JOE KERNEN: HERE FIRST ON CNBC, ELIZABETH WARREN, CHAIRMAN OF THE CONGRESSIONAL OVERSIGHT COMMITTEE. WELCOME. PROFESSOR ITS NICE TO SEE YOU. WISH YOU WERE IN STUDIO. BUT THIS WILL DO. LET ME READ THIS THING FROM CONGRESSMAN HEN STERLING AND YOU RESPOND TO THIS. THE ECONOMIC JUSTIFICATION FOR T.A.R.P. NO LONGER EXISTS. IT'S CLEAR TO ME NOW THAT THE ORIGINAL GOALS, FINANCIAL STABILITY AND TAXPAYER PROTECTION ARE NO LONGER THE AIM OF THE PROGRAM. ITS INCREASINGLY BEING USED TO PROMOTE THE ECONOMIC, SOCIAL, AND POLITICAL AGENDAS OF THE ADMINISTRATION. WHAT DO YOU MAKE OF THAT? WE HAVE NO -- GOT IT. ARE YOU BACK, PROFESSOR?
ELIZABETH WARREN: I CAN HEAR YOU.
KERNEN: OH, GOOD. WHAT DO YOU MAKE OF THAT?
WARREN: I JUST DON'T KNOW -- YOU KNOW, I'M NOT A WASHINGTON PERSON, SO I DON'T -- I DON'T GET THIS STUFF.
KERNEN: WELL, YOU MUST BE LIKE ALICE IN WONDERLAND DOWN THERE. I HAD TO GO DOWN AND I COULD -- I COULD FEEL ENTERING THE BELTWAY AND I GOT A RASH AND I STARTED ITCHING AND EVERYTHING. SO TELL US WHAT YOUR FINDINGS ARE FOR THE T.A.R.P. THEN.
WARREN: WE FOUND -- WE WANTED TO GO BACK, TAKE APART THE STRESS TEST, TAKE A GOOD LOOK AT IT AND WE FOUND SOME ENCOURAGING THINGS. WE GOT TWO INTERNATIONALLY KNOWN EXPERTS TO LOOK AT THE MODEL USED TO DO THE STRESS TEST. ERIC TALLON AND JOHAN WALDEN. AND THEY SAID IT'S A REALLY SOLID MODEL, TREASURY AND FED USED SOMETHING REALLY GOOD HERE. WE THEN HAVE SOME CONCERNS, THOUGH.SOME PLACES WHERE WE THINK THIS COULD BE STRENGTHENED AND ULTIMATELY GET SOME RECOMMENDATIONS ON IT. WE'RE CONCERNED ABOUT THE FACT IT'S ONLY A TWO-YEAR PERIOD. IN FACT, LESS THAN TWO YEARS. THEY ONLY ACCOUNT FOR INFORMATION BETWEEN NOW AND DECEMBER 2010. THERE ARE A LOT OF COMMERCIAL MORTGAGES COMING UP THAT WE KNOW THERE'S GOING TO BE TROUBLE ON IN 2011, 2012, 2013. WE'RE A LITTLE CONCERNED ABOUT THE SHORTNESS OF THE PERIOD OF TIME. WE TALK A LITTLE BIT ABOUT WORST CASE SCENARIOS. LET'S KEEP IN MIND THAT THE WORST CASE SCENARIO FOR THIS YEAR IS 8.9% UNEMPLOYMENT. WE'RE ALREADY AT 9.5%. THAT'S AVERAGED OF COURSE ACROSS THE WHOLE YEAR IN THE MODEL. BUT IT SUGGESTS THAT, YOU KNOW, WE OUGHT TO BE THINKING ABOUT RERUNNING THIS MODEL WITH SOME TOUGHER NUMBERS IN IT. WE TALK ABOUT THE FACT THAT THE DATA HERE ARE ENTIRELY SELF-REPORTED AND DONE BY THE SAME REGULATORS WHO HAVE BEEN THE REGULATORS ALL THE WAY THROUGH THIS PROCESS AND THAT MAY UNDERMINE A LITTLE CONFIDENCE IN WHAT'S GOING ON HERE. AND WE TALK ABOUT THE FACT THAT THE MODEL, AS SOLID AS IT SEEMS TO BE, THE PROBLEM IS THERE AREN'T ENOUGH DETAILS THAT OUTSIDERS CAN RERUN OR TAKE ANOTHER LOOK AT, REALLY TAKE THEM OUT FOR A TEST RIVE.AND THE REASON THAT'S IMPORTANT IS THAT'S HOW YOU KNOW YOU HAVE WHAT'S CALLED A ROBUST MODEL. THE NUMBERS ARE A LITTLE BIT SHIFTED, SOME NEW INFORMATION COMES IN, DO WE HAVE STRESS TESTS THAT ARE SOLID AND KIND OF LAST ACROSS A LOT OF DIFFERENT SCENARIOS IN THE FUTURE? SO BASICALLY OUR VIEW IS, GOOD FOR THEM ON THE MODEL, SOME PLACES WHERE WE COULD DO BETTER. AND ASK THEM TO DO SOME MORE RERUNNING OF THE STRESS TEST AS WE GO FORWARD.
