I’ll be the first to say that we need more transparency in the information we receive.  Inarguably, the quantity of the media we take in on a daily basis is severely overshadowing the quality.  In that light, I’m very careful to lend any credence to snippets seen on TV or through condensed versions of interviews.

It’s with that regard that I really enjoy reading full transcripts of interviews, in particular interviews given by fairly level headed people, even when the interviewee is someone not so level headed.  A politician, if you will.

So it was with great concern that I read an interview by Maria Bartiromo in this weeks edition of Business Week.  Coincidentally, I had just got done watching a 60 minutes interview with chairman of the House Financial Services Committee Barney Frank, when I opened up to Maria’s weekly Facetime piece with none other than Barney Frank himself.

Naturally, many of Franks responses to straight forward questions took jabs at Republicans.  To be expected, we are talking about a Democrat in this instance (not to say that Republicans don’t take jabs, it’s just an observation).  What troubles me are Franks views on the market place, and the ability of a free market to regulate itself.

The kicker for me was Franks response to Bartiromo’s very pointed question, “So whose fault is this?“, with regards to the current housing crisis.

The bad loans were made by the unregulated entities. What you’re going to see next year is a rediscovery of the importance of regulation. We’ve had a period of a philosophy that said: “Let capital do whatever it wants. Don’t regulate it. Don’t tax it. Don’t restrict its international movement, and it will reward you.” And yes, it does do some good because it creates wealth, but it creates wealth in a maldistributed way. More important, it creates excessive risk. What we will do next year is put rules in place that constrain those risks. -Source

Right.  Let capital do whatever it wants.  Don’t regulate it?  So what does it mean when when the government goes to two public companies (namely Fannie Mae and Freddie Mac) and says “We think you ought to open up lending to more people.”

And it creates excessive risk?  Far be it for the government to force excessive risk upon the markets, say, by forcing them to make loans to people they know couldn’t pay them off?

And creating wealth in a “maldistributed way”?  How about forcing risk in a maldistributed way, Mr. Frank?

It appears that Mr. Barney Frank is yet another politician who needs a lesson in history.

Actually, he could just use a transcript of his own decisions.  For instance, in 2000, when Richard Baker proposed a Fannie and Freddie reform bill that would force more oversight on the then over leveraged firms, Frank insisted that the concerns were overblown and there was “no federal liability there whatsoever.”

Then, in 2002, Mr. Frank stated, “I do not regard Fannie Mae and Freddie Mac as problems,” he said in response to another reform push. And on top of that, “I regard them as great assets.”

Then, in late 2003, when the Fannie and Freddie accounting scandal reared it’s ugly head, Mr. Frank simply stated the following :

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems,the more pressure there is on these companies, the less we will see in terms of affordable housing.” -Source

Right.  What he really meant to say was that we shouldn’t exaggerate the problems, lest we risk not being able to give everyone the ability to own a home… that they really can’t afford.

On to 2004, after Fannie Mae came forward revealing they had made a financial mistake to the tune of billions of dollars, Mr. Frank continued that the lenders “posed no risk to taxpayers”, and went further to say that “I think Wall Street will get over it” should the two companies fold.

On to today.

Today Mr. Frank is taking the traditional road by blaming who else?  The Bush administration.

“The truth is when President Bush took office, and the Republicans controlled both houses of Congress, he did not make any progress on comprehensive legislation to reform the regulation of the Government Sponsored Enterprises.  It was not until 2005, when the House, on a bipartisan basis, and over the President’s objections finally passed a reform bill.  It died in the Senate in part because the White House’s failure to make it a priority. -Source

Note: I embolden the word “truth” in the above statement, as when a politician starts off a sentence by saying “The truth is…”, you know he’s lying.

Actually, that’s not quite right.

Back in 2003,

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry. -Source

It’s too bad that Mr. Frank opposed President Bush’s efforts to impose more regulation on Fannie and Freddie in 2003, yet now that he has some skin in the game, he needs to divert attention away from his own historical ineptitude.

I suppose he’s merely taking advantage of the short term memory of America.

Economics, Politics Barney Frank, Fannie Mae, finance history, Financial regulation, Freddie Mac, Politics, short term memory