Here is the exchange between Congressman Scott Barrett and Congressman Barney Frank at that Fannie Mae-Freddie Mac hearing three days ago.
Note that Barney Frank feels compelled to quote a book about who was pressing for higher-risk home loans in the early 2000s. If Frank really opposed the high-risk lending that destroyed Fannie and Freddie, why quote a book?
Why can’t he quote one speech of his own from 1991 to 2006 in which he insists that Fannie and Freddie open their books and adhere to safe lending standards? Why can’t he point to a bill he sponsored to restrain Fannie and Freddie in all those years? He can’t quote one such speech because he delivered no such speech. He can’t point to one such piece of legislation because he offered none. He pushed and pushed those high-risk loans until Fannie and Freddie collapsed.
The words traded Oct. 21 at the House Financial Services Committee, of which Barney Frank is chairman, are enlightening:
Rep. Scott Barrett of New Jersey:
As you all know, we are facing very challenging times for our nation's financial service industry. It is important that we work in a bipartisan fashion to move forward to ensure that we put in place the proper regulatory framework to allow our economy to grow once again.
But as has been said already, before we're able to go forward, with new and important changes to the overall regulatory structure for our financial service industry, I do believe that it's essential that we better understand just how we got into this problem. And one of the main parts of the problem was poor regulations in the past -- specifically in the area of Fannie and Freddie.
Now, I know in the past our distinguished chairman has noted that he and his party were the ones to finally get a new GSE regulator over the finish line -- albeit a little bit too late. That's quite true; however, it'd distortion of the facts to allow them to claim the mantel of being a champion of reform in Fannie and Freddie.
If you look back to the facts, during the first committee markup of GSE regulation in 2005, it was I -- and some of my colleagues who have already spoken -- who offered a number of amendments to strengthen the regulatory controls and to reduce the overall risk that both companies pose to our nation's economy. Each and every time the chairman and everyone on the Democratic side of the aisle voted against these proposals -- whether it was an amendment to raise the capital levels, reduce the retained portfolios, lower the conforming loan limits or anything else. The other side of the aisle voted time and time again for less regulation over these two companies. And it was this lack of regulation that played a large part in getting us to where we are today.
So I honestly think we need to learn the lessons of the past if we're going to be successful in the future. To formulate a new regulatory scheme is a process that's going to take a lot of months, a lot of conversations, many hearings and as much input from all parties as possible to ensure we create really a solid system under which we can safely move forward.
In creating these new regulations, reform is not a partisan project. It's really about making sure American families are protected in the future from the kind of financial crisis that we're experiencing now....
I do have several documents that I will put into record. I won't go through them all now. Most important, though, is from the American Enterprise Institute by Peter Wallison on the last trillion-dollar commitment, the destruction of Fannie Mae and Freddie Mac, in which he says -- and I'll put it in for the record -- the government takeover in Fannie and Freddie was necessary because of the massive loans of more than a trillion dollars of subprime, all which was added during the 2000 and 2005 period.
He goes on to say, Congress did not adopt strong government-sponsored enterprise -- GSEs -- reform until the Republicans demanded it as a price for Senate passage of the housing bill on July of 2008. It led invariably to the government takeover and enormous junk loan losses to this point. And three other points from the Wall Street Journal and the New York Times, which, without objection, I'll enter those into record.
Finally, on this point of entering information into record, I go back to the opening comment by the chairman, and I do want to make sure that the record is clear where we all were on this issue going forward. At the committee markup on May 25th, '05, I offered an amendment to direct the new regulator to establish limits on the GSE portfolios in the case of any issues of safety and soundness or for possible systemic risk. That was opposed by the chairman. At the same committee markup on that day, Representative Paul offered Amendment (1)H to cut off Fannie and Freddie's $2 billion line of Treasury. The chairman opposed that amendment for reform.
Floor action was then taken October 26, '05. An amendment was offered to strike language in the bill that would raise conforming loan limits to allow GSEs to purchase more expensive, riskier homes. Again, that amendment failed and the chairman opposed it. Floor action on the same died but Representative Leach offered an amendment to give to the newly regulator greater authority to impose capital strictures on GSES. Again the chairman opposed that reform.
Floor action on same day by Representative Royce, who was here earlier, Amendment 600, to authorize a regulator -- it's important to require one or more GSEs to dispose of or acquire assets or liabilities if the regulator deems these assets or liabilities to be potential systemic risk -- in other words, all those toxic risks we're talking about -- to the housing or capital markets. The gentleman -- the chairman opposed that reform.
Floor action on the same day by Representative Paul offered Amendment 601 to eliminate the ability of Fannie and Freddie and the Federal Home Loan Bank to borrow from the Treasury. The amendment failed. The chairman opposed.
I do want to give credit where credit is due. Just this past week the gentleman from the other side of the aisle said, quote, "Like a lot of my Democratic colleagues, I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable home ownership. In retrospect, I should have heeded the concerns raised by the regulator in 2004. Frankly, I wish my Democratic colleagues would admit it when it came to Fannie and Freddie, we were wrong." That was stated by Representative Davis from Alabama. I appreciate his sign of intellectual honesty as where we came from and how we got here.
Rep. Barney Frank of Massachusetts:
I want to recognize myself for our remaining time.
