Let The Inquisition Start With Frank
By INVESTOR'S BUSINESS DAILY | Posted Friday, March 06, 2009 4:20 PM PT
Oversight: Congressman Barney Frank says he wants some of those responsible
for our current financial meltdown to be prosecuted. And we couldn't agree
more. First up in the court dock: Rep. Barney Frank, D-Mass.
Even by the extraordinarily loose standards of Congress, it takes some
chutzpah for someone such as Frank to suggest that he'll seek prosecutions
for those behind the housing and financial crunch and for what he called "a
strongly empowered systemic risk regulator."
Frank: Fannie Mae and Freddie Mac's point man in Washington.
Frank: Fannie Mae and Freddie Mac's point man in Washington.
For Frank, perhaps more than any single individual in private or public
life, is responsible for both the housing market mess and subsequent bank
disaster. And no, this isn't partisan hyperbole or historical exaggeration.
But first, a little trip down memory lane.
It was Fannie Mae and Freddie Mac, the two so-called Government Sponsored
Enterprises (GSEs), that lay behind the crisis. After regulatory changes
made to the Community Reinvestment Act by President Clinton in 1995, Fannie
and Freddie went into hyper-drive, channeling literally trillions of
dollars into the housing markets, using leverage and implicit taxpayers'
guarantees.
In November 2000, President Clinton's Housing and Urban Development
Department would trumpet "new regulations to provide $2.4 trillion in
mortgages for affordable housing for 28.1 million families." The vehicles
for this were Fannie and Freddie. It was the largest expansion in housing
aid ever.
Still, from the early 1990s on, many people both inside and outside
Washington were alarmed by what they saw at Fannie and Freddie.
Not Barney Frank: Starting in the early 1990s, he (and other Democrats)
stood athwart efforts by regulators, Congress and the White House to get
the runaway housing market under control.
He opposed reform as early as 1992. And, in response to another attempt
bring Fannie-Freddie to heel in 2000, Frank responded it wasn't needed
because there was "no federal liability there whatsoever."
In 2002, Frank nixed reforms again. See a pattern here?
Even after federal regulators discovered in 2003 that Fannie and Freddie
executives had overstated earnings by as much as $10.6 billion in order to
boost bonuses, Frank didn't miss a beat.
President Bush pushed for what the New York Times then called "the most
significant regulatory overhaul in the housing finance industry since the
savings and loan crisis a decade ago."
If it had passed, the housing crisis likely would have never boiled over,
at least not the extent it did, taking the economy with it. Instead, led by
Frank, Democrats stood as a bloc against any changes.
"Fannie Mae and Freddie Mac are not facing any kind of financial crisis,"
Frank, then the ranking Democrat on the Financial Services Committee, said.
"The more people exaggerate these problems, the more pressure there is on
these companies, the less we will see in terms of affordable housing."
It's hard to say why Frank did all this. It could be his close ties to the
Neighborhood Assistance Corp., a powerful housing activist group based in
Boston, which controls billions in loans. Or that he received some $40,100
in campaign donations from Fannie and Freddie from 1989 to 2008. Or that he
has been romantically linked to a one-time executive at Fannie during the
1990s.
Whatever the case, his conflicts are obvious and outrageous, and his
refusal to countenance reforms of Fannie and Freddie contributed mightily
to today's meltdown. If you're looking for a culprit in the meltdown to
prosecute, no one fits the bill better than Frank.
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