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Master of the House

Chairman of the House Financial Services Committee in 2008, Rep. Barney Frank explains Washington’s role, lack of oversight, and complicity in the Global Financial Crisis.

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Washington Times

I met Barney Frank last spring when he spoke at the local Elks Lodge. Pulling into the parking lot, I was stunned to see a small lynch mob of angry picketers holding signs that read “NO BAILOUTS!” Inside, though, was quite a contrast. The Mansfield Democrat Town Committee welcomed their Congressman like a vintage Rock Star on one of those never-ending Farewell Tours, and as the Chairman of the House Financial Services Committee presiding over the deep and darkest recession since the Great Depression, I see their point - for better or worse. Looking somewhat disheveled, Frank quickly tucked in his shirt, slapped on a tie, took the podium and delivered a blistering yet educational and humorous one-hour speech on the nation’s economy.

Following his speech, I had the temerity to approach the Congressman and ask for a private interview for this magazine. Questioning our leaders isn’t our right, after all, it’s our duty. And after nearly 6 months of scheduling delays, I made my way to his New Bedford office, the blue-collar mill town an hour south of Boston, to interview perhaps one of the most powerful and polarizing members of Congress. Frank’s Fourth District is a bonanza of socio-economic demographics and symbolizes the need for his work as one of the brightest and most energetic defenders of civil rights issues in America. And when I pulled up to his office on “Pleasant Street,” the irony of a shuttered little bank across the street reminded me that Regulators had, in fact, shut down 130 banks in 2009. Starting the interview, I explained what topics I planned to cover. “I’m going to start with the economy, Sir,” I began. And with his trademark frankness he interrupted and said, “Just ask me the questions!”

In retrospect, what would you have done differently, if anything, leading up to the Crisis?

Ummmm…not a great deal because my problem was that the Democrats were in the minority until 2007. The Senate is different than the House. The Senate needs 60 votes so the minority has a lot of influence. In the House, the minority doesn’t have much impact. During the period before 2007, I did try to do something. Now I will acknowledge, I did not see the depths of this crisis, I didn’t see the depths of the housing collapse. But I was pushing for public policies that would have made a difference. In particular, I was an early critic of the notion that the best way to deal with the housing needs of very low-income people was to help them buy homes. I was pushing for rental housing for the poor. And when the push came particularly in the Bush Administration to increase homeownership for very poor people – I objected. In 2004, the Bush Administration ordered Fannie Mae and Freddie Mac substantially to increase the percentage of mortgages they bought for people below the median income - I objected. I said that wasn’t good for Fannie Mae and Freddie Mac and it wasn’t good for poor people.

There is one area where I backed off and I wish I hadn’t. I filed a bill to call for the registration of hedge funds with the SEC. Deregulation was still the flavor-of-the-month and some Democrats said ‘That’s a tough vote for us’, so I let it drop. I should have pushed more. I would say, I really was not in a position to do anything until January 2007. If you look at the beginning of January 2007, we passed legislation dealing with executive pay. We passed legislation dealing with credit cards. We passed legislation to restrict subprime mortgages. We passed regulation to restrict Fannie Mae and Freddie Mac. I’ll be glad to defend the record…once I became Chairman.

How about going back to the Clinton years, where they expanded homeownership as well?

I thought that was a mistake then. I used to argue with (Deputy Secretary of the Treasury) Larry Summers about it. I was for rental housing. I have always felt that the important thing to do for lower-income people was rental housing. I have been skeptical of the home ownership piece for a while, now I did not understand how badly that was going to undermine things...

You have been critical of the easy-money policies of the Fed earlier in the decade-- (interrupting) No, I have been critical of the Fed’s failure to regulate! I do not think the low interest rates were the problem. The problem was: Alan Greenspan was given the power by the Congress in 1994 to regulate mortgages - the Homeowners Equity Protection Act. He refused to use it. Ben Bernanke, to his credit, began to deal with subprime mortgages. He used the very same authority that Alan Greenspan wouldn’t use.

No, my problem with Greenspan was this: his view was the only tool he had was to raise interest rates. I disagree with that. I think lower interest rates were helpful - so in that I agreed with him. My disagreement with Greenspan is that he would not do anything structural. He refused to use the power to do margin requirements, he refused to deal with credit card abuse, and most important, he refused to do anything about subprime mortgages.

It sounds like you have decent things to say about Bernanke’s Fed?

