Frank: A Life in Politics from the Great Society to Same-Sex Marriage (40 page)

I was reminded again of the gap between historical reality and the Republican mythmaking on this subject when I gave a Washington read to Dick Cheney’s memoir while waiting to be interviewed at the
Huffington Post.
I turned to the one reference to me in the index and was bemused to realize that I had something in common with Iraqi weapons of mass destruction: Cheney had lied about what each of us was doing in 2003. In my case, it was his statement that

in 2003, the administration had put forward legislation, which was blocked by Barney Frank, Democratic chairman of the House Banking Committee, that would have reformed these institutions and strengthened governmental regulations of their activities. We put forward similar legislation again in 2005, and again it was blocked by Fannie Mae and Freddie Mac lobbyists and supporters, particularly in the Democratic caucus on Capitol Hill.

Finally, in July 2008, with the financial crisis looming, legislation that provided for regulation was passed, and it brought about a careful examination of Fannie’s and Freddie’s books.

I was opposed to that legislation in 2003, but the partisan motivation for this passage is to transfer blame for the defeat of the administration’s GSE legislation from the Republicans who were in the majority to those of us in the minority—entirely contrary to the way Republicans ran the House during their twelve-year reign. Most glaringly, I was not the chairman of the committee in 2003. Cheney’s fellow Republicans were in control that year—and for four years thereafter. I call this a lie because there is no possibility that Cheney had gotten confused about which party was running the House that year. There is no chance that while he was sitting behind the president during the State of the Union address, he mistook Dennis Hastert for Nancy Pelosi as his neighbor. No matter what my status, I had no opportunity to kill the bill because the Republicans who controlled the committee agenda never put it forward. If I had the power over the Republican agenda attributed to me, we would not have gone to war in Iraq, we would not have passed two very large tax cuts for the very wealthy, and DeLay would not have appeared on
Dancing with the Stars.

By 2004, I realized that I had been too optimistic about the GSEs. I was particularly concerned when Bush forced them to buy up more mortgages that had been taken out by people below the median income. I objected publicly that this further step to extend the economic boundaries of homeownership would be dangerous for the institutions and problematic for many of the newly empowered borrowers.

At that time, I told Michael Oxley, the Republican chair of the committee, that I was ready to work with him on a Fannie and Freddie bill he’d decided to introduce. The bill would increase the restraints on Fannie and Freddie, and expand the power of their regulator to impose rules necessary to protect their fiscal soundness. While I agreed with Oxley’s provisions, I had another high priority: the establishment of a trust fund to finance the construction, acquisition, and maintenance of housing for low-income people. The fund I had in mind would subsidize rental units, with the possibility that some small percentage of the money would support ownership. My preference would have been to put all the financing into rentals, but I recognized that I needed to make some accommodations to win Republican acceptance.

The idea of a permanent fund to support affordable rentals was brought to me by Sheila Crowley, director of the National Low Income Housing Coalition. Sheila is a passionate, creative advocate, and our decades-long collaboration is notable for two things: periodic angry shouting matches over strategy and tactics, and valuable public policy outcomes for the poorest of our fellow citizens. The housing trust fund we had in mind would not be part of Fannie and Freddie except in one way—we proposed to designate a small part of their annual profits as the necessary revenue source. (It was a mark of my excessive optimism that I envisioned the two entities remaining profitable indefinitely into the future.) Since Fannie and Freddie effectively subsidized the financing costs for all home buyers, we believed it was entirely fair to put some of their revenue toward helping those too poor to own—the renters.

My preference for renting over owning was long-standing. Indeed, over thirty-two years, my work to promote rental units for people with limited incomes had taken more of my time and energy than any other issue, including LGBT rights. Throughout my career, I gave the highest priority to increasing the availability of
rental
housing for low-income people, frequently and explicitly arguing that “almost by definition, the large majority of poor people are going to need rental housing.” Lawrence Lindsey, the former director of George W. Bush’s National Economic Council, said this himself in
The Wall Street Journal
: “In fact, Rep. Barney Frank is the only politician I know who has argued that we needed tighter rules that intentionally produce fewer homeowners and more renters. Politicians usually believe that homeownership rates should—must—go ever higher.”

