Washington, DC – Congressman Barney Frank today responded to a series of repetitive, wholly inaccurate efforts by Republicans to blame Democrats, and Frank in particular, for the failure to take appropriate action to prevent bad loans being made to people who could not pay them back.
“According to the Republican version of the history of the financial crisis, as presented on the House floor on Wednesday by Representative Todd Akin (R-MO), Congressman Frank is responsible for the fact that no legislation passed the Congress to regulate Fannie Mae and Freddie Mac until 2007, and no bill trying to restrict subprime lending passed the House between 1994 and 2007. The problem with their argument is that the Republicans were in power from 1995 through 2006 in the House, and they had complete control over what legislation did or did not pass.
“Being accused of having blocked legislation to prohibit irresponsible lending to low-income people from 1995 to 2006 is flattering in a bizarre way,” Frank noted. “Apparently those Republicans parroting these right-wing talking points believe that I had some heretofore undisclosed power over first Newt Gingrich and then Tom DeLay, which allowed me to keep them from passing legislation they wanted to pass. If that had been true, I would have used that power to block the impeachment of Bill Clinton in the House, the war in Iraq, large tax cuts for the very wealthy, the intrusion into the sad case of Terri Schiavo, and appropriations bills that badly underfunded important social priorities.
“I did not try to stop them from passing legislation to control subprime lending or to regulate Fannie Mae and Freddie Mac because in the first case they were never willing to do so, and in the second case, I worked together with Republican Chairman Mike Oxley on the only bill that the Republicans considered during that period to restrict Fannie Mae and Freddie Mac, and the bill was defeated because, in the words of Mr. Oxley, the Bush administration gave his efforts ‘the one-finger salute.’
“In another oddity,” said Congressman Frank, “the Republican history on this subject appears to end in 2003. I understand why they find later events unpleasant, since those events document the gathering series of policy mistakes that the Republicans made which ended in their being repudiated in 2006, and re-repudiated in 2008. In their view of the world, the last relevant thing that happened was a statement I made in 2003 in which I said that Fannie Mae and Freddie Mac were not in crisis. I did say that. And I would have said it as well – and may have – about Wachovia Bank, Lehman Brothers, Bear Stearns, the Royal Bank of Scotland, and dozens of other financial institutions in America and elsewhere which were not in fact in crisis in 2003.
“What happened subsequently,” continued Congressman Frank, “in the years the Republicans wish to ignore because they cannot defend what happened – is that the Bush administration pushed for even more subprime lending, Alan Greenspan refused to use congressional authority he’d been given in 1994 to regulate it, and the House Republicans blocked any efforts to legislate against it. In fact, as quoted in a story in the Bloomberg News, when the Bush administration ordered Fannie Mae and Freddie Mac to increase significantly the number of loans they bought for people below median income, I objected saying that this would be good neither for the borrowers who could not repay the loans nor for Fannie Mae and Freddie Mac.”
In his book, Financial Shock, Mark Zandi, who has advised political leaders of both parties and gained a great deal of respect for his views on the financial crisis, stated that “President Bush readily took up the homeownership baton at the start of his administration in 2001… 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…. By the time the subprime financial crisis both had become sizable buyers of the Baa tranches of these securities.”
“My response, along with other Democrats,” said Congressman Frank “was at that point to try to take regulatory action in two respects. First, we sought directly to regulate subprime lending. Secondly, I agreed to join Congressman Oxley in trying to regulate Fannie Mae and Freddie Mac.
According to Mr. Zandi, “Democrats in Congress were worried about increasing evidence of predatory lending… The Democrats wanted a federal equivalent (to North Carolina’s anti-predatory law) that would cover all lenders nationwide. The Bush administration and most Republicans in Congress were opposed, believing legislation would overly restrict lending and thus slow the march of homeownership.
“As to Fannie Mae and Freddie Mac,” continued Congressman Frank, “I joined with other Democrats in helping Mike Oxley bring out of our Committee a bill that would regulate Fannie Mae and Freddie Mac. I voted against it on the House floor after the Republican leadership dictated a change – over Mike Oxley’s objections – to the affordable rental housing piece, but it did pass the House anyway and I did not urge other Democrats to join me in voting no. So the argument that I blocked Fannie Mae and Freddie Mac legislation makes zero factual sense since the House, when I was in the minority, did pass the bill. It died because of Senate opposition, spurred by President Bush.”
In 2007, when the Democrats assumed control of both Houses of Congress and Mr. Frank became Chairman of the House Financial Services Committee, Congressman Frank moved quickly to pass a bill to regulate the GSEs. He introduced the Federal Housing Reform Act of 2007 (H.R. 1427), on March 9th and it was approved by the Committee on March 29th.
The bill was passed by the full House on May 22nd, with all 223 Democrats and 90 Republicans voting in favor of the bill, and 104 Republicans voting against it. Among those voting against regulation of the GSEs was Congressman Todd Akin (R-MO), who led the Special Orders on Wednesday.
In 2007, Congressman Frank, along with Representatives Brad Miller and Mel Watt, introduced the Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915) which would regulate predatory subprime mortgages. The bill passed the full House on November 15th, with all 227 Democrats and 64 Republicans voting yes, and 127 Republicans voting no. Representative Akin voted against the bill.
Republican talking points omit the many factors which set the stage for the present financial crisis — the Gramm-Leach-Bliley Act of 1999 (opposed by Congressman Frank), which removed the wall between commercial and investment banks, the failure of the Federal Reserve to use oversight authority which it had been given by Congress, and the Security and Exchange Commission’s decision to allow large financial institutions to “self-regulate” and dramatically increase their risk exposure.
The Republican message also fails to mention the role of unregulated entities which aggressively marketed subprime loans, major financial institutions which packaged risky mortgages as Collateralized Debt Obligations and sold them as virtually risk-free investments, rating agencies which gave stellar grades to toxic assets while being paid by the companies who stood to benefit from their actions, and the massive growth in the use of Credit Default Swaps, ushered in by Senator Gramm’s 2000 legislation (also opposed by Congressman Frank.”
“The Republicans would have you forget all this,” said Congressman Frank. “They want to distract people from understanding the real causes of the crisis so they can further block real reform. This is cynical, partisan politics which will weaken our ability to prevent another meltdown in the future. These attacks may seem innocuous, but in the long run they will hurt ordinary Americans who are already suffering.”
