JUDY WOODRUFF: When Congress approved a $700 billion package to shore up the financial system, it did so with some conditions. Most importantly, the Treasury would be allowed to disburse the first half of that money, but would have to come back to Congress for the rest of it.
It also required some oversight for monitoring the money, including periodic reports from a bipartisan congressional panel. That panel issued a tough report today.
And here to walk us through the findings is one of its five members, former Sen. John Sununu of New Hampshire.
Senator Sununu, thank you very much for being with us.
FORMER SEN. JOHN SUNUNU, R-N.H.: Great to be here. Thank you.
JUDY WOODRUFF: So first of all, what did the panel learn about what was accomplished with that first $350 billion or so?
JOHN SUNUNU: Well, what we did back in December, just before I joined the panel, was put out 10 different questions that anyone would want Treasury to answer. What have you done with the money? What kind of metrics are we using to decide if it’s being used effectively? How are you tracking the performance of the banks, the financial institutions that received the money? And Treasury came back with their responses.
So this report that we put out is the Treasury responses and then our evaluation of the responses. And there were some things that we can look back on and say are positive.
I mean, the financial services system in America and across the world is much more stable than it was back in October, but there are still some big questions about how to measure performance.
You know, how do we know, moving forward, that progress is being made? Do we measure overnight interest rates? Do we measure the three-month rate against Treasuries? So Treasury, first, needs to come up with good standards for measuring performance in the marketplace.
JUDY WOODRUFF: And you’re saying they haven’t done that at all?
JOHN SUNUNU: Well, they haven’t really settled on key metrics that they’ll track and that we will track, also, from month to month. And they should do that.
Second, put together a system for monitoring compliance. You talked about the conditions, right, and some conditions on executive compensation. They can’t pay dividends, the restrictions on share repurchases.
How do we monitor all the different financial institutions that have received funds to make sure that they’re complying with those basic requirements? And that really isn’t fully in place yet either.
Cooperation of the Treasury
JUDY WOODRUFF: Not fully? You're saying it's partly in place, but...
JOHN SUNUNU: Well, Treasury has indicated they're developing plans and a system and infrastructure for carrying on this compliance, but I think it's fair to say that system is not yet fully in place.
So we go through each of these different 10 areas and 10 questions, present Treasury's responses, but then identify areas where we would like to see additional information, where they need to more fully develop systems for, say, compliance, and where they need to work harder to make information available to the public, because transparency is so important to public confidence.
JUDY WOODRUFF: How cooperative was Treasury in this process?
JOHN SUNUNU: Well, you know, I think they worked hard. I mean, you have to be sensitive to the fact that this is a $700 billion program put in place in October, in the midst of a financial crisis.
They had to, first, address the nine largest financial institutions that really do pose systemic risk to our financial system. Those institutions were addressed first. Then they had to establish criteria for other banks, small-, medium-sized banks to be able to apply for funds, decide who would be eligible and who wouldn't.
And there I think they work very effectively with regulators to make sure that they weren't just providing funds to institutions that were going to fail anyways.
So they -- they met with us. We met with Sheila Blair at the FDIC. We met with Neel Kashkari...
JUDY WOODRUFF: Sheila Bair, right.
JOHN SUNUNU: ... and his staff at Treasury. So there was a lot of cooperation and interchange. But at the same time, that doesn't mean that they really provided all of the detail and information that taxpayers should expect.
Preventing more home foreclosures
JUDY WOODRUFF: Now, one of your findings was also that that no money or very little money had been spent to prevent home foreclosures. Explain what you found there and what they were supposed to do.
JOHN SUNUNU: Sure. One of the -- one of the requirements in the statute encourages Treasury to develop plans for minimizing the effect of foreclosure, so develop a plan to minimize effect for foreclosure.
That, quite frankly, has not been a focus of Treasury through the initial disbursement of the $350 billion. They haven't allocated funds directly for that purpose.
They have worked with their counterparts, with the Fed. They've worked with FHA, federal homeowners administration, the Hope Now program. So there are a number of different programs throughout the federal government and outside of government to deal with foreclosure, but Treasury has not developed an independent plan for addressing foreclosures and they haven't allocated any of the $350 billion directly to foreclosure mitigation.
