This past week featured an anniversary of sorts. On June 27, 2005 Barney Frank held court - in congress no less - on the absolute impossibility of there being a housing bubble. As befits a political power-broker with huge swaths of the mainstream media as little more than playthings in his hand, it is unsurprising that Frank received little in the way of backlash for playing such a major role in bringing the United States to its financial knees. What may be surprising is how two other power brokers - Henry Paulson and Ben Bernanke -went out of the way to praise Frank in their post-crisis memoirs. A generation ago, the spectacle of elites so blatantly scratching each other's backs and assiduously avoiding criticizing each other would have been hard to even contemplate. Today it is little more than business as usual.
Here is Barney Frank in Congress on June 27, 2005 cavalierly dismissing any concern of a housing bubble. (1)
“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 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! (See the chart below)
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…” What a joke.
Henry Paulson (Dunce #38) and Ben Bernanke (Dunce #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.
A major theme of this website is the myriad psychological defects our political, financial and academic elite suffer from make a repeat of the financial crisis a virtual certainty. While psychologically healthy people can admit mistakes and learn from them, the elites who precipitated the financial crisis are incapable of admitting mistakes. If they were to do so, then it would be impossible for them to reconcile their enormous power and wealth with their all too-human frailty. What better proof of this could there be then Barney Frank (2 Harvard degrees), Henry Paulson (Dartmouth, Harvard) and Ben Bernanke (Harvard, MIT) not only failing to admit any mistakes during the crisis, but actually praising one another for actions they took during the crisis. Finally, see the chart below for the absolutely dominant role so-called elite schools - which are the primary source of the psychological defects our elites suffer from - played in the genesis of the financial crisis.
Sugar Land, TX
June 30, 2019
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(1) Here is a Youtube video of Frank's speech. https://www.youtube.com/watch?v=iW5qKYfqALE