Oh…I think he’s done a pretty good job. First, he used authority that had been there that Greenspan refused to use; but secondly, he only began using it after the Democrats took over Congress and we began to legislate it. No consumer legislation could even come up in the House until 2007 because of the Republicans. In 2007, we began to move on credit cards and we passed a subprime bill. In both cases, Mr. Bernanke did move. So yes, he has been much better than Greenspan at using that authority.

Bernanke’s efforts to inject liquidity into the market when things started going sour was a different approach than we took back in the Depression Era. Do you think that headed off a 1929-like situation?

I do. Let me answer this on two levels. I believe that there would have been a total freeze-up of the credit system if we had not intervened after Lehman Brothers. But even if you didn’t think that was the case, from our standpoint in Congress, once the Secretary of the Treasury and the Chairman of the Fed said there was going to be one, there was going to be. But I don’t think it was a self-fulfilling prophecy. I think Paulson and Bernanke were convinced accurately that was going to happen. But whatever…on that day yes, I think if we had not intervened there would have been a crisis. I think Bernanke has done a very good job with that.

The one thing that he did wrong – remember the sequence. Lehman fails over the weekend, it’s a terrible blow. The next day AIG says “We’re in the same boat”. On Tuesday, they (Bernanke and Paulson) announce to Congress – they didn’t ask us – that they were bailing out AIG under Fed powers – that wasn’t part of the TARP. At the time, there were no restrictions on AIG. The reason I say this is that later on we have this terrible outrage over the bonuses. The one mistake Bernanke made is that he didn’t put any restrictions on them then. It was a mistake but it wasn’t a personal failing. His problem is that he has never been political. Two days later when he came with Paulson and asked for the TARP, we said right away that there had to be some compensation restrictions. So that’s his one mistake but it’s very understandable given his background, given the atmosphere.

Tell me about September 29th, the day the House vote failed. What’s going on behind the scenes? Do you have your eyes on the stock market and does this effect how you do business?

No, no, no. The Crash of the stock market the next day clearly turned some Republicans around. What we were focused on was trying to get enough Republican votes to pass this in the House. Senate Republicans were for it. John McCain is playing this…odd game. It’s a high priority of the Republican President. We finally got more Democratic votes than we expected - about 70 percent. But the question was, how many Republican votes would there be? In the end, there were far fewer Republican votes than anyone had expected – less than a third. I was surprised at how few Republican votes there were.

When it became clear that it was failing, the Democratic and Republican leaderships came together in the Well of the House as they do from time-to-time – generally not together – to try to switch votes. I and a couple of others said ‘No, you can’t do that. This is too important for the country. If this is going to be done, it going to have to be done in a way that nobody can question its legitimacy. You have to accept defeat and come back at it.’ And we did accept defeat. I remember Paulson called, desolate. I said to Paulson – ‘You know sometimes you have to let the kid run away from home and get hungry and scared and then he comes back home’.

And so what happened was that my boyfriend had come down. On Tuesday, we were at the airport, two well-dressed guys from North Carolina complained to me about the Bill going down. I said, ‘Hey, you know, I voted for it. Who’s your Congressman? Howard Coble (R-NC)? He voted against it. Howard switched his vote.’

I’m glad you brought up North Carolina. We have a lot of readers from Charlotte, and more than a handful have this feeling that had the bill passed on that day, or had the government stepped in a little earlier that Wachovia Bank could have been saved and tens of thousands of jobs could have been saved.

That I don’t know about. Had the government stepped in earlier? I don’t think that was possible because of the extraordinary intervention with a lot of public money. It wasn’t until Lehman failed that people knew how bad it was going to be. As far as if the bill had passed that day… it passed a little bit…later. I’d have to be shown why that was the case.

There’s a feeling that maybe the bank’s fundamentals weren’t so bad but there was a hysteria – there was a run on IndyMac, right after that there was a run on WaMu, Wachovia’s the next one. Between the time the vote failed and the time the voted passed, Wachovia failed. Would there not have been that hysteria that created the silent run on the bank?

I don’t know.

Did everyone from that area call their members of Congress and tell them to vote for the bill?

Probably not.

