Barney Frank is among the most critical figures in the genesis of the housing bubble and resulting financial crisis. Frank was a powerful member of congress and was chairman of the financial services committee for many years. Among the many responsibilities of this committee is oversight of the GSEs, Fannie and Freddie. Of course, Barney Frank was not alone in his dogged defense of Fannie and Freddie, the affordable housing mandate or President Clinton’s (#12) central plan for housing. Indeed, several other political heavyweights – Kit Bond (#6), Gregory Meeks (#35) and Maxine Waters (#47) – all warrant places on this list for their roles in allowing the housing bubble to inflate long after alarm bells had started to sound.
However, none of these other political hacks was as adamant about the benefits of a housing market dominated by government, so late to realize there was a housing bubble and, finally, as reluctant to admit any culpability for the resulting crisis as Barney Frank was. Like these other rabid, power mad politicians posing as dedicated public servants soberly advancing some mutually beneficial societal objective, Frank focused much of his ire on the Office of Federal Housing Enterprise Oversite (OFHEO) and its director, Armando Falcon. On September 22, 2004 Falcon issued a damning report documenting enormous accounting shortcomings at Fannie Mae under the “leadership” of CEO Franklin Raines (#40). The report was several hundred pages long and full of accounting details. The report would take at least two full weeks of dedicated effort to fully digest and comprehend its many conclusions. Nevertheless, barely two weeks after the report was issued, Frank challenged Falcon during congressional hearings on the report’s accuracy with the conclusion, “I don’t see anything in your report that raises safety or soundness concerns.”
Later, in November 2004, realizing the hopelessness of attempting to defend Fannie by examining the accounting minutiae at the core of Falcon’s report, Frank fell back on the standard Washington power broker’s ultimate ace in the hole – character assassination. Frank – along with Kit Bond – argued that Falcon was completely unqualified and should be removed as director of OFHEO. Here is Frank in his own words,
"The senior management of OFHEO appears to have run roughshod over the judgment of professional staff and seriously compromised OFHEO's credibility as a financial regulator. . . . It is clear that a leadership change at OFHEO is overdue."
Just one month later, December 2004, Franklin Raines was forced to resign in disgrace from Fannie because of billions of bogus profits booked by Fannie. In just a few years both GSEs – Fannie and Freddie – would completely collapse and require hundreds of billions of dollars in capital injections and a complete government takeover. Frank’s objection to both Falcon’s report and Falcon himself notwithstanding, Falcon’s report was confirmed in every important detail!
Frank wasn’t just self-righteously sanctimonious when it came to the GSEs or defending its politically connected CEO. He was even more so when defending the rapidly inflating housing bubble. Here is Barney Frank in Congress on June 27, 2005 cavalierly dismissing any concern of a housing bubble.
“This is a very important resolution – particularly at this time – because we have, I think, an excessive degree of concern right now about home ownership and its role in the economy. Obviously speculation is never a good thing but those who argue that housing prices are now at the point of a bubble seem to be missing a very important point. Unlike previous examples we have had – when substantial excessive inflation of prices later caused some problems – we are talking here about an entity, home ownership, homes where there is not the degree of leverage we have seen elsewhere. This is the not dot-com situation. We had problems with people having invested in business plans for which there was no reality. People building fiber optic cable for which there was no need. Homes that are occupied may see an ebb and flow in prices, the price at a certain percentage level, but you are not going to see the collapse that you see when people talk about a bubble. So those of us on our committee in particular will continue to push for home ownership.”
In terms of the homeownership that Barney Frank wanted to continue to push, the housing bubble peaked in April 2004. By June 2005 the housing bubble that Barney Frank had helped to create and the one he said couldn’t exist, was already well on its way to bursting!
