GOP candidates love bashing the Massachusetts liberal. Here, he responds to their re-telling of how the financial crisis happened.
After being elected in 1980, Barney Frank will leave Congress next year as one of the most outspoken Democratic champions of his era -- bombastic, endearing, controversial, and seemingly disdained by his partisan critics. As chairman of the House Financial Services Committee when Democrats controlled the House of Representatives from 2007 to 2010, Frank was at the center of Congress's response to the financial crash, and Democrats' major Wall Street reform bill, known as Dodd-Frank, bears his name.
Lately, Republican presidential candidates have implied he bears responsibility for the subprime crisis as they campaign for the GOP presidential nomination, and Newt Gingrich, an old political enemy of Frank's, openly accused him of corruption.
This week, Frank spoke with The Atlantic about the GOP's re-telling of the financial crash, Newt Gingrich, and his three decades in Congress.
We're hearing Republicans in the presidential primary blame the housing crisis on the Clinton-era push to lend more to poor people. In your view, what caused the mortgage crisis and subsequently the financial crash?
FRANK: It was irresponsible lending, primarily by the private sector and primarily by non-banks. You know, the banks have a right to complain. What happened was this: 30 years ago, if you took out a mortgage, you basically took it out from a bank, which had money that came from depositors, and there was deposit insurance, and it was regulated. And then new sources of liquidity came up in the world, where you could get money to be in the lending business from depositors, which meant you didn't necessarily have to be getting deposit insurance, or you weren't regulated. Secondly, information technology made possible securitization, which meant, one, that the loans were being originated by institutions that were not regulated, and two, that these institutions then packaged the loans, sold them, and had no financial responsibility that they weren't paid back. It's called securitization, and that's basically what happened. This effort to blame the government is nonsensical.
Some of them try to blame the Community Reinvestment Act. Every regulator under both Bushes has said it was not the case, and even three of the four members of the financial inquiry commission, who were appointed by the Republicans, said it wasn't the case. The only one who argues that is this real extremist called Peter Wallison, and it just flies in the teeth of all the evidence. The Community Reinvestment Act didn't do it.
Fannie Mae and Freddie Mac had a role, but first of all, people need to understand: Fannie Mae and Freddie Mac never made a loan. They're not loan originators. They buy the loans made by others. They were followers, not leaders, in buying up the loans. They did join in in buying loans, but these loans were all originated by the private sector, and, by the way, as to blaming the Community Reinvestment Act, the Community Reinvestment Act only applies to banks, technically, deposit-taking insured institutions. Most of the loans were made by institutions that weren't covered by the CRA, and they just wanted to make the money and it was securitization that made them do it. You read about this in Michael Lewis's book The Big Short, or Gillian Tett's book Fool's Gold. Fannie and Freddie were entities that moved it along.
Secondly, the notion that it was Clinton-era is just bizarre. It's like there's this great gap in their minds. What people forget is, having a president and the House and the Senate held by the same party is the exception in American politics, not the rule. From 2000 through 2006, for five of those six years -- there was a brief period when Jim Jeffords split when it wasn't true in the Senate -- the Republicans controlled the White House, the House and the Senate. That's more control than one party has had -- to get a longer period of one-party control of the White House, the House, and the Senate, you have to go back to Lyndon Johnson. Jimmy Carter only had it for four years, and it was during that period, beginning in the seeds of the crisis -- yeah, Clinton people pushed up home ownership, but Bush took over in 2001, and Bush ran the show for those six years. And Bush was even a bigger advocate of the ownership society than Clinton. In 2004, for example, Bush's administration ordered Fannie Mae and Freddie Mac to increase the percentage of mortgages they bought from people who were below the median income -- and I complained about it, said it wasn't good for them. We were, instead, trying to get more rental housing. Now I was slow to see this happening. In 2003, I didn't see a problem, but by 2004, we did see the subprime problem, and the Democrats at first tried to stop the bad subprime loans, and the Republicans blocked us. And it wasn't until 2007, when the Democrats took over both houses, that the anti-bad-lending legislation went through, and the ability of Paulson to put [Fannie and Freddie] into conservatorship, he couldn't get that from the Republicans. Bush couldn't. He got it from us.
You said Fannie Mae and Freddie Mac did have a role in pushing this along. How heavily do you think they contributed?