As the crisis is mounting, Sheila Bair, the FDIC Chair, is arranging shotgun weddings for some of these firms that are going under. While you don’t have a hand in it, what’s your feeling when you hear that Wachovia and Citibank are being paired up? Now that didn’t ultimately come to play--

(interrupting) I had no particular feeling about it. If something isn’t going to come before me, I don’t learn a lot about it because I haven’t got room in my head for everything already coming before me. If I don’t know a lot about it, I keep my mouth shut. I’m the Chairman of the Committee; I can’t afford to have random opinions. I can’t speculate. I will say one of the lessons we learned from this was, yes Wachovia failed and it was sad for a lot of people but it didn’t have the impact of either Merrill or AIG because we have a means for resolving failing banks. We have to have a situation that we could have handled Lehman Brothers the way we handled Wachovia and we put it to sleep in a way that is painful for some but not a systemic calamity.

Is the TARP Program working?

Yes - somewhat. It prevented a disaster, and it’s actually working better than anyone expected. You’ve got banks paying the money back. It certainly worked from the standpoint of not costing the government nearly as much money as people were ready to write off the whole 700 billion. There are two problems with it. The one criticism I have with Hank Paulson was that he put too little emphasis on getting the banks to do foreclosure modifications. And lending has not come back to where it was. But had there not been the TARP, it would have been much worse.

Do you think given some of your efforts recently that the floodgates are going to open, and we’re going to start seeing more of those restructurings and people staying in their houses?

Somewhat more. There’s not gonna be floodgates. It will get better. I don’t know if it will get better…enough. I think it will get better because they (lenders) are scared of us. I wish I could say it’s because they wanna do the right thing, but I have given that hope up.

Do they have anything to be scared of? (chuckling)

Yeah. If they keep this up they’ll get bankruptcy proceedings!

Regarding President Obama’s economic agenda, he won a landslide victory with a mandate for change, and certainly we’re seeing change vis-à-vis the Bush Administration. But some have said ‘It’s just another classic Liberal tax-and-spend program, so while it’s a change from Bush, it’s not really anything new.’

That’s nonsense! Ben Bernanke, in his last semi-annual report, cited two examples of how the (Obama) recovery package helped out the economy. First of all, the combination of tax cuts and income supports supported consumer spending better than it would have been. Second, he noted that aid to states helped by lowering the interest rates they pay on municipal bonds. When he was asked by Republicans, who were very skeptical, he said unemployment clearly would have been higher without the economic recovery plan.

Do you support what Bush did to expand TARP to help out automakers?

Yes, a total collapse of GM and Chrysler - economically, psychologically, and politically, would have been devastating to America. And I do think the Cash for Clunkers apparently worked well. Government programs can’t breathe back life into a dead man, but it can help speed up the recovery process.

Frank Talk

No interview with Frank would be complete without discussing his ideology and voting record on social issues. As I switched topics, I took a moment to observe my surroundings. His 20X20 office was decorated in a brownish color that can only be observed in government buildings. Furnishings were spartan to say the least – only two pictures of Frank as a younger man adorned the walls. In the background was the constant drone of the telephones ringing.

A couple of questions about your social programs. Is right now the right time to be taking on health care? Can we afford it?

Yes. Sure. It’s not a short-term question about whether you can afford it or not. Let me give you one simple statistic. If we had not fought the war in Iraq and had used that money, there would be no health care funding issue. The question is: why is it a given that we’ll spend a trillion dollars on the war but we can’t spend a roughly comparable sum for health care? I think the war in Iraq was a disaster and a terribly expensive one. Now, we can’t do health care and do everything we’re doing. We can’t send a man to Mars and subsidize the rest of the world’s military and build the F-22. Our current health care system is a drag on the economy, it’s a drag on employment, it’s a drag on wages.

Obama tried to talk about cutting agriculture spend. Some of my colleagues who are so conservative on the budget – Kent Conrad (D-ND), wonderful man – fought against any effort to reduce wasteful agricultural subsidies. Now he says we can’t afford to do medical care. So the question is: what else do you do? I think you could put tax rates up to where they were under Clinton, not abolish the estate tax altogether, and have significant sources of revenue. So the answer is yes. The fact that we are in a Recession now is irrelevant because you are talking about costs over a 15-20 year period.

During the Clinton years, though, the Democrats’ M.O. was that we needed a balanced budget.

That was Clinton’s M.O. I never supported it. I think he overdid that. I think deficits can get out of hand, but I do not think that there is any economic argument for us to have to have a balanced budget.

Changing subjects, you have been a supporter over the years of decriminalization of marijuana. [

Yup. That’s taken root in some states and now California is looking at full legalization.

