The proceedings of the congressional conference committee on financial regulation are being broadcast on C-SPAN, as Rep. Barney Frank promised, while all the important deals are being conducted in backrooms with no input from Republicans, as I reported would be the case. But it would be a mistake to assume that Republicans can’t accomplish anything at the proceedings simply because they’ve been cut out of the negotiations: GOP lawmakers are playing to the camera, using the opportunity to draw attention to the Democrats’ complicity in the Fannie Mae/Freddie Mac disaster and their refusal to do anything about the government-sponsored housing agencies, which continue to hemorrhage money at taxpayers’ expense.
The Republicans have repeatedly attempted to offer amendments to shut down, privatize, and spin off Fannie and Freddie, or, failing that, at least to include the full cost of their bailouts in the federal budget. Frank, who is presiding over the committee, has repeatedly ruled that these amendments are not germane to the underlying overhaul of the nation’s financial-regulatory system — not germane, that is, to a bill designed to address the causes of the financial crisis and prevent another, similar one from striking. Fannie and Freddie indisputably contributed to the severity and the scope of the crisis, thanks to people like Frank, who relentlessly pushed them to focus more on “affordable housing.”
Frank, however, has been engaged in an attempt to rewrite his role in the financial meltdown — it’s never good for a Democrat when such a bastion of liberal conventional wisdom as Vanity Fair is listing you in its “100 to Blame” for the crisis. Over the past week, as Republicans have pushed the issue in conference, Frank has become increasingly annoyed — and increasingly bold in his historical revisions. On Tuesday, Rep. Jeb Hensarling (R., Tex.) called him on it.
“Now I think I have heard the chairman say that in 2004 he switched his position on the government-sponsored enterprises,” Hensarling said. “I have in my possession a letter dated June 28, addressed to then-president George W. Bush, where the chairman is the first signatory.”
Hensarling proceeded to read portions of the letter, an excerpt from which goes as follows:
We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing. Until recently, we have been disappointed that the Administration has not been more supportive of our efforts to press the GSEs to do more. We have been concerned that the Administration’s legislative proposal regarding the GSEs would weaken affordable housing performance by the GSEs, by emphasizing only safety and soundness.
“Now this is in the public record,” Hensarling said. “I certainly don’t have all of the gentleman’s correspondence from the public record, so I don’t know when in 2004 the chairman changed his position.”
At this point, Frank interrupted and insisted, “There is a nuance!” He emphasized that, in 2004, he “spoke out against homeownership . . . and ownership by people who are inappropriate, who were not financially ready. When I talk about affordable housing I meant, and I understand it wasn’t clear to everybody, rental housing,” he said.
Hensarling shot back: “I also point out I have a floor statement from the chairman dated June 27th, 2005: ‘So those of us on our committee in particular will continue to push for homeownership.’ So I am somewhat confused.”
Frank, growing increasingly flustered, responded, “If that was on homeownership day, I also expressed some concern about it being appropriate. Yes, homeownership is a good thing, but not for people who are inappropriate. So I think that is a partial quote the gentleman just gave.”
Partial quote? Unfortunately for Frank, the context — provided by the aforementioned Vanity Fair article — is even more damning:
This is a very important resolution, particularly at this time, because we have, I think, an excessive degree of concern right now about homeownership 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, where substantial excessive inflation of prices later caused some problems, we are talking here about an entity, homeownership, homes, where there is not the degree of leverage that we have seen elsewhere. This is not the dot-com situation. We had problems with people having invested in business plans for which there was no reality and people building fiber-optic cable for which there was no need. Homes that are occupied may see an ebb and flow in the price at a certain percentage level, but you will not 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 homeownership
To be fair to Frank, he also said in that speech that “There will be people . . . who, for their economic circumstances, will not be able to own. And there is no conflict between promoting homeownership and recognizing that decent, affordable rental housing will also be very important indefinitely for tens and tens of millions of Americans.” This is probably the line to which he was referring in his response to Hensarling.
But this line does not provide the cover that Frank wants us to think it does, because he followed it by saying:
There are also a variety of advocacy groups that work with us so that we can make homeownership available to people who might not on their own in a market situation be able to afford it, while those groups, of course, at the same time, work with us on the need for affordable housing. So as an example of what we are trying to do for an overall comprehensive housing policy, I very much support this.
Frank is referring to down-payment assistance, in which groups such as ACORN provided low-income people with cash grants to make down-payments on home loans. Frank’s support for this practice puts the lie to his claim that he had any concerns at all about homeownership being “inappropriate” for those who were “not financially ready.” Down payments are intended to insure that a homeowner has a stake in his home and thus an incentive not to walk away from his debt, and also to establish his creditworthiness. The practice of down-payment assistance subverts these aims — it was banned in the wake of the financial crisis.
Watching Frank scramble as he tries to rewrite history has made for entertaining television (you can watch his exchange with Hensarling here), but the sad fact of the matter is that his real job is to rewrite the rules that govern the nation’s financial system. The framework that he and his fellow Democrats have drawn up has no long-term plan for dealing with Fannie and Freddie, and the short-term plan — throw a trillion dollars at them so they can implement the administration’s unrealistic housing agenda — is a horrifying mess. The GOP has done its damnedest to embarrass Frank into holding a vote on its Fannie and Freddie amendments. Somehow, Frank has convinced himself he has nothing to be ashamed of.
— Stephen Spruiell is an NRO staff reporter.