Mark H. noted this earlier, but this stuff about Barney Frank and OneUnited really deserves more attention. From the Wall Street Journal’s coverage:
The bank that Rep. Frank of Massachusetts went to bat for, OneUnited, saw its capital level sink in early September after the U.S. took control of the overextended mortgage giants Fannie Mae and Freddie Mac. OneUnited, a closely held Boston-based lender with offices in Florida and California too, held large amounts of Fannie Mae preferred shares. Their value plunged after the U.S. put Fannie and Freddie into a federal conservatorship, acquired preferred shares in them and took warrants entitling the government to nearly 80% of their common stock.
The moves left OneUnited’s capital badly depleted. A measure called “Tier 1 risk-based capital” equaled only 1.88% of assets at the bank, versus a desired level of about 6%. A OneUnited lawyer, Robert Cooper, says he called Rep. Frank and Rep. Maxine Waters of California, both Democrats, to complain that the Treasury’s move had hurt the bank.
Rep. Waters heads the House Financial Services subcommittee on housing, and until last spring her husband, Sidney Williams, was a OneUnited director. Rep. Frank, besides heading the Financial Services Committee, has longstanding ties to OneUnited, and recalls having had a deposit account at a predecessor bank in the 1960s.
Later that month, Rep. Frank was intimately involved in crafting the legislation that created the $700 billion financial-system rescue plan. Mr. Frank says that in order to protect OneUnited bank, he inserted into the bill a provision to give special consideration to banks that had less than $1 billion of assets, had been well-capitalized as of June 30, served low- and moderate-income areas, and had taken a capital hit in the federal seizure of Fannie Mae and Freddie Mac.
“I did feel that it was important to frankly try and save them since it was federal action that put them into the dumper,” Mr. Frank says.
Technically, that’s true, but not in the sense that Frank means. Certainly it would have been worse for OneUnited if the federal government had allowed Fannie and Freddie to fail. In that case, the value of OneUnited’s Fannie and Freddie preferred shares would have plunged to zero. So if by “federal action,” Frank means the action the government took to save Fannie and Freddie, then no, federal action did not put OneUnited into the dumper.
It is true, however, that pressure on Fannie and Freddie to meet certain “affordable housing” goals — pressure applied by lawmakers like Frank — combined with Fannie and Freddie’s heedless pursuit of market share — enabled by the federal government’s implicit guarantee of Fannie and Freddie’s debt — led Fannie and Freddie neck-deep into the easy-credit fiasco that destroyed them. So, if that’s what Frank meant when he said that “federal action” put OneUnited in the dumper, he’s right, and the proper thing for him to do is step down from the House Financial Services Committee, because he’s done enough damage already.