Do you see this being done at the Federal level? In your lifetime?

We’re a little bit away from it. It’s a cultural lag. My colleagues have accused me of being soft on drugs. The American people are much more sensible. And there’s this great hypocrisy: ‘Oh, we don’t want to lock anyone up for smoking marijuana’. Well there’s a fundamental rule, if you don’t want to lock someone up for doing something, don’t have a law that says you’re going to lock ‘em up. The law that is never enforced is terrible, disrespectful for the law. I think we will get there, slower than we should. On the other hand, I’m 69 years old, so if you’re talking 15 years or more, then that’s not in my lifetime (laughing). I found out that my life expectancy is apparently 84 or 85 because I read that Madoff’s lawyer said that at 71 he had a life expectancy of 13 years.

I want to wrap up with a couple of questions about you. On 60 Minutes, you told a humorous story about a conversation you had with Tip O’Neill back in 1986 when you were about to be Outed by a newspaper.

(laughing) He said ‘Coming out of the room’

Now while it was fairly humorous, he in effect told you that he thought that revelation would cost you becoming Speaker of the House some day.

And would substantially diminish me as a political figure.

In retrospect, you’ve done well for yourself, your constituents constantly support you. Do you think it ever got in the way of your success?

Not nearly as much as I feared it would - even surviving a stupid…behavior pattern…that was the result of me being closeted where I had paid for sex because being closeted I couldn’t find people in a sexual way. I do think if I had not been gay it is possible that I would have been in the House Leadership. That is possible. On the other hand, it has not been an obstacle in any way to my being the Chairman of the Committee. I entered politics in 1972, three years after the Stonewall Riots, when the Gay Rights Movement began. While I was closeted for 15 of those years, I was always an active gay rights supporter. At any time during this past 37 years I’ve been doing this, I have underestimated the rate of progress that we’re making.

I’ll say this, when it looked like John Kerry might be President, we had a mock election for Senate in Massachusetts. The consensus was that I would have won. That’s not necessarily the case now – I’ve taken some hits in popularity over the TARP and everything else. It turns out even after I had come out, I could have probably been elected to the Senate if we had a real vacancy. So other than possibly keeping me out of House Leadership, I am pleasantly surprised it’s had no negative effect. I thought it would have more of one.

Given how far the country’s come in gay rights and acceptance, are you surprised at the small number of openly gay politicians – only three in the House?

No. Only three in the House now, but I’d say that 10 years from now, you’ll have a lot more. There has been real progress if you look at the state legislative and city councils, you see the bench.

Gay President some day?

(hesitating) Probably...wayyyy into the future. I was pleasantly surprised by Obama. I thought race was more of an issue. My guess is decades off.

You’ve been in the public eye your whole life, but the last couple of years more than ever – magazines, talk shows, being spoofed on Saturday Night Live. How does all the attention feel?

Well...flattering in some sense…frustrating in others. Part of it is perception: ‘Why didn’t you do things in the 90s and early in 2000?’ Because I became so prominent when I was Chairman of the Committee during TARP – the average citizen doesn’t keep score on my career. I think there is a perception that I was in a position to make policy long before I was. So that’s a little frustrating. Other than that, it’s kinda flattering in some ways, but you get used to it.

Do you feel that your political stances, which were once viewed as radical, are now becoming much more mainstream?

Oh yeah.

I’m thinking of portraying you as a Don Quixote-like character who continues to fight the good fight even when the rest of the world sees you as a little crazy. Did you ever feel in your career as though you were chasing windmills?

I’d like to be perceived as someone who does as much as practical to fight the good fight. I’m OK if you focus on idealism, but not stupidity. If you are planning to paint me like a buffoon, then I can’t support that.

On the Jon Stewart Show, you recently joked ‘Things would have sucked worse if it weren’t for me’. At this point in your career, do you think about the legacy you’ll leave behind?

I think I will be remembered as being the “gay politician”. I’m OK with that. But I’d also like to be remembered as being undeterred, pragmatic, and realistic.


As I walked out of the Masonic Building back out onto Pleasant Street, I have to admit that my opinion of Frank had been changed during our time together.

While his rumpled clothes and pronounced Bayonne, New Jersey accent cannot be underestimated, it was his Harvard-educated brain and big heart that were on full display. I did meet the outspoken curmudgeon we all know from TV, but I also spent time with the undeterred pragmatist that Barney Frank wants to be remembered as.

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