SERWER: ONE QUESTION I HAVE ABOUT THIS, PROFESSOR, IS -- AND I THINK YOU'RE SPEAKING TO THIS A LITTLE BIT, THIS TRANSPARENCY. IT DOESN'T SEEM LIKE THERE'S ENOUGH.AND I WISH THERE WAS MORE.AND IT SEEMS LIKE YOU'RE AGREEING WITH ME.WHAT CAN BE DONE TO GET MORE OF THESE DETAILS, AS YOU SUGGEST, OUT INTO THE OPEN AND ISN'T THAT ABSOLUTELY NECESSARY TO DO?
WARREN: I'M SO GLAD YOU RAISED THIS. THIS IS A BIG PART OF OUR REPORT. THEY NEED TO GIVE US MORE INFORMATION. WHEN YOU'VE GOT MORE INFORMATION, YOU HAVE MORE CONFIDENCE OVERALL IT REALLY HAS BEEN DONE IN A STRAIGHT UP WAY, THAT THE MODEL ITSELF IS ROBUST AND WILL MAKE THIS HAPPEN. SO THIS HAS BEEN A MAJOR THEME OF THE OVERSIGHT PANEL SINCE THE VERY FIRST REPORT. TRANSPARENCY, ACCOUNTABILITY AND CLARITY.
SERWER: BUT WHAT CAN WE DO ABOUT IT. I MEAN IS THERE ANYTHING WE CAN DO TO GER MORE OF THESE DETAILS OUT. INSTEAD OF -- I KNOW YOUR CONCERN, BUT CAN WE TAKE SOME ACTION HERE.
WARREN: LOOK, THIS IS THE ACTION I TAKE RIGHT NOW. IT'S TALKING TO YOU AND REALLY PRESSING ON THIS. LET'S BE CLEAR. TREASURY HAS BEEN FAR MORE TRANSPARENT IN THIS PROCESS THAN IN ANY SIMILAR PROCESS EVER IN ITS HISTORY. THEY GOT THE FED TO RELEASE INFORMATION FOR THESE STRESS TESTS THAT SIMPLY HAS NEVER BEEN DONE-ITS UNPRECEDENTED. I WANT TO START WITH A GOLD STAR. BUT WE HAVE TO MAKE THE POINT THAT TO GER THE REST OF THE GOLD STARS, THEY'VE GOT TO GIVE US MORE INFORMATION. SO WE KEEP ASKING FOR IT ON THE PANEL. WE'RE GOING TO CONTINUE TO ASK FOR IT. WE'RE GOING TO CONTINUE TO ASK FOR IT IN PUBLIC AND PRIVATE WAYS. WE GET THAT INFORMATION, WE CAN DO MORE WITH THESE STRESS TESTS AND HAVE A BETTER FIX ON WHAT'S HAPPENING WITH OUR FINANCIAL INSTITUTION.
CARL QUINTANILLA: PROFESSOR, UNDER WHAT CIRCUMSTANCES WOULD THE PANEL RECOMMEND DOING THIS ALL OVER AGAIN, OR HAVING A SECOND ROUND?
WARREN: WE ACTUALLY MAKE RECOMMENDATIONS TO DO IT ALL OVER AGAIN RIGHT NOW. THE ECONOMIC CONDITIONS THAT ARE IN THE STRESS TESTS HAVE ALREADY SHIFTED.
QUINTANILLA: SO WE NEED TO START FROM SCRATCH AS OF NOW?
WARREN: WELL, WHAT WE -- WHAT WE RECOMMEND IS GIVEN THE CURRENT ECONOMIC CONDITIONS, WE ACTUALLY -- YOU'LL WAIT ANOTHER MONTH OR TWO TO SEE HOW THE AVERAGES ARE WORKING OUT FOR THE YEAR, BUT THAT WE OUGHT TO BE RERUNNING THESE STRESS TESTS. REMEMBER, THESE NUMBERS WERE PUT TOGETHER IN FEBRUARY AND AS I SAID, WE'VE ALREADY BLOWN PAST THE WORST CASE SCENARIO ON UNEMPLOYMENT. THAT MEANS IT'S TIME TO RERUN THOSE NUMBERS AND FIND OUT IF THE STRESS TEST IS STRONG ENOUGH TO GIVE US A GOOD PREDICTION AND TELL US THESE FINANCIAL INSTITUTIONS ARE SOLID EVEN IF UNEMPLOYMENT IS HIGHER THAN THE MODEL PREDICTED.