In my work with Fannie Mae and Freddie Mac, my constant focus was on increasing their financing of multifamily buildings for middle-and lower-middle-income residents. (To build multifamily units affordable for the poor, bigger subsidies were required than those provided by Fannie and Freddie’s regular operation, which is why I pushed for a separate low-income housing trust fund.) Indeed, it was in the course of this advocacy that I made a poorly worded statement that became the basis for the gross distortion of my legislative record by right-wing mythmakers.

At a hearing in 2003 on the regulation of Fannie and Freddie, I said that “I want to roll the dice a little bit more in this situation toward
subsidized
housing.” It is true that I was overly optimistic about Fannie and Freddie’s financial status at the time. That was because I thought we could protect their solvency by tougher regulation of subprime loans, and I did not foresee the coming collapse of home prices in general. But the dice roll I called for had nothing to do with homeownership.

It was not until the debate over who killed the economy broke out several years later that I realized that conservative critics of my “roll the dice” comment had skillfully taken advantage of a semantic confusion. They had the opportunity because those of us engaged in the details of housing policy were using phrases that had very specific meaning to us but were not sufficiently differentiated in the public dialogue. I used one of two adjectives that advocates employ interchangeably to refer to rental housing built by private entities with some public financial aid—“subsidized” or “affordable” housing. In our conversations, these efforts were always distinct from policies seeking to promote low-income homeownership, which was less obscurely referred to as exactly that—“low-income homeownership.”

In 2005, Oxley got the Committee on Financial Services to approve reining in Fannie and Freddie and establishing the housing trust fund with my support. There was significant opposition, however. Most of it came from a large minority of Oxley’s fellow Republicans, led by the free-market purists who thought his approach to the GSEs too weak. They wanted to restrict Fannie and Freddie’s activities more tightly, or even abolish them outright. Some of the opposition came from Democrats on the opposite ideological wing, who opposed any restrictions at all on the agencies.

Unfortunately, the balance of power shifted to my disadvantage after the bill passed the committee. The House leadership, with DeLay in the forefront, was much less willing to accommodate the trust fund than Oxley had been. Using the power of the House Rules Committee, they substantially weakened the fund. As a result, I voted against the bill on the final vote even as the leadership’s efforts persuaded enough of the conservatives to vote for it, and it passed comfortably. To Oxley’s frustration, the Bush administration did not then support his bill. It lobbied the Republican-controlled Senate Banking Committee to replace it with a much more restrictive version. The chambers could not agree, and one more Republican-controlled Congress adjourned without passing any version of GSE reform.

Oxley did make one last effort to revive the matter in 2006, his last year as chairman. He enlisted me to join him in a letter seeking to persuade his fellow Republicans in the Senate and the administration that agreement on a good reform bill was achievable. Bush refused. The stated reason for this response—a “one-finger salute” in Oxley’s phrase—was that nothing short of the administration’s precise bill would do any good.

*

When the Democratic majority took office in 2007, and I replaced Oxley as Financial Services chairman, I made our GSE legislation the first item on the committee’s agenda. I was eager to highlight the contrast between Democratic action and congressional Republicans’ paralysis on this tough issue—which they had been accusing us of evading. In his memoir, Bush’s secretary of the treasury, Hank Paulson, recounts our collaboration:

Fortunately, I had been forging relationships on both sides of the aisle. One was with longtime Democratic congressman Barney Frank of Massachusetts … [Barney’s] a pragmatic, disciplined, completely honorable politician: he never once violated a confidence of mine. Secure in his seat, he pushes for what he thinks is right. To get things done, he’s willing to deal, to take half a loaf.

