Tuesday, April 7, 2009
Financial Crisis Ombudsman: Accountability
Don't look at me.
Today this video is all over the internets. Its a Harvard student asking Barney Frank, current House Representative from Massachusetts and former Harvard graduate and professor, what responsibility he feels for the current economic crisis. Frank essentially mocks the student, claims conservative conspiracy and then humbly concedes that he does, in fact, regret writing a bill to regulate hedge funds but then not trying hard enough to get it passed. This last statement, of course, is the equivalent of being on a job interview and saying that your biggest fault is working too hard and caring too much about the company.
Lets take a step back. The basic role of government, at its very core, is to provide services for the people that the people could not readily provide for themselves, either individually or with non-governmental civic organization. These sorts of essential government services tend to be areas that are crucial to all citizens but require massive amounts of money, organization and/or oversight that ordinary citizens or groups of citizens could not take on by themselves. Examples include security (intelligence gathering, training, organization of large-scale military operations) and infrastructure (interstate highways, ports, air safety, energy, water). Also clearly falling into this category of basic goverment functions is financial oversight. While nearly all 300 million Americans have been effected by the fall out from the financial crisis, ordinary citizens for the most part would have no way of understanding the factors leading up to the crisis, let alone be able to take steps to remedy the problems.
It is for this reason that Americans entrust power and money to elected officials. Barney Frank was paid $169,000 and his staff was paid a total of $1.2 million in 2008, figures that are on-par with the other 435 members of the house. The understanding between elected officials and the people that elect them and pay their salaries is that they will look out for the people's interests particularly in the areas mentioned above, that are important but beyond the control of the constituents. In that sense, all elected officials have dropped the ball when it comes to the financial crisis.
But Barney Frank, in particular, had a special position that makes his tenure as an elected official even more negligent and his failure to take any responsibility even more disgraceful. Since 2003 Barney Frank has been on the House Financial Services Committee, and since 2007 has been the chairman of that committee. In its own words, "[t]he Committee oversees all components of the nation's housing and financial services sectors, including banking, insurance, real estate, public and assisted housing, and securities." This could be shortened to "the Committee is in charge of making sure a financial meltdown doesn't happen."
And yet Frank feels no responsibility. Some selected highlights of Frank's performance:
- In this 2003 hearing, Barney Frank concludes that Fannie Mae and Freddie Mac are sufficiently regulated because Fannie Mae and Freddie Mac say they are. Clearly exhausted from that rigorous line of questioning, Frank concludes that there is no impending financial crisis. (see page 110).
Mr. FRANK. Let me ask Mr. Gould and Mr. Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?
Mr. RAINES. No, sir.
Mr. FRANK. Mr. Gould?
Mr. GOULD. No, sir.
Mr. FRANK. And let me ask now the gentleman from the Federal Home Loan Bank, do you believe that the Federal Home Loan Bank System has been substantially under-regulated?
Mr. HEHMAN. No, sir.
Mr. FRANK. Mr. Schultz?
Mr. SCHULTZ. No, sir.
Mr. FRANK. Okay. Then I am not entirely sure why we are here, but we killed the afternoon anyway, so we might as well go forward.
I must say, I am inclined to agree with that. I don't see any financial crisis. You can always make things better, but I do think we should dispel the notion that we are here because there is something rotten that has gone on.
Incidentally, Franklin Raines was fired in 2004 for grossly overstating earnings and, along with two others, charged with 101 civil counts related to the manipulation in 2006.
- In this 2004 hearing on the safety of Fannie Mae and Freddie Mac, Frank insists that serious issues with their financial statements and internal controls don't effect their safety and soundness, since they won't go immediately insolvent. (see pages 108-110).
Mr. FALCON. Just the very fact that we have serious doubts about the accuracy of the financial statements and their books and records, the very fact that we have identified very serious internal controls——
Mr. FRANK. Well, let me ask a question.....Does any accuracy threaten the safety and soundness? That is what bothers me. There is a quality and a quantity issue here.......To throw ''safety and soundness'' around in that thing I think really is, for a regulator, irresponsible.
