount -- why is it I have to pay an interest rate for my credit cards at 18 or 20 percent? Why is it you can get money for 5 percent from TARP and I'm paying 18 percent and I'm subsidizing your business?

So my question to you -- to each of you -- is are you willing to reduce the credit-card rates that you charge your customers, as being a TARP participant?

MR. LOGUE: We're not in the credit-card business, so.

REP. SPEIER: Mr. Dimon?

MR. DIMON: Every business has its own financial dynamics.

REP. SPEIER: I'm just asking the question. Yes or no?

MR. DIMON: The answer would be no.

REP. SPEIER: Okay. Mr. Kelly, you're probably not in the business, correct?

MR. KELLY: We are not, no.

REP. SPEIER: Mr. Lewis?

MR. LEWIS: No.

REP. SPEIER: Mr. Logue?

MR. LOGUE: No. We're not in the business.

REP. SPEIER: Mr. Mack?

MR. MACK: We're not in the business.

REP. SPEIER: Mr. Pandit?

MR. PANDIT: Case by case.

REP. SPEIER: Mr. Stumpf?

MR. STUMPF: And -- no.

REP. SPEIER: So what is the interest rate you're charging, for those of you in the business, on credit cards?

MR. LEWIS: Well, it's a range. It's a range of 9 or 10 percent to 20-something percent.

REP. SPEIER: To what? Twenty-seven?

MR. LEWIS: (Twenty/It's ?) -- something percent. I don't know.

REP. SPEIER: Twenty-something percent.

Do any of you believe that we have a -- we should have a law in America that has a usury rate? You think there's ever a rate that's usurious, that's obscene, that shouldn't be charged? Is 36 percent usurious?

Could you answer that?

MR. DIMON: I think there should be a usurious rate, yes. I --

REP. SPEIER: What do you think it should --

MR. DIMON: And I believe there are, by state. But -- I mean, yeah, you can decide. I think it's a different number in different businesses, but I think there should be a usurious rate, yes.

REP. SPEIER: All right. There's a GAO report that just came out in December of 2008. It talked about the number of the biggest financial institutions, both in size and in their bailout receipts, and that they maintain revenues in offshore tax-haven countries where there are no or nominal taxes and minimal, if any, reporting.

According to the Department of Treasury reports, the U.S. government loses a hundred billion dollars a year in tax revenue from these tax dodges from all sources, including these firms.

For instance, Citigroup claims 427 different overseas locations -- or tax jurisdictions, 90 in the Cayman Islands alone. And by the way, you're receiving a 38 percent subsidy from the taxpayers right now.

Morgan Stanley has 273 locations, of which 158, or well more than half, are in the Cayman Islands, again. Morgan Stanley has about an 18 percent subsidy from the taxpayers right now.

Are you willing to bring those offshore tax havens home to America?

MR. MACK: Congresswoman, I would have to give you exact details. I'll come back to you. But I think a number of those are either partnerships or vehicles we've made structured for clients or structured for an offshore business. I cannot give you the complete answer, but I will give you the answer when I return.

REP. SPEIER: Thank you.

REP. FRANK: (Strikes gavel.) The gentleman from Florida.

REP. ALAN GRAYSON (D-FL): Thank you, Mr. Chairman.

Gentlemen, I've received over 500 e-mails from my constituents concerning this hearing. Let me read two of them to you.

Barbara Rufo (sp) of Winter Garden writes, "One executive bonus could build one school. Imagine what all that bonus money could do."

Frank Reziski (sp) of Orlando writes, "Put them all in jail, which is where I would be if I robbed a financial institution."

I'd like to go back to Mr. Green's earlier question about where all the money went, and I'd like to focus specifically on a deal the government made several months ago with Citigroup. I provided a copy of the Section 129 report on that deal, which of course you already have, to Mr. Pandit at lunchtime. So you've had several hours to examine the details of the deal itself.

Let's talk about where all the money went. Mr. Pandit, that was a $306 billion deal, correct?