JUDY WOODRUFF: And, quickly, as I understand it, one of the arguments they have made is that they've decided against using it so far because they say they're worried that it would reward delinquency, that it would, in effect, discriminate against those homeowners who are making their payments, mortgage payments.
JOHN SUNUNU: It is very difficult to construct a program that can be easily administered, that identifies those homeowners who are credit-worthy, who can work through an alternative payment plan, and make those payments without falling back in foreclosure, and not rewarding those that might have speculated, that might not be credit-worthy, might not have the income necessary to make a reasonable payment at any interest rate or even if some of the principal has been written down.
It's just very difficult to set up a process that's effective. And we've seen, through FHA, for example, that has a program in place, it hasn't been nearly as effective as members of Congress thought that it would be when it was passed in the first place. So it's a difficult proposition.
JUDY WOODRUFF: One of the key findings, a lack of accountability on the part of Treasury, is that accurate?
JOHN SUNUNU: Well, I don't -- it depends what you mean by "accountability," of course. The Treasury doesn't have in place a system for punishing firms that are out of compliance, but more important I think this refers to the earlier point I made, that there's not a clear system in place for monitoring compliance, deciding whether all of these financial institutions are meeting the requirements dealing with dividends, sharing purchase, executive compensation that were part of the original program.
Spending the rest of TARP
JUDY WOODRUFF: Well, speaking of executive compensation, Congressman Barney Frank, who is the chairman of the House Financial Services Committee announced today that he is working with the incoming Obama team to come up with restrictions on how the second installment of the TARP is used. And here's a part of what Barney Frank had to say today about that.
REP. BARNEY FRANK, D.-Mass.: We intend to trust, but verify. And we're going to verify in advance. We're going to put some requirements in there. And to their credit, Secretary Summers addressed the Democratic caucus this morning. Secretary Geithner was quoted widely today.
They understand, and they don't differ with us. I mean, frankly, I think we are probably going to be a little tougher in a couple of areas, like on executive compensation, than secretaries of the treasury historically want, although I think they are more reasonable on it, but they understand that we're telling them what is necessary to get legislation through.
JUDY WOODRUFF: Now, you've taken a look at what Congressman Frank is proposing. What do you think?
JOHN SUNUNU: Well, I've seen the news reports, and I'd make a couple points. First, whatever Congress passes -- if they approve an additional $350 billion, whatever requirements are put into place, whatever the terms are put into place, as the oversight panel, we'll have responsibility for monitoring that, providing an extra set of eyes and ears to Congress, and provide information to the public, as well, so I will certainly, you know, look forward to playing that role, which is important.
Second, I'd note any kind of additional terms, conditions, executive compensation, or any other area will require a compliance effort. It will increase the cost of monitoring that compliance and that performance, and we just should be aware of that, that these terms and restrictions don't come without cost, whether it's cost to the oversight committees, cost to the taxpayers.
And then, finally, I'd say we need to be very careful about setting the bar so high that institutions don't want to participate and it could be counterproductive in undermining the security of the financial system.
JUDY WOODRUFF: So, finally, in brief, Senator Sununu, what is it that you look to Treasury -- that you believe Treasury must do if they are going to get and spend wisely the second half of this TARP recovery money, rescue money?
JOHN SUNUNU: I do think most important is for us as an oversight panel to work with Treasury and other oversight groups, like GAO, that's also put out a good initial report on the performance, to identify the best metrics for measuring whether or not these funds are having a positive impact on interest rates, lending, credit availability for small businesses and consumers, that really need this credit to operate. I put that very high on the list.
Second, to set up some sort of a -- a process for communicating to the public how these funds are being used, the institutions that have received funds, and how those institutions are acting with regard to making credit available.
We need to remember, though, the goal of the TARP isn't to bring the amount of lending back to where it was before the crisis, because the crisis was caused by too much lending to too many institutions and individuals that weren't credit-worthy.
So as the economy begins to recover, it's going to be at a lower level of borrowing, a lower level of credit than we had before the crisis. And we just need to understand that.
JUDY WOODRUFF: Former Sen. John Sununu, a member of this congressional oversight panel, thank you very much.
JOHN SUNUNU: Thank you very much. Great to be with you again.
JUDY WOODRUFF: Appreciate it.