Right from the start, he indicated that he was willing to work with me on GSE reform, hashing out the issues of portfolio limits and regulation … We didn’t get a bill passed in the lame-duck session, but Barney made good on his promise to honor the agreements we’d reached after the new Congress came in the following year. By the end of our negotiations in late May, we had pushed a far-from-perfect bill through the House.

Reflecting the accelerating deterioration of the housing market, our new bill was tougher than the House version of 2005 in its regulation of Fannie Mae and Freddie Mac. I also dropped the requirement that at least 10 percent of the low-income housing trust fund money go for homeownership and replaced it with a prohibition on more than 10 percent of the funds going for that purpose. In a new provision, 75 percent of the rental fund had to support housing that was affordable to extremely low-income families.

While neither the administration nor many of the committee Republicans were fond of these last provisions, their recognition of the need for reform outweighed any objections. Then we sent the bill to the Senate, which refused to act on it for more than a year.

With the reform of Fannie and Freddie no longer immediately pending, I turned the committee’s attention to the very serious problem of irresponsible subprime lending. We moved on two fronts. We summoned Federal Reserve officials and insisted that they finally invoke the authority they’d been given to regulate mortgages. Simultaneously, Brad Miller and Mel Watt conducted a series of meetings with interested parties to help revive their bill directly restraining subprime lending.

While Treasury Secretary Paulson was not focused on this part of the problem, we did have a strong Bush administration partner in the subprime reform field. Federal Deposit Insurance Corporation chair Sheila Bair was one of the happiest accidents I have encountered in the federal government. In 2004, Bush made it clear that he was appointing a woman to head that important agency—a relevant fact since few women had served as financial regulators. His choice was Diana Taylor, the highly respected superintendent of banks under Republican governor George Pataki in New York. But after submitting her name, Bush suddenly asked the Senate committee to return it before taking any action on her confirmation. No official explanation was given, but I learned from various sources the bizarre story behind Bush’s reversal.

Taylor is the partner of former mayor Michael Bloomberg, then and now one of America’s staunchest advocates of sensible restrictions on guns. When Taylor’s appointment was made known, the National Rifle Association complained to the White House that it was wrong for Bush to confer such a desirable benefit on someone so close to their number-one enemy, and the president caved in. This left the administration with a gap to be filled—they needed to find an experienced female Republican bank regulator. Given the sexism in the financial industry, there were not many available. Sheila Bair, who had worked on financial regulation under the first President Bush, was one, and she received the job. I do not know how strongly she was vetted, but it could not have been very thoroughly. She soon became one of the toughest, most socially conscious regulators I have worked with in thirty-two years, and I am dubious that the Bush people knew what—or who—they were getting when they named her. My guess is that she ranks with Justice David Souter on the list of high appointments by presidents named Bush who turned out to be much more liberal than expected.

We were hopeful that we could replicate the bipartisanship of our efforts on the GSE bill, especially because Spencer Bachus was now the Republican leader on the committee. But the opposition was both larger and fiercer than it had been before. For one thing, Bair was relatively isolated as a supporter of tough regulation in the Bush administration. Paulson was not opposed to us, but the issue was not on his very crowded radar screen. More important, the most conservative Republicans wanted to rein in or even abolish the GSEs, but they saw regulating subprimes as an affront to their basic ideology. We were committing the gravest sin in their economic worldview: We were interfering with the free market, telling willing lenders and willing borrowers that they could not make their deals.

An intellectual leader of the Republicans’ fundamentalist bloc, Scott Garrett of New Jersey, put it this way:

This increasing availability and affordability of subprime mortgage credit is and has been an important factor leading to the increase in homeownership in recent years. This bill may well limit now the products available to subprime borrowers, particularly minority borrowers, and will deprive many of those consumers from owning or maintaining a home … What we need to do is ensure that it does absolutely nothing to homeownership, particularly among minority communities who have benefited from the innovations that have occurred in the marketplace.