MR. PANDIT: Three hundred and one billion (dollars), Congressman.

REP. GRAYSON: Well, let's take a look at page 3. Under heading number 2, Treasury and the FDIC also have agreed to share with Citigroup losses on a designated pool of up to $306 billion in primarily mortgage-related assets. What's the difference here?

MR. PANDIT: The difference --

REP. GRAYSON: Three hundred-one (billion dollars), 306 (billion dollars)?

MR. PANDIT: Three hundred and one (billion dollars) is the number, Congressman.

REP. GRAYSON: Well, you know, a billion here, a billion there -- soon you're talking real money, Mr. Pandit.

MR. PANDIT: I understand. I just want to make sure that we're speaking about the same number.

REP. GRAYSON: All right. Now in this deal, Citibank took the first $29 billion in losses and then the taxpayers take 90 percent of the remainder. Is that correct?

MR. PANDIT: The first 30 billion (dollars) of the losses and then Citigroup takes the remaining 10 percent.

REP. GRAYSON: Well, further down in that paragraph, which you have extra copies of, if anybody wants to see it, it says under the terms of the guarantee arrangement, Citigroup first will bear responsibility for any losses on these assets that exceed the company's current reserves and marks up to a maximum of 29 billion (dollars).

Do you see that?

MR. PANDIT: I do. The number is $30 billion.

REP. GRAYSON: Are you saying the number 29 is number 30?

MR. PANDIT: The only thing I would say to you is that this was put out -- I don't know when this was put out, but what we do know is we finalized the terms of this thing, or the Federal Reserve Bank and the government, I think about a month ago, and some of those things did change.

I just wanted to bring that to your attention.

REP. GRAYSON: Well, the bottom line -- you can correct me if I'm wrong, Mr. Pandit, but the bottom line is that the government has assumed liabilities here for this designated pool that amount to $250 billion, more or less. Isn't that correct?

MR. PANDIT: Congressman, we bought insurance from the U.S. government. We paid a little bit more than $7 billion for buying insurance that allowed us to take the first 30 billion (dollars) of losses, and then 10 percent of losses after that.

REP. GRAYSON: You call it insurance, but that word does not appear anywhere in this document, does it?

MR. PANDIT: You did give this to me at lunch. I've got to apologize. I didn't get the time to read it that carefully. But it was insurance.

REP. GRAYSON: So the government gets $7 billion in preferred stock, and the government's on the hook for $250 billion in losses? Is that correct?

MR. PANDIT: We're on the hook first for the losses we talked about, and the 7 billion (dollars) of insurance is for losses beyond that; not unlike every other insurance contract, whether you buy insurance on your house, your car. You know, you pay insurance premiums, you're on the hook for your deductible, and then of course the insurance company is liable for the value beyond that.

REP. GRAYSON: You tell me, Mr. Pandit, where I can get a deal like this, where I can get $250 billion in insurance, as you put it, for toxic assets that barely have a bid in the marketplace, and only pay $7 billion for that. You tell me where I can get a deal like that.

MR. PANDIT: Congressman, the only thing I would say to you is that these aren't necessarily toxic assets at all. The government has gone through these assets very carefully. They've gone through what the expected losses might be on this. They did their work. And I think that's an important aspect that is not in this document.

REP. GRAYSON: Well, if it turns out that they're not truly toxic and there is an upside, who gets the upside?

MR. PANDIT: The losses and the profits are netted on this pool of assets. And if there are profits beyond that, they are Citi's profits.

REP. GRAYSON: Right. So you get 100 percent of the upside, and the government gets 90 percent of the downside. Correct?

MR. PANDIT: That is what the insurance contract is designed to do.

REP. GRAYSON: Have you heard the phrase, Mr. Pandit, "Heads, I win; tails, you lose"?

MR. PANDIT: I appreciate that, Congressman. I don't think it applies here.

REP. GRAYSON: Is this on your balance sheet, this arrangement?

MR. PANDIT: Yes, it is, Congressman.