FRANK: It's hard to quantify. They were not the major factor. Let's put it this way: I think you would have had a crisis without them. Their buying it up increased it. On the other hand, private-sector people were buying it up pretty heavily too. But part of the problem is the Republicans did nothing to stop this, the Republicans in power.
They fought with themselves about regulation. The House passed the bill in 2005 to increase regulation under Mike Oxley; the Senate said it was too weak, Bush said it was too weak, Bush's secretary of the Treasury John Snow said it was good, but the result was no bill, and that was a purely internal Republican fight. Then, in 2007, we passed the legislation they wanted, so yeah Fannie and Freddie contributed, but it was under the Republican rule that this contribution was going forward.
In the presidential race, how would you grade Republicans' grasp of the history of the financial crisis, and would you say they're distorting it?
FRANK: Oh they're not only distorting it, they're inventing it. First of all this blaming the government, they said it was all the government trying to help poor people. It was very little of that, it was private institutions trying to make money without sufficient regulation. Secondly, to the extent that there was a government role, they abetted it--they didn't try to stop it. It was we, the Democrats, who tried to cut back on this, and they objected. By the way, in 2007, when we finally first passed a bill to stop subprime mortgages, The Wall Street Journal had an editorial saying we were interfering with the free market, subprime mortgages were very good for poor people and they were getting to be home owners, and there go Democrats again trying to interfere with the market. I mean, Alan Greenspan acknowledged that he made a mistake by overestimating what the market could do. So the Republicans turned it exactly its head. They were in power in the House and the Senate and in the presidency during the bad period. Fannie and Freddie didn't start this. Fannie and Freddie did become contributors, but it was under Republican control, and it wasn't until the Democrats took over that we stopped their role in it.
What was the most frightening moment of 2008 for you?
FRANK: When Bernanke and Paulson came up after Lehman Brothers and said the financial system is about to grind to a halt. And while people said it could've been as bad as the Great Depression, in fact it could have been worse, because during the Great Depression you had a granularity to the world system. Things could be really rotten in one place, but a couple thousand miles away, people could be functioning. But we've now become one seamless financial grid, and so lending was stopping everywhere, which is business stopping everywhere, and it was on that Tuesday, I guess, in 2008, when Bernanke said, "I'm gonna extend 85 billion dollars to AIG," etc., and they said, "If you don't do this, the world ends."
Were you pleased with how the financial-reform bill turned out?
FRANK: Mostly, yeah. Look, the biggest single thing I never thought we had a chance to do, and this is the biggest step, in a rational world there never would have been a separate Securities and Exchange Commission, a Commodities Futures Trading Commission, but it's so deeply rooted in Midwestern distrust of the East, and farmers vs. the financial community, there was never a chance. Other than that, I think we deferred to the Senate on saying that the full powers of the CFPB [Consumer Financial Protection Board] didn't come in until there was a confirmed director. That's a little troublesome, and I would've liked to have given the SEC and the CFTC some financial autonomy, but otherwise, I'm pretty happy with it. ...
On financial reform, there's a very interesting distinction between how it's being debated in the Republican primary electorate, and how Republicans are dealing with it in general. In the Republican primary electorate, which is the most 15 percent extremely conservative part of American society, they want to repeal the bill, but I got a piece of RNC literature someone sent me, in which they asked people, "Well what issues" -- this is to their donors -- "should we focus on?" And they didn't have financial reform on there. In Congress, they have moved to repeal the health-care bill and the environmental stuff. They have not moved to repeal any substantial part of financial reform. They understand that financial reform is popular.
Newt Gingrich is out there saying bad things about you, that you should go to jail. What's the nicest thing that you can say about Newt Gingrich?
FRANK: Well let me say, on the "go to jail," if you go back at it, he blurted that out. He understands he's trying to appeal to this very right-wing group. So then they asked him, well, why should Barney Frank, I guess Charlie Rose said "go to jail," and Chris Dodd. Well, with Chris he had a specific, which was the mortgage he got from Countrywide, although the Senate Ethics Committee said there was no violation there, but then with me he clearly had no idea, so he said, "Oh, well" -- he kind of stammers if you read the transcript, he says, "Well, his relationship with a Freddie Mac lobbyist." Well, he may have meant the partner I had at the time, who got an entry-level job, not with Freddie Mac but with Fannie Mae, and not as a lobbyist but as a lending specialist, so he clearly blurted it out and had to come back and say things.
