Gingrey: Mr. Chairman, thank you. Mr. Frantz, I know it seems like we’ve beat this horse to death, but I don’t think quite so. So, I want to go back to this issue of subordination – particularly in light of the fact that you have said repeatedly before this committee this morning that you believe that under this loan program, you have the authority to subordinate in an extreme situation. You have said that a number of times, and I’ll be happy to have you either refute that or confirm it.
But, here is the situation. In the private sector, if a loan were to be subordinated, and it’s a scenario that you describe that the borrower is about to default, to declare bankruptcy, or whatever, and the person that made the original loan that’s in the first position is going to likely lose all of their money because of the bankruptcy that is likely to occur. And a deal could be structured, maybe the original lender has no more money or is unwilling to put up any more money – throw good money after bad as the expression goes – and somebody else, though, is willing to do that. Maybe, because they get a higher rate of interest to come in and pony up some more money.
You might be able to restructure a deal like that, but I would think – now you have got a legal team behind you of young, bright-looking people, and you’ve have been in business yourself a long time and maybe done some of these deals – you would have to go to that lender that is in the first position and get their approval before you could restructure and subordinate them to a secondary position, would you not?
Frantz: You do. You’re in consultation with them, as we were.
Gingrey: You were not in consultation with me. I am a taxpayer. You were not in consultation with we, the taxpayer. That is the problem here. And, that’s the thing that just amazes me that you don’t seem to get.
Now, there was a memo that our committee obtained that Jacob Lew, the former Director of OMB, sent, not only to the Department of Energy, but as I understand, to every other agency and department of the federal government, very specifically saying. It was Circular A-129 to be exact. This guidance document that was sent by then Director of OMB, Jacob Lew, to heads of executive departments: you cannot do this. Under these loan programs – whether they’re Department of Energy, Department of Agriculture, or wherever throughout the federal government – this cannot be done.
And you guys were told repeatedly, consult with the Treasury. After all, it was in the Department of Treasury where the money was being lent, and you repeatedly refused to go to the source of the funding to say – to ask – the question if this was ok. You just – as my colleagues have pointed out – asked some rookie, junior counsel in the Department of Energy to give you a quick and dirty opinion so you could go ahead and get this done and get it out the door.
And that is where you – and I say "you" and I use that term – Mr. Frantz, generically. I think you have been a good witness. I think you have been honest with us. But, I think you are honestly wrong in thinking that you could continue in this loan program.
And I would like some of my colleagues on both sides of the aisle – I am not ready to say that we should throw the baby out with the bath water and just eliminate the loan programs entirely. I want to think very long and hard on that before I would vote to do that.
But, if you are telling me that if we continue the loan program, and you are the guy there, or you are the straw that stirs the drink in regard to this loan program and another extreme situation comes up, in your judgment, you would subordinate the taxpayer; if that is the case, then I would say let's get rid of the damn thing.
I don't think you have the authority to do that, and if you – you know, I want you to respond to me, and if you are unclear about it, you get together with your team, and you all better look at the documents and study this long and hard, because I think you are flat wrong on this.
Frantz: Well, my only response and at the expense of just the reiteration of my comment, we would hope to never have to subordinate. It is a tool of the last resort. I have more experience in the private sector, quite frankly.
Gingrey: Let me interrupt you for just a second because you are going down the same path. It is not a tool of last resort. In your quiver, in your toolbox, you don't have that tool. Don't you understand that?
Frantz: The advice, and I, again, do not have a license to practice law, so I have to depend on the civil service advice of our general counsels, who reached a different conclusion, sir.
Gingrey: Well, I suggest that you go back with your counsel, and I suggest that you talk with the attorneys and the bankers in the Department of Treasury, and maybe even, you know, a little side-bar with Jacob Lew himself and look very carefully at circular A-129 because, Mr. Chairman, I just, I again, I apologize to my colleagues for, as I say, going back to this issue over and over again, but the gentleman just doesn't seem to get it. And that is the reason why I think we just need to make sure that he does get it.