REP. GRAYSON: Do you know if it's on the Federal Reserve's balance sheet? They are responsible for $234 billion of losses. Do you know if the Federal Reserve put it on its balance sheet?

MR. PANDIT: Congressman, I couldn't tell you. I think there is -- some of this is with the FDIC; some of this is with the Treasury; some of this, with the Federal Reserve. I don't know the exact details. We're happy to get back to you.

REP. FRANK: The gentleman's time has expired.

The gentleman from Connecticut.

REPRESENTATIVE JIM HIMES (D-CT): Thank you, Mr. Chairman.

And thank you to all of you for appearing before this committee today. You're on the hot seat today and rightly so. And I'm pleased that many of you, to a lesser or greater extent, have acknowledged that your institutions took risks that might be charitably characterized as imprudent. But of course, you're a part of the problem.

We find ourselves where we are today as a result of a willing suspension of disbelief, by lenders and borrowers around the world, and as a result of a massive failure of our regulatory apparatus. I'm not sure we can legislate against a willing suspension of disbelief. And we'll see whether we can recraft a regulatory structure that makes sure we never find ourselves here again.

So that brings me back to the question of risk and really the heart of two questions that I have. We will get less involved, I think, to the extent that risk resides with those who take that risk, to the extent that you all and your organizations eat your own cooking. And I get really interested in ways that we can make sure that that is true.

I've heard a lot about compensation. I'll just ask this question because I want to get on to a different question. Are any of you unwilling to affirmatively commit, to this committee, that you will research, consider and implement compensation structures that reward your people for good, long-term value creation and that guard against taking excessive risk?

Okay, let the record show that nobody is raising their hand on --

MR. MACK: Yes, we will.

REP. HIMES. Mr. Mack.

MR. MACK: Yes.

(Cross talk.)

REP. HIMES: Okay, I'm hearing -- all right, okay. Thank you.

On to another topic I'm very interested in. In the spirit of eating your own cooking, mortgage brokers issuing, underwriting, issuing mortgages and then bearing no risk, people underwriting IPOs that two years later crater, securitizations that find their way, through a long chain of ownership, but the original underwriters bear no consequences for their ultimate failure.

My question, and let me start with Mr. Pandit, as a very large issuer of securities and lender, what if we started thinking about asking issuers of securities, whether we're talking about underwriters of IPOs or mortgage brokers issuing mortgages, to retain a very small top-loss position, an equity position, if you will?

And I know that that will cut liquidity in lots of markets. And I know that that will put a burden on your capital. But I'm okay with that as a matter of principle, given where we are. As an idea, good, bad, should we pursue it?

MR. PANDIT: Congressman, there are established markets with established standards and established protocols. And then there are markets that are newer. You talk about the mortgage market owning part of what you originate as one solution.

There are lots of other solutions. The solutions could be around regulation. It could be around standards that you impose on origination. I think we ought to look at the whole package and then come to a decision. But we do need to do something to change the structure that was in place.

REP. HIMES: Thank you. But let me -- and let me open this up. Is there any good reason why we shouldn't -- and by good reason, I mean, you know, reason that would put taxpayers at risk in the future. Is there any good reason why we shouldn't look at structures which, if you put together a massive securitization, fine, sell, 98 percent of it, retain 2 percent. If you underwrite an IPO, fine, sell 98 percent of it, retain 2 percent. Is there a good counter-argument against that kind of thinking?

MR. MACK: Well, if you were in a market -- let's go back to the Internet boom that we had in the mid-'90s, all the way up into 2000, 2001. The volume of new issues that came from banks and Wall Street would have been so large that I think you would have put a burden on balance sheets if you had that 2 percent retention. Clearly, in a market when volume is very low, that would not be an issue.

Oftentimes I think the focus should be much more on the diligence, the due diligence that's done other than retaining it, and also there are today, I think, SEC, when we price a new issue, we have to distribute -- we hold it back -- we can hold it back, but it is for sale and not to be retained on a permanent basis.