Mr. FALCON. Well, I think internal controls are a very serious safety and soundness concern. A breakdown or a lack of internal controls——
Mr. FRANK. Do you think the safety and soundness is at risk right now?
Mr. FALCON. Are they at risk of becoming insolvent right now? No. We have an agreement with the board in place that will address these problems, provide an adequate capital cushion. We think we——
Mr. FRANK. That is the answer. The rest is just rhetoric.
Fannie Mae and Freddie Mac, after losing $14.9 billion and facing potential insolvency, were placed under government control in 2008.
- In 2005 and 2006, Frank sponsored 34 bills. Only 2 had anything to do with subjects related to the current financial crisis (H.R. 4291 and H.R. 5712) and neither became law. Frank did find time to pass House Resolution 86, a congratulations to the New England Patriots for winning the Super Bowl.
- In 2007 and 2008, while the economy fell apart and millions lost their jobs, Frank, now chairman of the Financial Services Committee, sponsored 70 bills, 6 having to do with relevant economic issues, (HR. 1257, HR 3526, HR3838, HR 1427, HR 7321 and HR 3915). None of the six became law, but 4 did at least pass the House. Meanwhile, his Financial Services Committee saw 521 bills and 109 were passed by the house. Of those 109, maybe 4 (HR 698, HR 890, HR 5140 and HR 6312) in addition to Frank's 4 (mentioned above) were on topics at all pertinent to the financial meltdown. Other than H.R. 5140 - the 2008 Economic Stimulus (not written by Frank or anyone in the Financial Services Committee), none became law.
While the Finacial Services Committee, under Frank's guidance, could not seem to pass anything that would have saved the people of this country from economic catastrophe, they were a tour de force when it came to minting coins. TWO would like to commend the House Financial Services Committee for being instrumental in minting coins to commemorate the centennial of Mothers Day, the contributions of Indian tribes, the 50th anniversary of NASA, the contributions of singer Eddie Money, the founding of the US Army in 1775, the bicentennial of the Star Spangled Banner, the semicentennial of the Civil Rights Act, the Boy Scouts and the legacy of the US Infantry. I made up the one about Eddie Money, but he probably deserves one too.
- And now its 2009. Barney Frank and other elected officials - Republican and Democrat - are trying to cover themselves. They are pointing fingers, talking about committees they're on, how they attended important hearings and sponsored important bills.
But nothing can undo the fact that an economic disaster occurred and all we got from the Financial Services Committee were commemorative coins. And its not an accident. Voting on commemorative coins is easy. It requires no difficult due diligence. It doesn't entail understanding complex concepts, upsetting powerful institutions or risking campaign funding. And, most importantly, if the people aren't calling for it, why risk getting involved in anything that could upset the chances of reelection?
And therein lies the disconnect. The people weren't calling for oversight on banks, credit derivatives, government sponsored entities etc from 2003 - 2007 because most of them didn't realize there was a problem. Most people are working 9-5, taking their kids to school, paying bills and living their lives. They don't have the time or the means to investigate, understand or have an impact on these issues. They pay their taxes with the understanding that elected officials and their staffs will be the ones spending time asking the serious questions, doing unglamorous and painstaking research and fighting to pass bills that matter.
This is not a partisan issue. Blame lies on the Bush Administration, the Fed (particularly Allen Greenspan) and members in both houses of Congress in addition to obvious culpability (at least for recklessness) on the part of many financial institutions.
But I find it particularly disheartening, and, indeed, insulting, when an elected official specifically charged with financial oversight not only does not do his job, but, upon challenge from a constituent, has the audacity to mock and deride the questioner while at the same time accepting no accountability for his failures - as if the financial crisis were some independent, unforeseeable act of God.
In conclusion, this is further evidence that we'd be better off governed "by the first 2000 names in the Boston telephone book than by the faculty at Harvard."