[Posted by Karl]
Rep. Barney Frank (D-MA) has a piece at the HuffPo, attempting to place all of the blame for the current economic downturn on Republicans and pretend he had nothing to do with it, including the implosion of Fannie Mae and Freddie Mac. Frank writes, “we have tools to aid memory — pencil and paper, word processing, transcripts, newspapers, and the Congressional record.” Indeed we do, but Frank fails to specifically cite to or quote any of them. There are reasons for that.
In the real world, Frank opposed increased oversight of Fannie and Freddie as far back as 1992.
Frank then skips over most of the Clinton Administration, particularly the series of decisions by HUD Secretary Andrew Cuomo between 1997 and 2001 that helped plunge Fannie and Freddie into the subprime markets without meaningful oversight. Perhaps Frank is hoping everyone will forget that Frank’s boyfriend at the time was Fannie’s assistant director for product initiatives. Some might question whether that was a conflict of interest, though Frank — who once fixed tickets for another boyfriend on probation for drug possession and for possession of child pornography — apparently saw no potential conflict.
Frank is proud that he voted against the Gramm-Leach-Bliley Act, “which overturned a Depression-era law preventing commercial banks from acting like investment banks.” Frank again omits that this law had broad bipartisan support in Congress, as well as the Clinton Administration (with help from Larry Summers, now one of Pres. Obama’s top economic advisors). Frank may also be hoping readers do not know that economists from Tyler Cowen to Brad DeLong agree that the diversification did considerably more good than harm, as it allowed sounder commercial banks to help bail out the troubled investment banks.
In 2003, when the Bush administration proposed creating a new agency to assume supervise Fannie and Freddie, Frank’s response was that Fannie and Freddie “are not facing any kind of financial crisis… The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Frank nevertheless touts his efforts during this period with Rep. Mike Oxley (R-OH) on a bill to increase regulation of Fannie and Freddie, blaming House Republicans and the Bush Administration for its demise. Sam Dealey dealt with this bill — and its fate — last year:
A month after warmly receiving [Bush Treasury Secretary] Snow’s proposal, House Finance Chairman Mike Oxley unveiled a bill. It lacked two key components, however. First, the new regulator of the sibs would not be Treasury itself but a newly created “independent unit” within Treasury. That’s the same arrangement that already existed—the sibs were presently under an “independent unit” that time and again proved incapable of detecting Fannie and Freddie shenanigans. Second, the bill would grant the Housing department oversight—largely toothless because it lacked the authority to contain the investment risks the sibs were taking. Faced with stiff opposition from the White House, the Ohio Republican pulled his bill the night before the committee’s final vote.
In 2005, Oxley (with Frank) tried again. The legislation was stronger than before, but again failed to provide a regulator with the authority to curtail the kinds of assets Fannie and Freddie could hold. Indeed, the bill even expanded Fannie and Freddie’s abilities to purchase mortgages. Financially responsible people saw the writing on the wall and threw their support behind a tougher Senate bill [which died in the face of opposition from Senate Democrats –K].
Regardless, Oxley’s bill passed the House and Frank now leaves the impression that he supported it…
In fact, praises for bipartisanship notwithstanding, Frank voted against the 2005 bill. As the chairman tells it, this is because “the Republican majority inserted language at the last moment that would prohibit religious organizations from participating” in providing low-income housing financing. “It is only because of this ridiculous action by archconservative Republicans that I cast my vote ‘no.’ ”
That’s a pretty loosey-goosey rendering of what went down. The provision Frank references was his pet project, which would designate 5 percent of the sibs’ after-tax profits for grants to outside organizations to promote low-income housing. As Frank says, the grants could have gone to religious groups like the Catholic and Lutheran churches (it’s good to see Frank now fully supports Bush’s faith-based initiative, by the way) but also to decidedly secular and politically active organizations like the Child Welfare League of America and Volunteers of America.
Many in Congress opposed Frank’s baby because it was a step backward in reform.
Supporting toothless alternatives is one of the oldest tricks in the Congressional book. Frank’s true attitude during this period was shown in 2004, when Fannie’s regulator leveled serious charges amounting to fraud against Fannie and its executives. Frank commented, “I don’t see anything in this report that raises safety and soundness problems.”
Frank blasts former Pres. Bush for demanding that Fannie and Freddie increase the percentage of subprime loans they purchased, “supposedly because of his belief in an ‘ownership society.'” He ignores that — however ill-advised — this was a continuation of the aforementioned Clinton Administration policies and that Bush at least pushed the independent oversight of Fannie and Freddie that Frank opposed.
Frank also blames the Fed — and cheap money both here and abroad helped cause the housing bubble. However, Frank ignores that the Boston Fed (yes, in Frank’s virtual backyard) was among those pushing lower lending standards across the board in order to make more minority loans — which Frank has championed for years. Moreover, former Fed Chairman Alan Greenspan repeatedly warned Frank and his friends that Fannie and Freddie carried systemic risks requiring legislative action, above and beyond tighter regulation of these government sponsored enterprises. Frank turned a deaf ear to these alarms.
Frank ultimately concedes “that the present financial crisis has many fathers.” Frank can dance, but he cannot hide from the fact that he was one of them. Is Frank being intentionally dishonest, or is he merely as clueless as he claimed to be about the prostitution ring run out of his apartment? Neither possibility seems very comforting, particularly as Frank’s plan to “fix” Fannie and Freddie is mostly to give them more capital.