REP. HIMES: Thank you, Mr. Mack, but -- and fair point, but I think your Internet example is a good one. I might suggest, and I'd ask you if you agree, that perhaps given what happened to the Internet -- Internet underwritings -- perhaps that's not the best example. Perhaps if there had been a retention of some top loss position, volume would have been down but perhaps risk would have been reduced?

MR. MACK: Well, many of the companies that we underwrite, not only we're doing the equity deal, but that we have loans to them, we're very much involved. This is not price an issue and walk away from it. So I would say there are better ways. I think Mr. Pandit was right. I think you need to look at a number of ways at how to ensure that when we do underwritings, we are bringing something that has really been scrubbed down, is a viable business or concept. There is no simple way of doing it. But I think we need to look at the whole package and how can we do it better.

REP. HIMES: Thank you.

REP. MALONEY: The time has expired.

REP. BACHUS (?): Madame Chairman, it's my understanding that we're going to cut this hearing off at 5:00. Is that correct?

REP. MALONEY: That's correct. And we have two more gentlemen that wish to question.

REP. BACHUS: Thank you.

REP. MALONEY: Three.

The chair recognizes Mr. Peters for five minutes.

REP. GARY PETERS (D-MI): Thank you, Madame Chairman.

I have a question -- I don't want to belabor this, because you've heard from many members of Congress already talking about the inability to get credit in their respective districts all across the country. But I represent the state of Michigan. And I'm going to follow up a little bit on a colleague of mine who talked about this problem that I'm hearing constantly from my constituents, is that we understand that credit is tight all over the country, but there's a feeling from people in Michigan -- and Michigan in particular, because we lead the country now in the unemployment rate as well as the problems with the auto industry -- that loans in particular from money center banks are simply not available to small businesses.

And the businesses that could get credit in the past, even if they can get it, it's at prices that simply just make it unaffordable.

Now, I don't expect detailed answers now, but I know Mr. Dimon, Mr. Lewis, you have substantial operations in Michigan. Maybe first off, is there a basis for that, that your lending operations in Michigan are less than other states? And would you be willing to provide me with actual numbers that would let me go back to my constituents and say that Michigan is not being singled out; Michigan is not a state that is a more difficult place to do business, therefore leading to the spiral downward that we're experiencing in our state.

MR. LEWIS: Well, first, absolutely, red line or whatever you want to call it is not the case. We want to make every good loan anywhere we can make it. Obviously, if you lead the nation in unemployment, we'll be lending less there than we would somewhere that had a better employment rate. But our attitude toward Michigan is no different from any other state. We want to make every good loan we can.

MR. DIMON: Yeah, I agree with Mr. Lewis. We look at loan by loan, industry by industry. There's no red line of a state. We do a lot of business in Michigan and we have deep appreciation for how difficult it's been there. And we also have enormous exposure to the car companies, the auto companies and auto finance in Michigan today.

REP. PETERS: Well, I want to follow up on that. And I appreciate both of your comments, but is it possible to get numbers, so I can just get a sense of how the loan volume is different in Michigan and other states? Would you both be willing to provide that information?

MR. DIMON: Absolutely be willing to do that, yes.

MR. LEWIS: Yeah.

REP. PETERS: Mr. Lewis as well. We'll follow up with you on that.

I want to get back to the auto industry, because obviously we have a very strong concern in the auto industry. And surely it's one of the -- the impact of the credit crisis has hit the auto industry more than most industries. And the repercussions could be dramatic, not just in Michigan but all over the country. Millions of jobs are at stake.

But also, if you look at the recovery of the economy, there isn't anything that's more powerful a stimulus in the economy as to get people buying automobiles. Get the auto industry -- it's picked this country out of many recessions in the past, has the potential to do that again if managed well.

And you know that right now we're in a very precarious situation. In fact, the auto companies will come back to this committee on February 17th with their viability plans. And a part of those plans have to be the plans that they've made with the stakeholders, both labor and as well as the creditors.