KERNEN: YOU CAN ALMOST SEE THIS ENTIRE THING, PROFESSOR, SPLIT DOWN IDEOLOGICAL LINES. IT ALMOST APPEARS LIKE A LOT OF THE BANKS THAT DIDN'T WANT THE MONEY IN THE FIRST PLACE, OR SAY THEY DIDN'T, THEY SORT OF WENT ALONG WITH IT, IF YOU WERE CYNICAL YOU'D SAY, THEY WANT TO PAY IT BACK JUST TO GET OUT FROM UNDER THE GOVERNMENT'S THUMB, THEY WANT TO PAY THEIR PEOPLE THE WAY THEY WANT TO PAY THEM, THEY WANT TO ADVERTISE THE WAY THEY WANT TO ADVERTISE THEM. SO THEY'RE READY TO JUST START ENGAGING IN RECKLESS BEHAVIOR. AGAIN YOU COULD SAY THAT. THEN YOU HAVE ON THE OTHER SIDE, CONGRESS, BOY, THEY GOT A TASTE OF MANAGING THESE INSTITUTIONS.YOU KNOW, WHEN THEY WERE, BEHOLDEN TO THE TAXPAYER, THEY COULD EXERT ALL THIS INFLUENCE. THEY DON'T WANT TO GIVE THAT UP. WHAT'S THE TRUTH?
WARREN: YOU KNOW, I HAVE TO SAY I'M AN OUTSIDER. I DON'T UNDERSTAND THE POLITICS OF THIS GAME.AND IN MANY WAYS I DON'T THINK I WANT TO UNDERSTAND THE POLITICS OF THIS GAME. WHAT I WANT TO DO IS KEEP DOGGING TREASURY BECAUSE I FEEL LIKE THAT'S MY JOB AND THAT'S MY PANEL'S JOB IN DOING OVERSIGHT. WE WANT THEM TO BE HONEST AND TRANSPARENT IN THIS PROCESS. TREASURY HAS SHOWN A LOT OF PROGRESS IN THAT DIRECTION. SO WHAT WE WANT TO DO IS KEEP STANDING ON THE OUTSIDE, ASK THEM TO BE MORE TRANSPARENT ABOUT THESE STRESS TESTS, ASK THEM TO RUN THEM AGAIN. ASK THEM TO GIVE US ENOUGH INFORMATION, FRANKLY, THAT OUTSIDERS CAN RUN THEM.YOU DON'T HAVE TO HAVE SPECIFIC BANK INFORMATION. LET US PLAY WITH IT. DO THE NUMBERS SHIFT IF YOU GO OUT THREE YEARS? DO THE NUMBERS SHIFT IF THE UNEMPLOYMENT RATE GOES UP ANOTHER QUARTER OF A POINT OR HALF A POINT, IF THE GDP SHRINKS BY ANOTHER POINT? THOSE ARE IMPORTANT THINGS THAT ALL OF US NEED A BASELINE EFFECT. I DON'T CARE WHETHER YOU'RE REPUBLICAN OR DEMOCRAT. YOU NEED GOOD INFORMATION ABOUT WHERE THE FINANCIAL INSTITUTIONS ARE TODAY AND GOOD PROJECTIONS ON WHERE THEY'RE LIKELY TO BE IN THE NEXT COUPLE OF YEARS. THEN LET THE POLITICIANS FIGHT IT. I'LL GO BACK HOME
BECKY QUICK: PROFESSOR, REAL QUICKLY. TODAY WE GOT THAT LIST OF FIRST BANKS THAT CAN PAY BACK THE T.A.R.P. MONEY. THE MONEY THAT GETS PAID BACK, SHOULD IT GO BACK INTO THE T.A.R.P. FUNDS FOR TREASURY TO USE IT AGAIN OR SHOULD IT GO BACK TO THE BROADER PURPOSES? SHOULD IT BE PAID BACK TO THE TAXPAYERS, ESSENTIALLY?
WARREN: THIS WHO BE CONGRESS'S DECISION. CONGRESS IS THE ONE WHO WROTE THESE LAWS TO BEGIN WITH. AND IT APPEARS THEY WROTE A PERFECTLY AMBIGUOUS LAW ON THAT QUESTION. WHETHER OR NOT THE MONEY COULD BE RECYCLED. WHAT THAT MEANS IS WE'RE IN THE WORLD OF REALITY. THE WORLD OF REALITY IS THE TREASURY HAS A GOOD ARGUMENT THAT IT CAN RECYCLE THAT MONEY. UNTIL SOMEONE CHALLENGES THEM ON IT OR UNTIL CONGRESS CHANGES THE LAW IN SOME WAY I THINK THAT'S WHAT TREASURY'S LIKELY TO DO.
KERNEN: THANK YOU, MISS WARREN. GOOD TO SEE YOU THIS MORNING.
WARREN: GOOD TO SEE YOU.
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