The purpose of this hearing was to be forward-looking, and that's why the panel of witnesses -- (inaudible) -- proposed by both sides, of people who are in their testimony, I was pleased to see it, talking about going forward. The next panel is a panel of people in the financial industry, and I had hoped we could focus on that.
But after the gentleman from New Jersey's comments, having decried partisanship, he then practiced it. It does seem to me important to set the record (clearly ?) before us.
He alluded to a markup in 2005 in which the Democrats refused to support his amendments. The Democrats were, of course, in the minority on the Committee at that time. Had a Republican majority been in favor of passing that bill, they would have done it.
The facts are -- and again, the gentleman from New Jersey continues to return to this, so we have to lay the record out here -- from 1995 to 2006, the Republicans controlled the Congress, particularly the House.
Now, he has claimed that it was we Democrats, myself, who blocked things. The number of occasions on which either Newt Gingrich or Tom DeLay consulted me about the specifics of legislation are far fewer than the gentleman from New Jersey seems to think.
In fact, the Republican Party was in control from 1997 to 2005 and didn't do anything. In fact -- and I now quote from the article that came out from the lead representative for FM Watch, which is the organization formed solely to restrain Fannie Mae and Freddie Mac.
It's an organization, by the way, which, after the Congress finally passed the bill that came out of this Committee in March of 2007, when Congress finally overcame some Republican filibusters and passed it in 2008, they disbanded, saying that our bill had accomplished everything they had wanted. But he says -- he was asked if any Democrats had been helpful. Well, the Senate Banking Committee produced a very good bill in 2004. It was S-190 and never got to Senate floor. The Senate was then, of course, controlled by the Republicans.
Then the House introduced a bill which it passed, the one the gentleman from New Jersey alluded to as having been, in his view, too weak. But we couldn't get a bill to the floor of the Senate. So here you have the documentation of the Republicans' failure to pass the bill.
He goes on to say after the 2006 election when everyone thought FM-policy focus issues would be tough sledding, their restrictions, with Democrats in the majority, Barney Frank, as the new chairman, stepped up and said I am convinced we need to do something. He sat down with Treasury Secretary Paulson and upset people in the Senate and Republicans in the House, but they came up with a bill that was excellent, and it was the bill that largely became law.
So there is the history. I will acknowledge that during the 12 years of Republican rule, I was unable to get that bill passed. I was unable to stop them from impeaching Bill Clinton. I was unable to stop them from interfering in Terri Schiavo's husband's affairs. I was unable to stop them from irresponsible tax cuts, the war in Iraq, and a Patriot Act that did not include civil liberties.
I was for, along with the chairman of the Committee, Mike Oxley, a reasonable bill in 2005. Mr. Oxley told the Financial Times, of course, that he was pushing for that bill, the bill that's mentioned favorably by the advocate from FM Watch. But unfortunately, all he could get from the Bush administration was a, quote, "one-finger salute," and that killed the bill.
Now, I regret that we have to get into this. I do hope we will look forward.
One other factor. There's a book out by Mark Zandi called Financial Shock. Mr. Zandi is an adviser to John McCain. Here's what he says on page 151: "President Bush readily took up the home ownership baton at the start of his administration. To reinforce this effort, the Bush administration put substantial pressure on Fannie Mae and Freddie Mac to increase their funding of mortgage loans to lower- income groups. They had been shown to have problems during the corporate accounting scandals and were willing to go along with any request from the administration." This is Mr. Zandi, John McCain's economic adviser.
"OFEO, the Bush-controlled operation, set aggressive goals for the two giant institutions, which they met in part by purchasing subprime mortgage securities. By the time of the subprime financial shock, both had become sizable buyers." That's John McCain's economic adviser. That's the advocate for FM Watch.
Throw in one other factor, which Mr. Zandi also notes. The Congress in 1994, the last year of Democratic control, passed the Homeowners Equity Protection Act, giving the Federal Reserve the authority to regulate subprime mortgages. Mr. Greenspan refused to use it.
As Mr. Zandi -- again, John McCain's economic adviser -- notes, Democrats in Congress were worried about increasing evidence of predatory lending, pushed for legislation, pushed the Fed. We were rejected.
I hope we can now go forward and try to deal with this situation. Yes, it's too bad that we didn't do anything about subprime lending. I wish the bill that the Congress passed on Fannie and Freddie in 2007 in this Committee, 2008, had been passed earlier. And I wish I could eat more and not gain weight.
Now, let's get constructive about what we need to do in the future.
Selective memory. Frank manages to avoid admitting he caused the collapse of Fannie Mae and Freddie Mac and the multitrillion-dollar chain reaction that followed. He conveniently forgets everything he did to promote bad loans, and he pretends he fought predatory lending. Hell, until recently, he insisted on predatory lending.
Again, the Republicans did not cover themselves with glory as the Democrats prodded Fannie Mae and Freddie Mac into making loans the borrowers could not repay. President Bush in 2003 and Sen. John McCain in 2006 did make several attempts to avoid the crisis. But generally, the Republicans didn’t see the urgency and failed to insist energetically on tighter regulation.
However, Barney Frank -- with Sen. Christopher Dodd's cooperation on the Senate side -- seriously abused his position, as a senior member and presumably a more informed member of the Financial Services Committee. When it mattered, he failed to tell his colleagues just how reckless he had told Fannie and Freddie to be.
Frank Warner
Former President Bill Clinton, Sept. 25, 2008:
"I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac."
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