How many of you are creditors to the auto industry, have substantial loans or substantial debt instruments of some form or another? (Raise of hands.) Basically all of you except Mr. Stumpf, Mr. Logue -- no, everybody has it. Well, then, how many of you have received proposals from the auto companies?

MR. : When you say proposals -- requests?

REP. PETERS: Proposals from the auto companies to restructure that debt, which, as you know, is a condition that's been placed on it to have substantial concessions from debt holders to renegotiate that debt. How many of you had -- have already received specific proposals from the auto companies?

MR. MACK: Congressman, I'd have to check. We have a very active dialogue with the auto industry. And I will check on it back and let you know exactly.

REP. PETERS: I'd appreciate that.

MR. LEWIS: We actually are advising one of the companies on doing that. And so we're in the middle of the execution of that -- of the conversion from debt to equity.

REP. PETERS: You're currently in negotiations?

MR. LEWIS: We're currently executing on the game plan that we advised on.

REP. PETERS: Oh, okay. So you're really definitely down the road -- given that we only have six days left before this plan. So you feel pretty good on where you are, Mr. Lewis?

MR. LEWIS: We feel the pressure.

REP. PETERS: Feel the pressure? And any other gentlemen, as to where we are on that?

MR. DIMON: We've had conversations with some of the companies, but I'm not up to date on them.

MR. : The same.

REP. PETERS: Because it is critical. And there is a sense in some meetings that we've had that some of the creditors to the auto industry may believe that bankruptcy is a better option. That's something that I have very strong feelings about, that bankruptcy is not an option for the auto industry, given the warranty situation -- also given the cascade effect that could occur for auto suppliers and hundreds of thousands of jobs around the country.

May I get a sense of those of you who are debtors to the auto companies, what is your sense? Are they better in bankruptcy, or are you willing to step up to the plate and say, no, we will take considerable haircuts in order to save this industry, save these jobs and get the American economy moving forward?

Mr. Dimon?

MR. DIMON: Yeah, I don't think it's an either/or, okay? I think that the -- all the things that need to be done, need to be done whether it's in bankruptcy or not in bankruptcy. And I assure you, at the end of the day, it will cost us money. We will not make money on it.

MR. : And there'll be haircuts in either case.

MR. DIMON: In either case, there'll be haircuts.

REP. PETERS: Is one worse than the other?

MR. DIMON: It depends how they get structured.

REP. PETERS: It's difficult to get financing in bankruptcy. It's going to be very difficult for these -- oh, sorry. Thank you. Thank you, gentlemen.

REP. MALONEY: Congressman Klein is recognized for five minutes.

REP. RON KLEIN (D-FL): Thank you very much, Madame Chair.

Gentlemen, it's been a long day. We understand that. It's obviously been a long number of weeks and months for the American people, which is why we're all collectively trying to get this right. And we appreciate the effort to get it right.

As I was listening to your presentations this morning, and reading some of the background material, if I sort of got the impression, the impression was that, we're doing our part, we're trying; some statistics show that there's some lending going on. And I would certainly recognize and acknowledge right up front, you're all in different positions. Some of you are probably doing more than others; some are deeper in a debt problem than others.

But what is clear to me, and I think what you've heard over and over again today, is throughout the United States, when we speak to people at the local level, it's not translating through. It's not translating through in the form of access to credit for businesses. It's not translating through access to credit to consumers.

I'm from Florida, from south Florida, and I will tell you in a very dramatic way that there are some community banks that are certainly trying to do their best; there are some regional banks that are trying to, you know, help out with syndicates for lending and refinancing. But a whole lot of concern about the next round of problems is going to be real estate financing, shopping centers, office buildings, lots of things that either are getting called right now on technical defaults, or their terms are up and they're being told that either you have to put another 20 million (dollars) into this thing, or a million dollars or $500,000 into this, or we're not even going to take up the loan or consider it.

Other situations -- and I know many of these borrowers; they're very creditworthy people -- they're being given packages that just don't make any economic sense.

