You don’t have to steal money to be a corrupt politician. Rather, you can take tribute from the constituencies over which you watch, you can distort your record and you can use your position to illicitly help out your friends. In his Congressional career, not-so-straight shooter Barney Frank has scored a perfect hat trick in this arena. He is, too boot, a nasty character and will not be missed.
Barney Frank has announced he will retire rather than suffer the inconvenience of convincing a whole slew of new voters that he deserves reelection. Perhaps he doubts his ability to sway newcomers to his revisionist version of the subprime mortgage debacle – a calamity in which he played a starring role.
Like former Senator Chris Dodd, Mr. Frank attempted to smudge his fingerprints in the banking crisis by embracing aggressive new regulations of the financial industry. Rather than run for reelection, Mr. Dodd ran away from his once-coveted honorific as a “friend of Angelo”. Similarly, Mr. Frank did not want to risk reminders of his ill-timed endorsement of expanded home ownership.
As a member of the Financial Services Committee in 2003, Barney Frank famously described Fannie Mae and Freddie Mac – which were even then beginning to totter on a pyramid of questionable debt – as “fundamentally sound financially.”
In 2005, on the floor of the House, he belittled what he described as the “excessive degree of concern” about a housing bubble, declaring that he and others on his committee were resolved to continue to “push for home ownership.”
When he took over as head of the Financial Services Committee in 2006, word went out to the GSEs that a new cop was on the beat. Instead of focusing on capital requirements, Freddie and Fannie were told to expand affordable housing, whatever it took.
In short, Barney Frank (along with many others) missed one of the largest speculative bubbles of all time – one that he might have helped wrestle to ground earlier and with much reduced damage to the economy.
A lesser mortal might be somewhat chastened by that lapse, but not Mr. Frank. For every person – newscaster, student, investor, talk show host – that has tried to wrest an admission of failure or apology from Mr. Frank, he has responded with withering contempt.
As reformed sinners often do, Mr. Frank became the avenging angel of financial regulation, co-conceiving the monstrous Dodd-Frank bill. Claims that this legislation will prevent another financial crisis, or cushion the economy from the potential collapse of a major financial institution, or even derail the demise of such an entity (think IMF Global) are bogus.
Let’s start with prevention. That would be the mandate of the Financial Stability Oversight Council, created under Dodd-Frank, which according to its charter, is supposed to “identify risks to the financial stability of the United States.” This unwieldy collection of fifteen oft-warring regulators is headed by Treasury Secretary Timothy Geithner, who claims in the recent annual report from this body, “We cannot predict the precise threats that may face the financial system.” Oops.
That’s not for lack of trying. The council has been meeting monthly to take soundings – most recently on September 15, according to the website. (Note: the energetic council’s website was last updated on October 11.) The last reported meeting was held by teleconference, and lasted 20 minutes. This, in the teeth of the EU crisis, which one might think warranted at least a half-hour. Still, taxpayers should be reassured; the prior meeting, held August 8 – also by teleconference – was only fifteen minutes long.
These are busy folks, and it’s doubtless hard to get them all together, even by phone. But, is it likely that these encounters will prevent another investment bubble?
This is not the only shortcoming of Dodd-Frank. The much-ballyhooed ability to provide an “orderly resolution” of the failure of a giant organization is just as much spun sugar. This responsibility would devolve to the FDIC, an organization most observers think barely capable of handling small bank problems. The unlikely collapse of Bank of America, for instance, with deposits exceeding $1,038 billion and ties to fully half U.S. households, would have to contained by guarantor FDIC, which currently has reserves of $3.9 billion. Sound unlikely? It is.
There are some important and good measures buried in Dodd-Frank, but the grandiosity of its author is reflected in its thousands of pages; more legislation is not necessarily better legislation.
Mr. Frank may have overreached in order to obscure the uncomfortable fact that he has routinely received enormous funds from the very sectors he considers in need of reform. The top five contributors to his political career have been securities and investment firms, real estate, insurance, lawyers and commercial banks. The top two individual entities are FMR Corporation, a huge money manager, and the American Bankers Association.
As a steward of the nation’s purse during the financial crisis Mr. Frank may not have succeeded, but he did quite well personally. Unusually, Mr. Frank’s personal finances sailed right through the downturn. In 2006 he reported assets valued between $525,020 and $1.6 million; by 2010 Mr. Franks’ net worth had soared to between $1.9 million and $4.6 million, with nary a down year in between. No wonder he can afford to retire.
Mr. Frank has faced scandal in his time, most memorably from an unpleasant affair involving a male prostitute who conducted an illegal escort service from the congressman’s home. Frank intervened to fix parking tickets for his one-time lover, earning him a reprimand from the notoriously lax House Ethics Committee. (One would hope.)
This sordid business happened many years ago, but it endures as a reflection on Mr. Frank’s character. He will not be missed, but he will be replaced as ranking member of the Financial Services Committee, most likely with the ethically-challenged Maxine Waters. A perfect fit – and no doubt a boon to Ms. Water’s financial prospects as well.