Abolish Fannie Mae and Freddie Mac, and rebuild government financing of housing from scratch? Barney Frank, D-MA, the chairman of the House Financial services committee, thinks it's a good idea.
A top House Democrat on Friday said his committee was preparing to recommend "abolishing" mortgage-finance giants Fannie Mae and Freddie Mac and rebuilding the U.S. housing-finance system from scratch.
"The remedy here is...as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," said Rep. Barney Frank (D., Mass.), the chairman of the House Financial Services Committee.
Mr. Frank's history with Fannie Mae and Freddie Mac does not inspire confidence in his competence to oversee the job. Let's review.
Taxpayers are now on the hook for as much as $200 billion to rescue Fannie Mae and Freddie Mac, and if you want to know why, look no further than the rapid response to this bailout from House baron Barney Frank. Asked about Treasury's modest bailout condition that the companies reduce the size of their high-risk mortgage-backed securities (MBS) portfolios starting in 2010, Mr. Frank was quoted on Monday as saying, "Good luck on that," and that it would never happen.
There you have the Fannie Mae problem in profile. Mr. Frank wants you to pick up the tab for its failures, while he still vows to block a reform that might prevent the same disaster from happening again.
At least the Massachusetts Democrat is consistent. His record is close to perfect as a stalwart opponent of reforming the two companies, going back more than a decade. The first concerted push to rein in Fan and Fred in Congress came as far back as 1992, and Mr. Frank was right there, standing athwart. But things really picked up this decade, and Barney was there at every turn.
Please go read the Wall Street Journal's concise summary of his involvement, none of it helpful, in the mortgage giants. Here's more from the WSJ, circa 2004. Here's the NY Times, in 2003, discussing the Bush Administration - yes, that evil and incompetent Bush Administration - proposal to reform the GSEs:
WASHINGTON, Sept. 10— 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.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
Mr. Frank's response then?:
''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.''
Perceptive. And here's the Boston Globe's Jeff Jacoby, in 2008, with a further indictment.
'THE PRIVATE SECTOR got us into this mess. The government has to get us out of it."
That's Barney Frank's story, and he's sticking to it. ... The Wall Street meltdown was caused by "bad decisions that were made by people in the private sector," Frank said; the country is in dire straits today "thanks to a conservative philosophy that says the market knows best." And that philosophy goes "back to Ronald Reagan, when at his inauguration he said, 'Government is not the answer to our problems; government is the problem.' "
In fact, that isn't what Reagan said. His actual words were: "In this present crisis, government is not the solution to our problem; government is the problem." Were he president today, he would be saying much the same thing.
Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.
All of this from Mr. Frank now is happening because his knees are shaking over the election of Sen. Scott Brown on Tuesday. Independent voters in Massachusetts are in a mood to turn the bums out, and one of those bums, if you've absorbed anything at all from the stories above, is Mr. Frank. So he proposes abolishing and reforming mortgage financing, and now he'll present himself to the voters later this year as a white knight, riding to the rescue. Rather cynical, I'd say.
So definitely, let's reform the companies, or abolish them, it matters not. What matters is setting appropriate lending standards, ones that do not expose banks, then GSEs, then eventually taxpayers to excessive and unaffordable risk.
Just don't let Barney do it. And don't let him get away with avoiding his responsibility for the crisis. As Jeff Jacoby writes, his fingerprints are all over it.