So I'm expressing this because there's great concern in the greater economy once again. We have, already, problems with residential loans. We're now moving to the next round of -- I understand, in credit-card debt. We're now talking about commercial loans and how this plays out.

So there is this great concern, and I don't know what the answer is. And I'm hearing that yes, you're doing more. And I'm speaking to our community bankers, and they're trying. And I'm hearing about the tension between the FDIC -- and mark-to-market issues and things like that. I'm not hearing solutions. And I don't know where to take this conversation today to come up with some solutions.

I also want to express -- and I know some of you have said the idea -- of, "Well, we'll give the money back. Maybe we didn't want it in the first place; we'll give it back." And it's been -- some of you expressed that. And I just want to point out that it's not just the TARP money. Many of you had received great benefits with the Federal Reserve taking certain emergency actions, and those have been a bolstering -- on the -- on behalf of the United States and the taxpayers of the United States.

So it's not just a question of we'll write a check and then we're free of the concerns of the federal government. As taxpayers, we're all concerned about where this goes.

So maybe start out with Mr. Lewis, or if a couple of you just want to comment: Where do we go with the connection, the translation of "Yes, we're lending"? But nobody seems to be feeling it in the smaller-scale businesses, in the residential consumers as well as even the larger commercial transactions that may be occurring -- certainly in Florida, and, I appreciate, the gentleman from Michigan, and other places around the country.

Maybe, Mr. Lewis, if you can start.

MR. LEWIS: Well, it's -- we seem to be looking for a very short- term quick fix. And all of us, I promise you, would like it. And the last 19 months has been unpleasant for the economy and the American people.

And I think a number of things have to happen before we start to see us getting out of this. And as I mentioned, we've got to -- we've got to be very focused on foreclosures. We've got to get the housing prices to settle. We've got to keep rates down on mortgages to keep the refi boom going. And we have to have the stimulus kick in to get -- to get the economy going and to create more demand and to get those marginal borrowers in better shape so that banks can lend to them.

REP. KLEIN: Do you believe that this is more a question of that there really aren't enough borrowers out there that are creditworthy?

Or because I'm hearing from many of them, we have a very strong balance sheet. I've had a relationship, banking relationship, you know, with these lenders, for many, many years. Things really haven't changed that much for me. But I'm getting term sheets that come back that are just off the charts. And I can't do the deal, and it doesn't make any economic sense to do the deal.

MR. LEWIS: I can't say that we could test and be perfect in every case. But obviously with our desire to make loans, we are trying to be as accommodative as we can. Usually when we hear the individual situation, there's something around loan to value, something in that area that causes it not quite to be just -- you know, it's not just the FICO score for instance on an individual.

But again the industry, at least in the big banks, we're probably as liquid as we've ever been. We want to lend money. We've got the capital. And so there's no reason to not make a good loan.

REP. MALONEY: Mr. Maffei. Congressman Maffei is recognized for five minutes.

REPRESENTATIVE DAN MAFFEI (D-NY): Congratulations, gentlemen. You have reached the last questioner. (Laughter.)

I appreciate what all of you are saying. I do want to say that, you know, look, as a policymaker, I'm not sure if any of us care particularly about any of your individual institutions. But we do want the system to go well. And like my colleague from Florida and my colleague from Michigan, we've seen an awful lot of problems with the rubber hitting the road.

I do want to say that I think some of the questioning that you've gotten, that's been a little bit leading, has sort of been unfair. Many of you are reformers in your field frankly. And you've been to some extent held responsible for the sins of your corporate fathers. And I don't want to do that.

But I'm sure you can hear the frustration. And I'm going to jump on the bandwagon, in the same way, because just like in Florida and Michigan and, it seems, many other parts of the country, people in my district are not seeing the benefits of the TARP program. They if anything are having as difficult time getting loans for everything from homes, small businesses.