What would be the nicest thing I could say about Newt Gingrich? He may be one of the great supporters of the humanities, because you have people who don't want to study the social sciences, because it's not profitable, and now Newt, as the highest-paid historian in American history, may be an encouragement to people to study history.
Why do you think Republicans talk about you so much?
FRANK: One, because I was the chairman of the Financial Services Committee and in position to deliver one of the things that they wanted, and that committee had more jurisdiction. Now, in fairness, they talk about Chris, too. They talk about me a little more. Health care was more dissipated -- you know, you had the Ways and Means Committee and the Education committee and some others.
Two, and I've just been pondering this, [Republican New Jersey Gov.] Chris Christie became kind of a hero because he fights back with people, but I get criticized for it by those very same people. I think the view is that liberals are not supposed to be assertive. We're supposed to look down and shuffle our feet, and be all compassionate, and we're supposed to be apologetic. I think they think I'm too belligerent. I think I'm fighting back in self defense. You know, it really grew up and blew up in 2009 after that town meeting, and ironically the person to whom I said, "What planet do you live on?" -- she was some LaRouchie, but the Republicans kind of adopted her.
And third, that I'm gay, and not just gay, but I noticed for instance in 2009 and 2010 they went after my partner. You have Howie Carr, the lead hatchet man of the Boston Herald, writing about my partner's comb-over and pot belly, neither of which were remotely true, but they wrote a lot and kind of distorted stuff about Jim. And it was a subtle way to say, "Hey, this guy sleeps with a man," so that was another part of it. So one, I think, I'll take some credit -- I'm effective. Two, I think I carry the fight to them, and they don't like that. And three, I think the gay -- in 2006, there was a Republican letter saying, "Don't vote for the Democrats or Congress, because if they do [win] the chairs of the committees will be Charlie Rangel, John Conyers, and Barney Frank." Somebody gave me a copy of it, and I showed it to Charlie Rangel, and Charlie said, "Huh, I didn't know you were colored."
Do you think President Obama will win in 2012?
FRANK: Yes. I think the biggest single phenomenon, the biggest single issue is Europe, if the European economy stabilizes -- our economy is on the upswing. It was on the upswing in end of '09 and early '10, and it got slowed down by Europe. Considering the drag of Europe, we're doing pretty well. Secondly, the Republicans, I think, are suffering from cultural lag by attacking him for pulling out of Iraq and Afghanistan, and if they argue that we should alter the sequester [$1.2 trillion in cuts triggered by the supercommittee's failure] so Social Security and Medicare get cut and military gets protected, they are very much on the wrong side politically, as well as morally and economically, and I think they're wrong on the tax thing. And the last thing is I think Newt Gingrich, as I've said, would be the best thing for the Democrats since Barry Goldwater.
You've been in Congress for a really long time. What's the dumbest thing you've ever heard someone say in Congress, and what's the smartest?
FRANK: Oh, it's hard to think of those right off the top of my head. I guess the dumbest thing, and we can prove this now, is if you allow two men or two women to marry each other, that will somehow persuade the heterosexual majority to abandon their heterosexuality and take a same-sex partner. If you go to the debates on the Defense of Marriage Act, we gay people were the V8 of society -- you know the old commercial, "I could've had a V8?" The theory was that a happily married man would read that same-sex marriage was possible, slap his forehead, and say, "Oh, I could've married a guy," and leave his wife. So I think that was probably the single stupidest.
In terms of the smartest thing, I guess Tip O'Neill's "All politics is local." I wish advocacy groups understood this, I wish people who were out there demonstrating understood this, I wish Occupy understood that. So I guess "All politics is local" is enduring.
If you had to be shipwrecked on a desert island with one Republican presidential candidate, who would you choose?
FRANK: None of the above. I guess I don't know enough to know which one of them has survivor skills. I can't think of any of them. I will tell you, my view of the Republican presidential primary, when this is over, they should form a road company of The Wizard of Oz. Mitt Romney obviously, is the tin woodman; the scarecrow is Rick Perry; the cowardly lion is Herman Cain; Jon Huntsman is Dorothy, who thinks he's still in Kansas; and Newt is the Wizard of Oz. So none of those people I would want to be on a desert island with, unless one of them, as I said, had skills in catching fish or whatever I don't know about.
Image credit: Lauren Victoria Burke/AP