Enormous insight into Barney Frank’s character is provided by reconciling his June 2005 speech with an appearance he made on CNBC on September 16, 2013 – the five-year anniversary of Lehman Brothers’ failure. Rather than admitting to any mistakes or any culpability in the financial crisis which was still raging at the time, Frank stated on air,
“My prediction, even with Fannie, that we should be doing low income people, rent them housing and I have been a strong pusher for rental housing. In terms of home ownership, I have been skeptical…”
As stated in the preface to this list of “elites in name only,” the root cause of the financial crisis was a purely human factor; a completely unfounded belief among the academic, business and political elites of this country that they are, well, better than everyone else and immune from mistakes. No individual on this list exemplifies this completely defective mindset better than Barney Frank. The obvious conflict between his September 2013 statement to CNBC and his June 2005 speech in Congress proves it.
Furthermore, it is important to realize that this defective mindset – no matter how strong it may be in an individual – requires constant nurturing. In Frank’s case this nurturing was doubtless greatly advanced by the seven years he spent at Harvard and the more than thirty years he spent in Congress. Of course, the mainstream media generally can be counted on to support almost any politician, like Barney Frank, dedicated to greatly advancing the size and scope of government. Similarly, the financial media – dominated by the likes of Steve Liesman (#33) and Martin Wolf (#50) – will always be equally determined to support politicians in favor of even more central planning of the economy. However, what elites like Barney Frank really feed off of is not the praises from their sycophants in the media, but the endorsements of other elites.
Henry Paulson (#38) and Ben Bernanke (#3) both go out of their way to praise Barney Frank in their crisis memoirs. Paulson’s book is over 400-pages and Bernanke’s is pushing 600-pages. In these collective 1000-pages they never criticize Barney Frank, even when he had an obvious role in the problems they do cite. For example, one of the few conclusions that Paulson gets right in his almost otherwise completely useless book, is emphasizing the enormous role Fannie and Freddie had in the crisis. “Fannie and Freddie were the most egregious example of flawed policies that inflated the housing bubble and set off the financial crisis.” However, Paulson claimed Barney Frank was “scary smart.” Barney Frank was a huge defender of Fannie and Freddie. If Fannie’s and Freddie’s problems were egregious, how could someone who is “scary smart” be completely ignorant of them?
Ben Bernanke displayed a similarly disgusting level of obsequiousness towards Barney Frank in his memoir – a memoir almost every bit as unenlightening as Paulson’s by the way. In January 2008, the Fed had cut rates between regularly scheduled meetings. Shortly after, a French financier, Jěrŏme Kerviel, lost about $6-billion dollars while trading derivatives for Société Générale. (Not bad for a 32-hour work week!) The financial crisis that had been festering for years was now beginning to hatch from its housing bubble cocoon. During this crisis environment Frank had said something that might be interpreted as a slight rebuke of Bernanke’s chairmanship of the Fed. Frank quickly dispatched a senior aide to the Fed to offer his apology and issued a public statement soon afterwards. Ben Bernanke warmly recalled in his memoir, “His prompt apology was an extraordinary and rare act in Washington. I admired him for it.” That is all very touching – perhaps Frank and Bernanke even exchanged Harvard ties or secret Harvard handshakes. However, perhaps if Barney Frank would be equally forthcoming with an apology to the hundreds of millions of Americans who suffered as a result of his enormous role in the financial crisis, then other people might also be able to share Ben Bernanke’s fond feelings for Barney Frank.
See Kit Bond (#6), Gregory Meeks (#35) and Maxine Waters (#47) for the enormous support the government sponsored enterprises (GSEs), Fannie and Freddie, enjoyed in congress. See Henry Cisneros (#11), Bill Clinton (#12) and Andrew Cuomo (#16) for more information on the affordable housing mandate and the Clinton administration’s “central plan” for housing. See Jamie Gorelick (#26) and Franklin Raines (#40) for the politically connected incompetent hacks placed in charge of the world’s largest mortgage bank, Fannie Mae. For another Harvard educated person who never learned to admit he was wrong, see Lawrence Summers (#45).