One bank not represented here, I believe, has probably frozen almost all the home equity lines of credit; education. And my district, my city, Syracuse, currently is, according to Forbes magazine, the second-best real estate market in the country. Our property isn't losing value, because we never had the bubble. So our bubble never burst.

So I do want to ask you again and I'll start with Mr. Dimon, because you do have facilities in my district. But is there -- do you have any suggestions, for either the administration or us, in terms of, how do we craft a TARP program that will lead to more loans on the bottom?

I know the Federal Reserve says that you're loaning more. I'm not saying that it's necessarily, you know, your fault or anything. This is not normative.

What -- but what can we do to get more loans from -- you know, we're giving money to the Wall Street. We need more loans on Main Street.

MR. DIMON: Right. So I'll just start by saying, you know, we are continuing that project at Syracuse University, the Technology Center, and we're not stopping that because of this crisis or anything like that. (That will ?) lead to jobs and education in your wonderful city.

REP. MAFFEI: I'm very excited about that, and I do think that it's exactly what we need in terms of stimulus.

MR. DIMON: So I think we had mentioned before and I -- is that a lot of non-banks did pull out of the system. So we have this little dichotomy where it wasn't all banks who pulled, and there's a little confusion in what TARP was going to do.

I do believe, if we finish the stimulus package; if we finish the TALF; if Secretary Geithner finishes properly the mortgage financing; we finish the mortgage modification; we get some of these other programs in place deeply understood, verify banks' balance sheets and capital, because I think that's the purpose of the stress test; and if we do it in a coherent, consistent, coordinated, intelligent way, it will work.

It will not work if it's -- if we don't deal with all these issues and it's not coherent, it's not consistent, it's not well thought-through, it's not synchronized, it will not work that way.

REP. MAFFEI: Mr. --

MR. DIMON: In that -- we've been suckered a little bit with that in the last six months or so.

REP. MAFFEI: Mr. Lewis, you also have a lot of banks in my district, a lot of -- do you have the same idea --

MR. LEWIS: Yeah, I would agree with Mr. Dimon.

REP. MAFFEI: Okay.

Mr. Pandit, Citi is -- same thing; we've got projects in my district --

MR. PANDIT: Yup.

REP. MAFFEI: -- that frankly seem as viable now as they were before, but they're having more and more trouble making -- keeping their loan status from -- and some of those are Citi loans.

MR. PANDIT: Banks are not the only institutions that have been lending money in the past. There have been finance companies, and also there's been funding that's been provided -- loans that have been provided through securitizations.

REP. MAFFEI: Yes.

MR. PANDIT: We're --

REP. MAFFEI: No, I understand that -- no, but I mean, how -- but how can we make up for the problem, the lack of the securitization market? In other words, how can our TARP funds help you make up for some of that? I'm not necessarily saying that it's --

MR. PANDIT: (Off mike.)

REP. MAFFEI: -- right -- the problem isn't you, necessarily, but we -- but it is a problem.

MR. PANDIT: The finance companies are finding it difficult to fund themselves in order to turn around and make loans. Securitization market is basically not there in the form that it was before. And I'll speak for ourselves too. If we had more funding, we'd go around, make more loans, and the reality is the funding markets are very tight. Everything we borrow, we put out. Every deposit we get, we make a loan on. TARP capital we put out. If we had more loans, more availability of funding, we'd make more loans too.

REP. MAFFEI: But would those reach the street level? I mean, obviously you would --

MR. PANDIT: Yeah --

REP. MAFFEI: -- I mean, isn't it easier to do the bigger loans than the smaller loans? I mean, I'm -- I need -- you know, my -- the -- you know, small (as/is ?) a family or a student in college -- those where -- that's where I'm missing it.

MR. PANDIT: And we see a lot of demand out there. Even through discipline and all other rigor, there is still a lot of demand out there. There is a shortage of funding the marketplace to make loans.

REP. MAFFEI: Gentlemen, thank you very much. I yield back the balance of my time.

REP. MALONEY: Thank you very much for your testimony. This hearing is adjourned. (Strikes gavel.)


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