Mr. Geithner, as you know, I wrote to you last June asking for details about the portfolio of assets received by the Federal Reserve as part of the Bear Stearns rescue last March. I received no reply for months. In fact, despite repeated requests to receive a full response before the Senate voted on the broader $700 billion dollar package, it was only after that vote that you provided the information I was seeking. It’s hard to imagine a situation where the legislative need for information was more urgent than just before that vote to authorize the spending of $700 billion.
a. Why did you withhold the information until after the vote?
I very much appreciate your frustration with the pace at which you were provided the information you requested. The review process within the Federal Reserve took longer than was necessary and appropriate. I can assure you that the delay was in no way related to the process that was unfolding around the TARP. I understand that staff at the New York Fed have met with your staff and that your staff has been satisifed with the information that has now been provided. If confirmed, I will work with you to see that you have available to you all the information you require to ensure that the taxpayer’s interests are protected.
b. What assurances can you provide that you will not be as slow to respond to my future requests for information if you are confirmed?
President Obama has emphasized his desire, which I share, to work closely with both parties on Capital Hill to ensure that we can address our nation’s urgent problems. At this point in time, it is critical that the Administration and Congress consult closely with one another. And, as I have indicated, I will make certain that your requests are given prompt responses.
I appreciate the briefing and answers to follow-up questions that your staff eventually provided regarding the Bear Stearns deal. However, I am disappointed with the level public disclosure about the assets being held by the Federal Reserve through Maiden Lane, LLC. Specifically, it appears that the reported valuation of those assets may be overstated. The reason is that much of the debt in the portfolio is guaranteed by Freddie Mac and Fannie Mae, which are in-turn guaranteed by the Federal Government. In other words, a rosy scenario for Maiden Lane, LLC is not necessarily a rosy scenario for the American taxpayer.
a. Isn’t it true that if the defaults on those loans are high, then the taxpayer is still left holding the bag even if the Federal Reserve gets its money back from Maiden Lane, LLC?
The Federal Reserve holds a range of government, government guaranteed and agency securities on its balance sheet. We have provided the Committee staff with the detailed composition of the assets in the Maiden Lane, LLC that are guaranteed by Fannie Mae and Freddie Mac. The risks assumed by the government sponsored entities and by the Federal Reserve have to be measured in relation to the benefits they provide the financial system and the overall economy.
b. Why isn’t general data about the loans underlying the securities in the portfolio regularly reported to Congress and the public in order to provide a more accurate picture of the true risk to the taxpayer? Specifically, is there any reason that the percentages of loans in default, the percentages of loans over 90 days late, and similar aggregated statistical information cannot be released?
As you know, the critical imperative behind all of the government’s extraordinary actions over this period has been to stabilize the financial system. Consistent with its accounting and disclosure practices, the Federal Reserve reports publically on the value of the portfolio of assets held in Maiden Lane, LLC on a regular basis. Confidentiality around the specific characteristics and performance of individual loans in the portfolio is maintained in order to allow the asset manager the flexibility to manage the assets in a way that maximizes the value of portfolio and mitigates risk of loss to the taxpayer.
c. If you are confirmed, what assurances can you provide that there will be more meaningful disclosure about the performance of the Bear Stearns deal?
The Board of Governors of the Federal Reserve System is responsible for setting broad policy on accounting and disclosure of the activities of the Federal Reserve Banks. If confirmed, I look forward to working with you and with Chairman Bernanke on ways to respond to your suggestions and concerns.
d. What specific additional disclosure would you support?
If confirmed, I look forward to working with you and with Chairman Bernanke on ways to respond to your suggestions and concerns.
e. What do you plan to do to ensure that there is improved transparency regarding the AIG rescue and the TARP program?
If confirmed, I will work with you and your committee to provide all appropriate information to strengthen transparency and safeguard taxpayer funds.
f. Do you support providing GAO with full access to the books and records of entities that received TARP funds?
If confirmed, I would be pleased to work with you and the GAO to examine way to help the GAO carried out its important oversight functions.